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Preparing proposals is a costly business — and not just for consultants

Cal Harrison of Winnipeg says the Request for Proposal process is wasting billions of Canadian taxpayers' money because collectively firms are often expending more than the cost of the projects themselves.


Cal Harrison of Winnipeg is arguing that the Request for Proposal process is wasting billions of Canadian taxpayers’ money.

Harrison is a Certified Management Consultant, international conference speaker, university lecturer and author of two books on selling and buying professional services.

Harrison argues that in many cases the cumulative costs that firms incur in writing proposals when bidding against each other are actually greater than the value of the project they are bidding on.

“Here’s an example,” he writes in a promotion for his latest book: “Recently 38 architecture firms were forced to spend approximately $20,000 each (mostly spent doing detailed pricing) to each write a proposal to try and win a project that would pay one winner $50,000 in fees. That meant that in total, those 38 firms spent $760,000 writing proposals so that one firm could win a $50,000 project. And over time that $760,000 is going to be billed right back to the tax payer or end user.”

Harrison adds that it’s common for architects and engineers to win about one in four projects that they write proposals for. “What that means is that the one project that they win has to cover the proposal writing expenses for the three projects they lose.”

Harrison estimates that the inefficiency of the RFP system is costing the Canadian economy $5 billion each year.

“Pricing a complex project can take weeks for an architect, engineer or management consultant to figure out. Why have 30 or 40 firms do all that work when it makes much more sense to pick the one firm that you identify as most qualified to do the work and then negotiate a price with just them? The selection will be quicker, less costly, and research from the American Public Works Association indicates the final price will be three times more accurate meaning fewer unexpected cost overruns especially in construction related projects,” he adds.

“Whenever you see a large construction project going way over budget it’s likely that they did not use Qualifications Based Selection to select the vendors,” says Harrison.

He points out that the U.S. federal government introduced the Brooks Act in 1972 that mandates that architecture or engineering firms cannot be hired based on price. He wonders why Canada is still 43 years behind our neighbours to the south.

“Even a small professional services firm can be forced to spend hundreds of thousands of dollars each year writing proposals — so reducing that burden even just 10 or 20 per cent could be a big thing for our economy,” Harrison says. “Imagine what our roads and communities would look like if we could take all $5 billion dollars and shift them from writing proposals that end up in the shredder to doing things that actually add value to our communities – like investing in jobs, new research, selling into new geographic markets or reducing the cost of government?”

He writes: “Although the public believes that low bid competitions for government (and other) contracts will result in low costs and ultimately low taxes, research confirms that buying on lowest price usually costs more in the long run. Price is the worst way to select a professional services provider.”

To watch a short video of Harrison arguing for “RFP Reform,” click here.

To obtain a digital copy of Harrison’s book, Buying Professional Services: Replacing the Price-Based Request for Proposal with Qualifications-Based Selection, e-mail cal@beyondreferrals.com


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7 Comments » for Preparing proposals is a costly business — and not just for consultants
  1. Mathew Ma says:

    Perfectly said….although the actual figure may not be as high as stated, it definitely is a burden to our profession.
    Hope the industry will put some serious thought to this matter.

  2. Don McLaughlin says:

    Negotiated consultant fees are often done in the private sector and largely because private developers are astute business people. Not many public sector employees have the same level of negotiating experience. My experience with public sector employees is that very few want to put their name on a decision. It is much easier to have the decision made by some formula on a RFP. Lastly, not all public employees and all consultants are as honourable as people want to believe and negotiated contracts could lead to some corruption.

