How do Capture and Proposal Consultants Charge for Their Services?
If you have limited experience hiring proposal consultants, and wonder how they charge for their services as they help you develop your winning proposal or are curious if there are better ways to negotiate and work with consultants, read on.
Some proposal consultants charge on an hourly basis. The majority of capture and proposal consultants charge on a strictly hourly basis. This means that if they work only one hour in a day, they will charge you for only that hour. If, on the other hand, they work a 14-hour day, they will get paid for all 14 hours, unlike exempt company employees who get paid for 8 hours each day no matter how long they work. A lot of consultants in this profession prefer to work this way because they come from a company environment where they are used to working 80-hour weeks and being paid for 40 hours.
Capture and proposal consultants that charge flat rates. Other capture and proposal consultants will establish a flat daily rate usually based on the cost of 8, or more commonly, 10 hours of their work. This is what you will pay them no matter how few or how many hours they put in. It is wise for you to set boundaries on the minimum number of hours worked. For example, you may set a minimum of hours worked at 6 hours to count a full day, so that you do not end up paying a full day’s fee for half a day’s work. If the consultant has that flat fee rate for the day, it is also advantageous for you to introduce increments of the day. You can negotiate that they split that day in half if they worked under 6 hours, or even charge you for a quarter day if they worked under 2 hours.
Some long-term consultants will agree to a weekly maximum of hours that they can charge, and will stick to that maximum regardless of the workload. For example, they may agree not to exceed 70 hours per week, even though they do not have a flat daily rate. This helps you control proposal budget, but some consultants, if the task requires 14-hour days with no weekends (since you have greatly understaffed your effort) may not agree to this approach.
Success fee for winning proposals. Then, there is success fee compensation. This approach can work two ways.
- One way, which is ideal for an emerging business that has limited money, is to get a consultant to agree to work for free. In this approach, the consultant bears all the risk. If the contract is won, the consultant gets a substantial success fee. If the contract is lost, the consultant gets nothing. This type of compensation is a business owner’s dream. There are entirely too many variables in this approach that a consultant cannot directly affect, especially if they are not involved in months and moths of necessary pre-proposal positioning called capture.The consultant also bears the risk of not seeing the money until the award. Even corporations now take their sweet time to make decisions, but the situation is worse with government contracts. Some government agencies may take months or years to make an award decision, and this decision may be protested to boot, causing a recompete. Just think back to or look up Northrop Grumman’s aerial tanker award and the recent downselect protest of the TSA ITIP contract, and you will know what I mean.Another risk the consultant bears is that the management of the company, once the contract is won, may find a way not to pay them because the people who made the commitments have been replaced by others, or legal agreements put in place are hard to enforce. The consultants expected profit may be also reduced because the customer may cut down the scope of work, thus lowering the total amount of the award, or break the contract into option years, where the next option award is not guaranteed. There are also aspects of the success fee for winning government contracts that are prohibited by the Federal Acquisition Regulations (FAR).These days, no one ever hears of proposal consultants who will agree to work for a success fee. I often get approached by entrepreneurs suggesting that we work this way, and I just explain to them exactly what the risks are for me. Once they understand, they realize that there is no way to structure a win-win relationship using this approach.
- Another way to do success fees is to put in place a blended approach, similar to the way lobbyists are paid. This way, a consultant is paid a discounted hourly, daily, or weekly rate for the hours. Then, when the project gets awarded, the consultant gets a success fee that is substantially larger than what he or she would have gotten by charging their full rate. It is less expensive for the business upfront, and it is less risk for the consultant. There are some people in the proposal industry that will agree to work this way.
Fixed fee for proposal work. Some businesses look to negotiate a fixed fee for the proposal effort. Just like in all fixed fee contracts, the key for the consultant is estimating accurately and building in enough margin for contingencies. Businesses are unwilling to include a contingency margin, because this approach is meant to save them money in the first place. For a consultant, this is a risky proposition, especially in government proposals, where deadlines get extended all the time, and requirements get modified in the middle of a proposal preparation process. I have not heard of any consultants who work on a fixed fee basis, although a lot of businesses tend to think of it as a viable option.
Package pricing for proposals. One variable of a fixed fee approach is package pricing, which could be structured in a way that takes into consideration both budgetary and risk issues, and tends to put a cap on certain charges that may get out of hand. Some proposal houses offer this option when they have a lot of established processes and templates meant to streamline many time-consuming tasks, have salaried staff, and are able to accurately estimate the effort and renegotiate if deadlines get extended.
Other pricing models. There are also specific business models that some proposal houses use to get paid that may involve teaming with the company not only for capture and proposal work, but also for project execution if the proposal is won. There is also a retainer fee approach which works much better for capture, rather than proposal work.
Each method of paying consultants has its advantages and disadvantages and associated management techniques that I will discuss in the later posts.
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