April 2017

Getting value from your professional advisors

  • By Stephen Hancock FAusIMM(CP)

An examination of how consultants and the wider mining industry can ensure they are getting the most out of their partnerships

With many very competent technical personnel now out in the job market, it is important for professionals to consider the demands that consultants face in their job. This article provides a summary of the main themes and messages that arose out of the AusIMM Consultants’ Society seminar held in Brisbane in 2016.

Where do consultants come from?

Most longer-serving consultants are intrinsic products of industry experience. They subsequently depart from industry for a variety of reasons, mostly to gain greater technical autonomy by working within less constrained and more challenging environments.

Consultants are generally very fond of the areas of technology within which they practice, and they seek to enjoy the relationships with a wider network of workers who share and appreciate excellence and innovation in achieving technical solutions. They also expect to be reasonably well-rewarded in a timely manner for their work, specialist skills, time and the expenses that they incur, including allowances in their fees for necessary operational overheads.

Many highly qualified and bright young consultants are emerging who have gained experience working within either larger diversified or specialised niche market consultancies. In these situations, their experience has been gained on more diverse projects but under more rigorous supervision than is commonly available within the mining industry operatives of today.

In order to gain experience, many individuals seeking to be consultants need to take personal initiatives to expand their knowledge and experience. These choices frequently involve deliberate travel overseas to work or study with specifically skilled organisations, research bodies or regulatory authorities. The need for such initiatives reflects the lack of significant expertise available within industry and academic teaching programs in Australia.

What does industry want from consultants?

Industry seeks consultants for many roles, but especially for advice when roles and requirements arise where the mining operatives or project planners have no (or limited) in-house experience. Many variations on this theme exist, and may include the following:

  • confirmation or validation of proposals developed internally
  • avoidance of ‘groupthink’ decision-making
  • achieving technology transfer from experts to internal staff
  • enjoining external expertise and their professional indemnity insurers to spread technical responsibility away from the industry operator clients
  • meeting the requirements for independent expert oversight or reporting required within some regulatory regimes (eg resource and reserve statements, environmental impact and sustainability statements or mine plan reviews).

Clients want their consultants to communicate closely, but they need them to perform their role within both financial and time budgets and in accordance with the proposals that they agreed to in advance with their clients. This is where the potential for conflicts arise.

Consultants frequently experience time and cost overruns both as a consequence of in-house issues and due to clients varying the issues they need addressed, adding new issues or being late in providing necessary data or feedback, amongst other delays.

Clients should advise consultants in advance of the bases in their timing needs and should be advised quickly where matters arise to delay deliverables or generate cost overruns. Specific extension fee or time delay authorisations should be sought to cover these contingencies, both as simple business prudence and also as part of respecting the issues that these may entail for the client and their organisation.

As a consequence of past experience, mining industry players have developed knowledge of the consulting personnel that they prefer to work with. Thus, when inviting proposals, it is their ‘A team’ that they will prefer. These will be those consultants with whom they have developed a close understanding, respect and continuing working relationship.

What do consultants seek from industry?

Consultants wish to work in the longer term for industry on challenging and relevant projects that are technically and financially rewarding. They also seek to have relationships with their clients that are mutually respectful at a personal and group level and are ongoing.

These relationships are generally built by the consultants initially demonstrating their skills through technical publications, conference attendance and helpful word-of-mouth referrals from one client to another. These are the elements that are most important in marketing any consultant or consultant organisation to industry.

‘Cold call’ marketing without any particular target is mostly ineffective and is often resented as time wasting for industry personnel. Alternatively, marketing interactions that reflect an understanding about a client’s project or operational issues (or potential issues) are valued and can lead to longer-term and mutually beneficial relationships.

It is common for consulting briefs to involve requests for the submission of formal proposals. In some cases, especially from government agencies and tier-one miners, these are broadly advertised to any interested party. The preparation of such proposals often requires a great deal of work. This work has a very low chance of success unless there has been significant interaction with the client in advance, both about their attitudes to consultants and their specific requirements in respect to the proposal in question. Broadcast invitations without prior consultation should be politely declined, with the reasons for declining being clearly outlined.

Most consultants seek an equitable relationship from their clients that ensures that consultants and their staff are not being required to take on greater responsibilities than relate to their field of work and the implications of individual skill application in implementing actions. This also applies to being fairly treated in respect to staff retention. The industry needs to recognise that consulting staff should not be ‘poached’ without the employing consultant having the opportunity to negotiate an equitable basis for relinquishing valued staff. All staff within a consulting practice are valuable profit centres and carry with them a very substantial replacement cost within the consulting market.

Have consulting fees always been reasonable?

During the mining boom, many mining companies considered that consulting fees were excessive for the services provided. The dissatisfaction seems to have arisen because the ‘A team’ was not necessarily available, many projects failed to be achieved within the time and budget frameworks and consulting projects were sometimes not perceived to have provided value for money. These are very important issues.

The mining boom put considerable stresses on the industry and consultants. Specifically, staff shortages and consequent excessive workloads on individuals, plus unrealistic time frames for achieving quality outcomes, were rife and staff churn and poaching were also common.

However, while the mining industry’s economics are dictated by commodity prices, consultant fees are governed by competitive engagement and overhead costs. During the mining boom, the competitive environment was intense as mining companies paid high salaries, which consulting firms were obliged to match. Many groups previously only marginally interested in the mining industry began intensive marketing to get as much of the action as possible.

