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example, the World Bank recommends its borrowers to give a weight of 5–10 per cent to the consulting firm’s specific experience (background), 20–50 per cent to methodology, 30–60 per cent to key personnel proposed for the assignment, 0–10 per cent to transfer of knowledge and 0–10 per cent to participation of nationals.5 Thus, even a highly competent consulting firm stands little chance in a selection procedure if it does not propose consultants of the right calibre.
Some clients divide these criteria into subcriteria. However, excessively detailed lists of subcriteria are difficult to justify and use, and can transform a selection exercise from a matter of professional judgement into an exercise in basic arithmetic. Clients should be advised against this approach. This view is shared by the World Bank: “… the number of subcriteria should be kept to the essential. The Bank recommends against the use of exceedingly detailed lists of subcriteria that may render the evaluation a mechanical exercise more than a professional assessment of the proposals.”6
Negotiating the proposal
The client may be interested in using the consultant’s services, but may not be happy with some aspects of the proposal. For example, the client may feel that he or she can play a more active role than foreseen by the consultant and personally undertake various tasks not requiring costly external expertise; or the client may wish to suggest a different timetable. It is normal to review these and similar technical aspects of the proposal and to make changes if the consultant is able to modify his or her approach.
As regards fees, many consultants emphasize that their rates represent a fair charge for a high-quality professional service and hence are not negotiable. A minor provision for the negotiation of fee rates is sometimes made in countries where this is the customary way of doing business (see Chapter 30).
What is not included in the proposal
In parallel with drafting his proposal to the client, the consultant should prepare internal (confidential) notes on the client organization and ideas on the approach to take (box 7.5). These internal briefing notes are particularly important in a large consulting firm if different professionals are used for planning and for executing assignments, and if several units of the same consulting or multiservice professional firm may be in touch with the same client organization on various matters.
7.6The consulting contract
The entry phase of the consulting process can be regarded as successfully completed if the consultant and the client conclude a contract whereby they agree to work together on an assignment or project.7
Contracting practices regarded as normal and advisable depend on each country’s legal system and customary ways of doing business. New consultants should
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Box 7.5 Confidential information on the client organization
1.Names of managers met and information collected on them.
2.Comments on organizational relationships, management style, and cultural values and norms.
3.Attitudes of various people in the client organization to consultants and likely reactions to the assignment.
4.Best sources of internal information. Sources that cannot be trusted.
5.Additional comments and data on the problem for which the assignment is proposed.
6.Other problems identified, potential problems, or areas of further work not tackled in the proposed assignment and not discussed with the client.
7.Useful background information collected and not used in the proposal to the client.
8.Any other suggestions to the operating team that will execute the assignment.
seek legal advice on the form of contracting authorized by local legislation and preferred by business and government. In addition, they can get advice from the local consultants’association and from professional colleagues. Where alternative forms of contract are admitted, choosing one or more will be a matter of the consulting firm’s policy and judgement on what is most appropriate in dealing with particular clients. The form chosen must ensure that mutual commitments will be understood and respected, and misunderstanding avoided on either side.
In some countries the contracting practices in professional services are well defined and enough literature is available. In other countries this is not yet the case. Thus a consultant doing work abroad may have to compromise between what is customary in the home country and what the law and practice in the client’s country demand. However, contracting practices in consulting and other professional services are tending to become more and more standardized.
The three main forms of contracting are verbal agreement, a letter of agreement and a written contract. The aspects of consulting assignments that are normally dealt with in a contract are listed in box 7.6. These aspects do not necessarily represent sections of a standard contract since various arrangements are possible (for detailed comments see Appendix 4).
Verbal agreement
A verbal agreement is one given by the client orally either after having reviewed the consultant’s written proposal, or even without having reviewed a proposal. Verbal agreement was used extensively in the first decades of management consulting, but now the tendency is to use written contracts. Nevertheless, those who believe strongly in the power of the written word and legal texts might be surprised to find out that even nowadays a lot of consulting is undertaken on the basis of verbal agreements. Verbal agreement may suffice if the following conditions exist:
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Box 7.6 What to cover in a contract – checklist
1.Contracting parties (the consultant and the client)
2.Scope of the assignment (as discussed in sections 7.4 and 7.5: objectives, results, description of work, starting date, timetable, volume of work)
3.Work outputs, including reports (documentation and reports to be handed over to the client)
4.Consultant and client inputs (expert and staff time and other inputs)
5.Fees and expenses (fees to be billed, expenses reimbursed to the consultant)
6.Billing and payment procedure
7.Professional responsibilities (consultant’s standard of care, avoiding conflict of interest, and other aspects as appropriate – see section 6.2)
8.Representations (by the consultant)
9.Handling of confidential information
10.Protection of intellectual property and copyright in consultant’s work product
11.Liability (the consultant’s liability for damages caused to the client, limitation of liability – see section 6.5)
12.Use of subcontractors (by the consultant)
13.Termination or revision (when and how to be suggested by either party)
14.Dispute resolution (resolution of disputes in court or through an alternative mechanism such as arbitration)
15.Signatures and dates
–the consultant and the client are well versed in professional practice;
–they trust each other totally;
–they are familiar with each other’s terms of business (the client knows the terms applied by the consultant and the consultant knows what to expect from the client, e.g. if the client is able to make an advance payment, or can accept monthly billing, how long it takes to approve a payment, etc.);
–the assignment is not very big or complex (if this is the case, it may be difficult to manage the relationship on both sides without any formal document).