    • Cal Harrison says:

      Hi Don,
      Great comments and thank you for taking the time to make them.
      I do believe that a qualifications based selection (with a negotiated fee) is a better protection against fraud as qualifications are difficult to fake but low price is easy to fake.
      As an example a procurement person could whisper a price to a brother-in-law to submit and win a bid, but if the brother-in-law does not have the qualifications to do a project it is way more difficult and risky for an insider to help them win.
      In the end what the American Public Works Association has found in their study with the ACEC is that QBS processes are superior at protecting both the owners and the vendors. The report can be found at http://www.acec.ca/assets/pdf/advocacy_pdf/QBS_Study_APWA_Final.pdf

  3. John Roth says:

    It may seem tempting to refer to the “neighbours to the south”, but don’t kid yourself that QBS is some sort of panacea. Public agencies can (and do) come up with all sorts of work arounds to facilitate preferences – not the least of which is handing over the real decision-making power to fair-haired primes. For example, check out the emergence of IDIQ packaging in the US by all levels of gov’t over the past ten or so years.

    There is no easy answer. It involves people, with a myriad of different personal agendas and motivations.

  4. Geoff McDonell P.Eng says:

    A great deal of the problem also lies with many public sector RFP’s – written by non-construction/inexperienced purchasing folks who create conflicting requirements, vague and conflicting scopes of work, as well as onerous submission requirements using their standard policies for even small projects. Many times, the Proposal Submission requirements for a small $200,000.00 renovation versus a $5,000,000.00 acute care project are the same, so which one should I spend more time on? Especially when there are 50 pages of legal CYA and non-applicable contract requirements and two pages of actual scope of work descriptions.

  5. Mr. Harrison’s numbers are skewed. Best Practices for proposal development recommend completing a basic Go/NoGo evaluation of every RFP that catches your attention. That evaluation would include a preliminary estimate of fees. Based on Mr. Harrison’s example, no company in its right mind would spend $20,000 to prepare a proposal for a $50,000 fee project. At best, the project would warrant a letter proposal prepared for a cost < $2,000. Some RFPs require the detailed $20,000 proposal; at that point a diligent respondent might question whether the RFP is wired.
    Some municipal jurisdictions such as the City of Calgary already use the Qualifications Based Selection process, but they use it to only to directly solicit proposals from qualified companies rather than posting the RFP for anyone to respond. That simplifies the City’s evaluation process, but still costs a cumulative expense as Mr. Harrison suggests, though usually the fees for these projects are in the $500,000 and upwards range.
    In Alberta, B.C., and Saskatchewan, the interprovincial TILMA agreement requires that the public sector issue a competitive RFP if the fees for that project will exceed $75,000. This shackles both the public sector and service providers to the costly RFP process.

    • Cal Harrison says:

      Hi Bob,
      Thanks for your comments. I appreciate you taking the time to write them. There are a few things I should address.
      First, the numbers are not skewed. These are real industry numbers that were provided to me by a reputable architecture firm that for obvious reasons will remain anonymous. The numbers might be slightly more or slightly less but I believe they accurately communicate the scale of the inefficiency.
      Second, 38 firms (all currently in operations and in their right mind) did spend $20,000 (retail value – not their internal cost) writing proposals for $50,000 in fees and unfortunately I see this all the time in every professional services sector. As a “one-off” you are right it makes no sense, but one reason to invest in such an upside down equation is that if you ever want to do the $1,000,000 project for that client you better not turn your nose up at their $50,000 project. The lifelong value of a potential client, or a defensive stance on an existing client is always a part of a Go/No Go decision – very inefficient but unfortunately true.
      Third, you are wasting your time submitting a letter if a full blown priced out proposal is requested as you will be dismissed as non-compliant. If it was as easy as just doing what we want (and makes sense) instead of doing what the buyer demands organizations like ACEC would not be investing their time and dollars advocating for QBS.
      Fourth, I agree that many RFPs are wired but procurement fraud is a separate issue than inefficient buying processes. However since you mention procurement fraud, I do believe that selecting on qualifications (which are hard to fake) is better protection against fraud than selecting on low-price (which is easy to fake). I wish more buyers and governments would pick up on this.
      Fifth, I believe TILMA requires open and non-discriminatory access to procurements. I don’t believe it specifies the requirement of a price-based RFP. QBS processes would qualify as an open and non-discriminatory procurement.
      Thanks Bob. If you could direct me toward the industry best practices (document ?) for proposal development I would love to read more about that as I have not yet found one that I am satisfied with.

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