The issue of discounting the professional fees of consulting engineers, driven by public sector and private sector clients alike, is plaguing the sustainability of the consulting engineering industry, says voluntary association Consulting Engineers South Africa (Cesa) CEO Chris Campbell.
“Would people bargain with a heart surgeon when they expect them to do the best quality work?” he questions. “Consulting engineers must factor in the safety of many more people when they do design work and manage the project execution process, without even mentioning trying to minimise the mining client’s total cost of ownership in the mining investment,” he asserts.
The procurement of professional services is being commoditised and that is not logical, he notes. “The mining industry needs to come back to the realisation that the consulting engineering industry is an industry based on knowledge and experience.”
Campbell warns that the quality of the service provided will be sacrificed in the event of a client asking for a discount. Consulting engineers provide expertise to industries, and being frugal on compensating for their professional services could have dire consequences for mining projects. If consulting engineers are paid too little, they cannot afford to spend time on optimisation, or anticipating problems and opportunities for saving the client money during construction or later operations and maintenance, he elucidates.
Campbell says the instances of discounted fees are increasing, because the advent of open tendering has created the expectation that anyone would be eligible for consideration, and unfortunately, in many evaluation systems, price seems to be the overall deciding factor as to who the work should be allocated to.
“Consulting engineers’ fees make up about 2% of the total value of the investment. If the professionals must reduce their fee, they don’t have enough time and cannot afford to put in the expertise that would be required to help the client efficiently spend the other 98% of the cost. “The client wants the company to deploy its best and most competent resources on the project, but it simply cannot afford to do that, otherwise it will go out of business.”
Moreover, the local consulting engineering industry could be severely compromised if such discounts are forced on consulting engineers, with the consequence that many may exit the industry and clients will have to “buy these services and expertise from international players at possibly ten times what it would have cost locally”, he adds.
Mining companies need to realise that the services of consulting engineers will save them money in the long run, Campbell urges. He notes that, for example, construction costs could be reduced, and the level of risk and maintenance the client could face could be limited, because the consulting engineer would be able to spend more time making the decisions impacting on these issues.
Campbell explains that the relationship between the consulting engineering sector and the mining companies as clients has, in the past, been one premised on a good understanding of the value of professional services.
“The consulting engineering industry hopes that it can look to the Chamber of Mines (CoM) to ensure that its members do not go down the path of forcing discounts on professional fees,” he says, stressing the need for the establishment of an industry-to-industry partnership, such as between CoM and Cesa for example.
Campbell believes that the issue is being fuelled by companies’ procurement departments being under pressure to save costs. Consequently, these departments make cost-related decisions in the wrong areas.
“There may be limited knowledge and appreciation of how to better drive their decisions around costs.” In the past, there used to be a “healthy match” between the technical practitioners and the procurement department, and they would drive these decisions together, he notes.
Campbell believes there should be a stronger partnership between procurement departments and technical practitioners, and that the private sector, along with the consulting industry must create a better understanding of how to better derive value for money in investing in infrastructure. These stakeholders should also review the overly strong focus on least cost, particularly in respect of professional services.
As mining companies obviously want to maximise their profits, they try to “hit every button” to minimise their costs, he points out.
“The fact that companies need to make profits cannot be argued, but they need to make sure that the right decisions are made regarding the areas where they are trying to manage their input costs and, as an industry, consulting engineers offer that service and that advice, and it should not be compromised,” Campbell concludes.