Verbal agreement is used more frequently in repeat business than with new
clients. If a verbal agreement is used, the consultant may produce a detailed record of what was agreed, for his or her own benefit and to make sure that other colleagues in the firm are fully and correctly informed. Sending an information copy to the client may be useful.
Letter of agreement
A letter of agreement (other terms used: letter of engagement, of appointment, of confirmation, of intent) is the prevailing way of contracting professional services in many countries. Having received the consultant’s proposal (proposal
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letter), the client sends him or her a letter of agreement, which may confirm that he or she accepts the proposal and the suggested terms, or set out new conditions which modify or supplement the consultant’s proposal. In the latter case, the consultant in turn replies as to whether or not he or she accepts these new conditions. Alternatively, all this can be negotiated orally and the final agreement put in a written form.
In some cases, the client may draft the letter describing the work required and the proposed terms of reference, while the consultant gives the written agreement.
In most jurisdictions, a letter of agreement is considered a form of written contract (see below), though it will generally be less formal and detailed than most written contracts.
Written contract
A written consulting contract duly signed by the parties involved may be required for various reasons. It may be imposed by law or by the client’s own regulations on the use of external services (this is the case in nearly all public organizations and international agencies, and many private businesses). It is often the best form to choose if the consultant and the client come from different business and legal environments and could misinterpret each other’s intentions and attitudes. It is advisable, although not always necessary, for large and complex assignments involving many different people on both the client’s and the consultant’s side.
It may be the client’s practice to use a standard form of contract. Most management consultants are quite flexible and will accept various forms of contract. However, they should not underestimate the need to consult their lawyer if a different form of contract is proposed to them by a client or if they do not fully understand the meaning of certain provisions. Provisions that may look familiar and are sometimes referred to as “boilerplate” may prove particularly onerous for the consultant (e.g. indemnification and dispute resolution clauses; see Appendix 4).
As a rule, the consultant will know in advance that he or she will have to sign a formal contract. He or she should obtain the standard form from the client, show it to a lawyer, and keep it in mind in preparing the proposals for the assignment. In this way, the consultant can formulate the proposals in such a way that they can be directly included in the body of the contract, or attached to it without making any substantial modifications.
A consulting firm should also have its own standard form of contract, to be used with clients who do not have a standard form of their own and expect the consultant to propose one.
Built-in flexibility
The purpose of contracting is to provide a clear orientation for joint work and to protect the interests of both parties. This implies a certain degree of imagination and flexibility.
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At any stage of the assignment, the nature and magnitude of the problem may change and other priorities may become more urgent. The consultant’s and the client’s capabilities and perceptions of what approach will be effective are also evolving. Obviously, a professional consultant will not insist on continuing with a job (as stipulated in a contract) if that job is no longer required and causes unnecessary expense to the client.
Whatever form of contract is used, it should contain provisions specifying how and in which conditions the consultant or the client can withdraw from the contract, or can suggest and make revisions. In some cases it may be better to contract only for one phase of the assignment and delay a decision on the work to follow until further information has been collected and examined.
Psychological contract
In an era in which more and more features of our lives are regulated and constrained by legislation, and formal contracts tend to be more and more common in professional sectors, it is useful to underline that the formal legal side of contracting is not the main one. We have explained why a well-drafted formal contract may be required. However, excellent consulting assignments are those where another type of “contract” exists, which is not codified in any document and is not easy to describe: a psychological contract, under which the consultant and the client cooperate in an atmosphere of trust and respect, believing that the approach taken by the other party is the best one to bring the assignment to a successful completion. Such a “contract” cannot be replaced by even the finest legal document.
1D. Maister: “How clients choose”, in Managing the professional service firm (New York, The Free Press, 1993), p. 112.
2Various terms are used: preliminary problem diagnosis, diagnostic study, management survey, diagnostic survey, consulting survey, diagnostic evaluation, business review, business diagnosis, pilot study, management audit, company appraisal, etc.
3Similar classifications, with empirical or recommended performance data, can be obtained from engineering consultants, sectoral research and information centres, suppliers of equipment, centres of interfirm comparison and other sources.
4A more detailed discussion of consultant selection, including various procedures, criteria and forms of contract used, can be found in M. Kubr: How to select and use consultants: A client’s guide, Management Development Series No. 31 (Geneva, ILO, 1993).
5World Bank: Guidelines: Selection and employment of consultants by World Bank borrowers
(see www.worldbank.org/html/opr/consult/contents.html), visited on 19 Mar. 2002.
6See www.worldbank.org/html/opr/consult/guidetxt/qcbs.html, visited on 19 Mar. 2002.
7See also Kubr, op. cit., Chapters 4 and 6; H. L. Shenson: The contract and fee-setting guide for consultants and professionals (New York, Wiley, 1990); and E. Bleach and L. Byars Swindling: The consultant’s legal guide (San Francisco, CA, Jossey-Bass/Pfeiffer, 1999).
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