Simple comparisons of consulting staff costs measured against senior industry staff costs are not rational but, ironically, it is this comparison that inevitably dictates the salary levels that must be offered to consulting staff if they are to be retained as both industry and consulting staff are drawn from the same resource pool.

How should consultants be employed by industry?

Consultants are rarely engaged on anything other than a fee plus expenses basis. However, industry has indicated that consulting would be better awarded around lump sum fees because it markedly reduces the magnitude of management that needs to be applied. Indeed, such a basis for payment could be preferable for the consulting industry, but it simply transfers the need for the inevitable management of time and fee extension authorisations to both parties and especially on the subject of what constitutes an extension of the consultants’ brief.

The best form of consultancy engagement appears to be one based on mutual trust and regular communication, using a retainer paid to secure the availability of agreed staff at fixed rates against orders issued by the client from within specific budget provisions administered by the client. The client’s budget constraints should be understood in broad terms by the consultants so that specifically appropriate fee rates can be set that are acceptable to both parties within a simple form contract.

Many companies are currently in survival mode, at least until commodity prices rise. As a consequence, there is a serious reluctance to engage consulting support. When they do, consultants need to sell their fee rates and services differently, especially their travel costs.

These attitudes represent a serious impasse for the consulting industry, since without the skills that consultants supply, the probability of the industry avoiding serious issues over time will diminish. Without a supportive work flow, the availability of expertise within the consulting industry will be lost as specialised staff necessarily depart the industry. Worse still, the number of bright young people entering academic training for industry employment will decrease yet again.

The best future arrangements for industry could be to adopt a retainer payment system for at least the most trusted members of the consulting industry. This would mean that the consulting industry can itself survive to support the wider mining industry as it moves from survival to expansion mode.

Considering the different ways in which value should be assessed for consulting services (as compared to full-time industry personnel), consultants should not be considered by industry as simply being staff that can be appointed to fill short-term stopgaps for skills that cannot be afforded full time within mining project assessments or operations.

Marketing consulting services to the mining industry

The mining industry appears to believe that there are many consultants available to service the industry. It is just a matter of finding the person that suits the specific requirement of their project. Marketing by consultants should therefore be directed towards achieving this recognition.

Industry make their judgements on the areas of excellence of their consultants based on published papers, unsolicited proposals of direct relevance to industry and word-of-mouth commendations. The difficulties for consultants with marketing to these expressed preferences is that industry personnel do not regularly attend conferences and seminars in the same numbers as do government and consultant employees. Thus, gaining knowledge of specific and relevant industry issues requires consultants to be out and about at mining sites and offices across their market areas. This can be a very significant expense, and needs to be reflected in the fee rates charged by consultants. However, this does add to consultant expertise and therefore increases the value of the work that industry should expect.

Receiving low fee rate bids may seem attractive to industry, but low fee rates are not consistent with the realities of the operational costs that apply to maintaining and providing expertise from within consulting businesses. In time, this will impact upon the availability of expertise to meet the variety of needs that the industry requires.

The mining industry presently equates consulting fees with the equivalent cost of a permanent employee at the same level of seniority within their own company, with a salary multiplier of about 1.4, plus some margin for specialist expertise.

Some sole operator consultants might be able to operate at such rates, but only by not providing properly for the necessary overheads and liabilities expected of professional consultants.

The mining industry has generally indicated their preference for lump sum submissions, and this preference should be noted by consultants. But as stated, it is not commonly an equitable arrangement for consultants. Indeed, the marketing of lump sum services is likely to add costs to industry, at least over time.

The best marketing should be directed towards clients with whom a close and respectful relationship has already been developed. This could be in the form of a retainer-based relationship around an agreed time quantum fee for a fixed period to cover regular advice availability, with particular distinguishable projects undertaken around agreed and well-understood briefs costed as lump sums.

The advantage of this approach for consultants is that there is limited marketing cost associated with it. Furthermore, the unpaid time element of client interaction is very much reduced, while the consulting rates are reduced by the regular availability of uncontested work for clients who remain in control of their budgets for technical advice.

A variation of this involves clients selecting relatively small panels of consultants directly contracted to supply advice as necessary by industry clients. This approach is being used in some cases by tier-one mining companies and governmental organisations. Regrettably, the selection processes are commonly administered by bureaucrats who have no basis for distinguishing between competing consultants other than on fee rates. This can lead to aberrations in the outcomes for the industry.

The ultimate message

Times are commercially very tough for both mining industry operators and consultants. However, productivity and efficiency at many operations is very high despite margins still being tight.

Consultants or consulting companies need to market directly to the mining industry decision-makers and must seek mutually beneficial client arrangements. The consultant must seek to convince industry that their skills are such that they are able to add value to the client’s business. This will only be reasonably achieved where industry and their consultants are willing and able to put in the time necessary to ensure that the value added is achieved efficiently and equitably for both parties.

The mining industry should seek to firmly establish a mutually respectful relationship with their consultants early in any project so that they understand the issues that must be addressed and the internal factors that depend upon timely solutions.

Industry also need to be active in ensuring that their consultants can maintain their competence and be adequately compensated for the value-adding advice that they are (or will be) called upon to provide.  

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