The Added Value of Good Consultants
I was recently asked to prepare and present a training course on procurement to a large developer in the Middle East and one of the topics I was keen to get across concerned the selection of consultants on construction projects.
As we know, the consultants have a major role in the successful outcome of a project. Design errors and omissions lead to delays and additional cost, inefficient contract administration leads to claims and disputes and poor supervision leads to quality and time issues. The point that I was keen to make was that the selection of consultants should be considered on quality rather than price, because poor selection will probably ultimately cost more than any savings on professional fees that may seem important during the procurement process.
In order to illustrate this, I asked the delegates to tell me what the average value of a project that the company was undertaking and the percentage that they budgeted for professional fees. They advised that the fees were around 10% of the total project cost. I then asked what they considered to be the price difference between the best and the worst consultants. They considered that a differential of 20% would be reasonable. Using their figures, I then calculated the differential on professional fees as a percentage of the project cost, which worked out to 2%.
If we consider the possible costs of variations, delays, claims, additional administration and the like it is fairly obvious that an apparent 2% saving by employing poor quality consultants could soon be overtaken by additional costs to the developer.
Looking at this from a perspective of claims, if the consultants’ actions result in claims and they are not dealt with properly by those same consultants, which is a situation that I often see, the matters will probably be elevated to disputes. At the recent FIDIC conference in Abu Dhabi, Nael Bunni advised that the cost of arbitration is between US$150,000 and 200,000 per day. It does not take much to calculate that the costs of arbitration would soon wipe out any perceived savings by selecting consultants on price alone.