Highways England recently revealed that it spent the best part of £100 million with consultants in 2017.
The organisation responded to a Freedom of Information request by publishing details of all contracts let last year through its Specialist Professional and Technical Services framework.
The client body paid out £26.3m to Arup alone, and £18.1m to TRL.
Highways England is far from alone when it comes to spending with consultancies. Network Rail, for example, shelled out more than £700m on professional services in 2016/17.
These figures may seem high but they must be seen in the context of the spending profiles of the organisations. Network Rail has set out plans to invest up to £47bn in the five years to 2024, while Highways England has talked in terms of an aspiration to invest £30bn over a similar timeframe.
Getting the right expertise and experience into key roles on big capital projects can be the difference between smooth delivery and expensive disaster so there is a clear business case for investment. However, there is always a critical judgement to be made by any client when weighing up whether to hire for a senior role directly or turn to consultants.
Here’s a look at the advantages of each option.
Benefits of using consultants:
1. Flexibility –
Assuming you negotiate a flexible contract with a consultancy, if you don’t need their people then you can send them back. This is a huge advantage when there are delays or changes on a big project. There are also financial and reputational benefits to not making rafts of employees redundant when jobs on the project reach their natural end.
2. Speed –
If something changes quickly and you suddenly need 40 extra people then a consultancy may have a number of people they can second in at short notice. You may have worked with them before or just trust the supplier and know they are of the right calibre. This can be a much quicker way of staffing up the project org chart than a full recruitment process.
3. Access to skills –
This is a major consideration, especially for public sector clients. Using consultancies can give them access to skills that they could not otherwise acquire because of their often stifling pay grades. If a public body has a budget of £110k per year for a project director, but the best in the industry are on £180k, it needs to get them from a consultancy to get around its governance constraints. This can be particularly useful when hiring people earning more than the Prime Minister, which often requires additional layers of sign-offs from government.
Advantages of employing staff directly:
1. Accountability & ownership –
It’s a major plus for a client body if the people making big decisions on its behalf are invested in the long-term success of the project, and that generally happens when they are directly employed. Not all clients are comfortable with someone else’s staff making decisions with their money. Will that person be somewhere else in the world in a year’s time when the impact of the decision becomes clear?
2. Learning and development –
If you have 100 people working on a project gaining valuable experience then going off to work on another scheme for their consultancy, they are taking skills and lessons with them.
It’s more than likely that in the future similar projects may be on the cards and you are at a significant advantage if your own staff have learned and developed from past experiences.
Even within the lifetime of your existing scheme, you have more control over who you have in key roles if you directly employ. Consultants could move someone off your project on to another job at any time.
3. Cost –
Hiring directly is cheaper than using a third party. As well as the talented staff they’re providing, consultancies have costs such as offices, support functions and other overheads – and they want to make a profit. They often charge out their people to clients at up to three times their salary. So someone on £180k could be costing a client £500k.
It is clear that there are a range of considerations before deciding whether to hire directly or use a consultancy for senior roles on major infrastructure projects.
The decision often comes down to the certainty of an ongoing need for an individual. This certainty equates to the longevity of a project, the likelihood of it proceeding to schedule (due to funding, politics and planning) and the future pipeline of projects for which the company may require similar skills.
As a rule of thumb, after weighing everything up, the more certainty you have of the pipeline of work, the more sense it makes to hire in-house, to retain the skills and control, and avoid the high additional costs of using consultancies.
Of course, every project client is different and they all strike their own balance over recruitment. At one extreme is the Tideway model, employs very few people directly and relies heavily on their delivery partner CH2M. This is a thin client.
With a thin client, the hands-on management of designers and contractors delivering the project is often done by a consultancy acting as a delivery partner.
Compare that with Network Rail Infrastructure Projects, which had more than 4,000 permanent members of staff in 2016/17. The rail infrastructure operator clearly has a lot more in-house expertise and is the other end of the spectrum to Thames Tideway. The people who manage capital projects are predominantly Network Rail staff.
Others lie somewhere in the middle. Crossrail started with some of its own staff as well as appointing programme partner Transcend, project delivery partner Bechtel and then design consultants.
In the end it integrated this into one project team with one structure made up of both direct employees and people seconded from Bechtel and Transcend on a range of short and longer term arrangements.
Clear thinking is needed to allow a client organisation to be set-up effectively and efficiently so it can best manage, and communicate with, its supply chain to achieve its project goals.
If you’ve decided to grow your expertise in-house and are on the hunt for senior executives, or if you’d just like some advice on the best options for your business, get in touch with us HERE to see how we can help.