Low bid fees challenge consulting profession

Low bid fees challenge consulting profession

An industry full of talent and promise constrained by lowprofitability

By Don Ingram, P.Eng., President, Consulting Engineers of Ontario

As we approach a new millennium, it is clear that the market vision for Canada’s consulting engineers is the best that our industry has experienced in this decade. Our firms are busy. Many have diversified into exciting new ventures. Finally, government seems to be paying some attention to our concerns over infrastructure renewal in Canada. Although enrollment in many construction-related disciplines has declined, we are starting to hire new graduates again, bringing a much-needed new generation into our firms. We will encounter stiff competition in the hiring markets, because students find internet marketing and robotic controls much sexier than reinforced concrete design, but it sure is great to be back in the game.

This last decade of the 90s has seen incredible change in our industry. Technical advances have continued at an exponential rate. Recently, with many of our colleagues, I attended the Canadian Consulting Engineering awards dinner in Toronto. My emotions traversed a spectrum from excitement, to amazement, to pride as the broad accomplishments and technical excellence of the entrants were presented.

Outsourcing by governments at all levels has created new opportunities and new responsibilities for consulting engineers. Privatization of selected public works assets to relieve government debt has now started in Ontario, with the sale this year of Highway 407. Globalization is an accepted fact in the engineering world. Foreign companies are showing much greater interest in Canadian markets, particularly in possible privatization projects, but Canadian companies are also competing very successfully in offshore markets, achieving successes that greatly exceed our relative size.

The future of our industry looks promising, but one major concern continues to threaten that future. We are simply not generating returns for our shareholders, in many cases employees of the industry, that will ensure the long term sustainability of our businesses, through training of our employees,research on new technologies and financial re-investment. We price our services at levels that are well below other professions. Our governing body,Professional Engineers Ontario, publishes as a guide, a Schedule of Fees for Engineering Services. Many of our member companies feel compelled, in a competitive marketplace, to set fees that are well below those rates.

If we don’t provide adequate returns for our shareholders, we will not be able to grow and develop our companies and keep up with increasing quality standards demanded by our clients and ourselves. We will not be able to attract the top graduates from our colleges and universities. We know that our Human Resources practices fall short of other industries. We are experiencing a “brain drain” not only to the United States, but also to other, more financially successful sectors. Many of the leaders in our industry are nearing retirement age. Will we be able to replace them?

Why are we facing this dilemma? We are an industry full of talent and promise, in a booming economy, yet constrained by low profitability. Too often we choose to blame our clients for this situation because many have adopted price-dominated selection processes, models that reward a bidder for offering the lowest price and ignore qualifications, experience, quality etc. Associations such as Consulting Engineers of Ontario (CEO) and the Association of Consulting Engineers of Canada strive to change this approach because we truly believe that the client receives the highest value through Qualifications Based Selection (QBS). In the past year, to promote that position, CEO has published two important documents:

• Guidelines for Establishing Quality Assurance Systems in Consulting Engineering Firms.
• Guidelines for the Selection of Consulting Engineers.

However, strongly we may believe in and support QBS, I would like to suggest that now is the time for the members of our industry to look in their collective mirrors and reflect on a truism: that we are primarily responsible for the state of our industry. “I have seen the enemy, and the enemy is us!”

From my vantage point, “low-balling” of prices on proposals is flagrant. I see the results of too many proposals where the low price is 25% or more below the next lowest price; where the low price is less than half of the median price; where the low price is much below what the client expected to pay. Estimating mistakes do occur. There are situations where the scope is ambiguous or simply vague and the engineer, because of time pressures, must guess the true intent of the client. But the frequency of low pricing can only be explained by firms setting their targets low enough to ensure that they get the job. The problem is not created by a few low cost service providers. It is caused by many firms who are willing to price at marginal levels to win the job.

In this respect, it is time for our industry to start acting like the professionals that we are. We owe the highest possible value of service to our clients, as well as a fair return to the shareholders in our companies. Now is the time to decide if we can develop a solution for this problem and for each of us to decide if we are going to be part of that solution. For example:

• Does your firm have a stated pricing policy, known by all the professionals with fee-setting responsibilities, that demands a fair return for the value that you provide to the client?
• Are you willing to walk away from an assignment that requires that you sacrifice quality in order to meet the fee expectations of a client?
• Do you look at the quality of your clients, avoiding those that want to purchase your services on the basis of lowest fee?
• Are the senior partners in your firm personally involved in pricing decisions?
• Would the practices of your firm contribute to an industry solution?

Our consulting engineering firms are envied throughout the world for their talented people and leading edge skills. Let’s start to manage our businesses with the same degree of professional judgment that we apply to our technical services. This must include a level of return that ensures the sustainability of a worthy profession.