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 email@example.com