It’s a Byer’s market

26 March 2010
Peter SmithOver the past week, many people have asked me: “Peter, I’ve been asked to prepare a category strategy for the procurement of (ex-)cabinet ministers. What are the key issues I should be considering?” So here are my thoughts on putting together an appropriate strategy. Price benchmarking I published a quick bit of price benchmarking the other day on my blog, and further research has indeed suggested that £3,000-£5,000 a day seems a little high given the difficulty of defining exactly what intellectual property is included in this type of purchase. So be firm in your price negotiations – but we don’t recommend the use of e-auctions for this category, partly because the level of provider IT capability is disturbingly low. Specifications and payment methodology Critically, you need to think hard about what type of payment methodology is most appropriate. Fixed fees seem more appropriate than time and materials, as long as you can define the output well. Use an output-based specification when you issue your tender to interested ex-cabinet ministers and ask them to bid a fixed fee against that. But “risk/reward” or payment-by-results contracts can be even better and are highly recommended. Risk/reward approach The type of services being purchased fit this model very well; and you can of course look at very different levels of reward based on the difficulty and impact of what you are asking your provider to achieve. So I would suggest a day rate of, say, no more than £500 a day plus an appropriate success fee. For instance: A food company wants a minor change to labelling regulations – success fee £5,000. Bank wants EU capital requirements regulations changed – £50,000. Military equipment firm wants the UK to declare war on Canada – £5 million. Market segmentation Of course, you need to segment the market carefully. It is no use expecting an former junior minister from Defra to be able to drive major changes or policy decisions at EU or global level. Whereas a former prime minister may cost a little more, they might offer value for money and be a sensible purchase, even if the cost is higher and the market more restricted.  But beware: some have a very high opinion of their own market worth. Contract and supplier management Finally, don’t forget contract and suppler relationship management. They may just be another supplier to you and your firm, but they are actually real, living, feeling human beings. No really, they are. Regular lunches at Shepherds – the lamb chops and house claret are terribly good – can help to seal the relationship. But don’t be afraid to take a strong line if the provider is not delivering. Define the deliverables and timescales carefully and hold them to account. After all, it’s your money.
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