Tuesday, July 17, 2012

Boilerplate Burns -- Why The Low Bidder May Not be the Right One

How do you choose your consultants? Your attorneys? Your accountants? Your other advisers? Price matters, doesn't it? In fact, if you are in the public sector, price is likely the single most important component in your buying decision.

Now put yourself on the other side of the equation. Suppose you are the potential vendor, be it consultant, attorney, accountant, or other adviser. You understand the importance of price in your potential client's buying decision. Therefore, you strive to make one of the lowest bids. Now that you have made that low bid and gotten the work, how are you ever going to make money on the assignment?

Frequently, the answer lies in the dreaded boilerplate. If your prefer, pull something off the shelf. For those of you who abhor consultant-speak, what I'm saying is that the consultant will re-use a document that was already used for another client. Or, worse yet, that consultant will provide you with the same solution that they or a colleague used for another client.

Why would they do this? It saves money. Suppose you have two possible ways to produce a presentation. In the first method, you think long and hard about your client and about your assignment and develop a document that is customized to your client. In the second method, you use one that you used six months ago and change a bullet point here or there to justify your assignment. Which do you think costs more?

Which delivers a better value to your client?

In most cases, I think that the customized solution is the winner from a value standpoint. No two sets of circumstances are the same. And, it's rare that a well-done assignment has cost anywhere near the value of what the vendor is consulting on.

I remember a scandal at one of the large consulting firms back in about 1994 or 1995. It broke when someone internally notified the Wall Street Journal that its consultants in a particular practice were delivering the same work product (with just minor modifications) to every client. It made front page news. If you were on the client side and you hired that firm because the price was right, do you think it was a wise buying decision?

How about the law firm that gave you the lowest bid on drafting plan documents? Don't you think that they have a template that they start from? Suppose what you need is a creative solution and that solution doesn't fit the template? Will the attorney advise you to stick with a solution that fits the template? Or, will they work with you despite their low bid?

Finally, I consider M&A due diligence. That's the process during which a company uses many of its internal resources and engages many outsiders as well at significant expense to ensure that there are no gotchas (at least none for which they are not reasonably compensated) in the company they are buying. How would you choose someone to help you with that process?

To help answer, consider a home buying decision. In some regards, that is like a corporate acquisition. You are negotiating a deal and you are hoping nothing is wrong. To assist you in ensuring that nothing is wrong, you probably engage a home inspector. In the process of deciding which inspector to use, you have some key questions that you want to ask each prospective home inspector.

While not quite a question, here is one that I personally like: "Tell me about deals that you have killed in your home inspection career."

Killing deals takes guts. It doesn't necessarily make either party happy. But, that person is much more likely worth their fee, even if they are not the low bidder.

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