Hello and welcome back to Smart Consulting Sourcing, the only podcast about consulting procurement.
I’m Helene, and today I’ll be explaining What does a MSA for consulting look like?
But before we get into that, let me give you a recap about our previous episode.
The episode being our 100th episode, Laurent and Myself decided to share with you guys our epic journey of this Smart Consulting Sourcing podcast about how we started from scratch to what went into making this podcast series a success to sharing the all the joyful moments.
When we started Smart Consulting Sourcing, we weren’t sure exactly where it would lead. But as the COVID-19 pandemic began shortly after, it became clear that SCS could become a valuable resource for Procurement Leaders. Especially as the sourcing industry, which doesn’t exactly love change, experienced unprecedented change.
The great celebration is made up of all the little victories!
I’d like you guys to be a part of our journey too! Listen to our 100th SCS Podcast episode and please share your comments and let us know what you found inspiring or made you smile!
So sit back, relax, and enjoy the show.
However, today’s topic is What does a MSA for consulting look like?
What is an MSA?
But let’s start with the basics: what is an MSA?
Most people have never heard of a Master Service Agreement, or MSA, also called framework agreement. But if you’re in the consulting procurement business, it’s likely that you’ve come across one.
This is a legally binding contract between you and your supplier that outlines the terms of your relationship for all current and future projects together for a given period of time. It covers things like payment terms, confidentiality, dispute resolution, limitation of liability, Warranty, IP rights and more.
However, they can also be complex and time-consuming to negotiate. If you’re new to consulting procurement, be sure to talk to your lawyer about drafting a Master Service Agreement. It could be the best way to safeguard your business.
Just like any contract, MSAs can be helpful in establishing a clear understanding between two companies, and they can help to avoid disputes down the road. The idea is to give visibility to the supplier in exchange for better pricing, better delivery and better relationships.
But it will also be beneficial for your internal stakeholders since you take most of the legal negotiations out of the equation, and focus only on scope of work and price.
When to use an MSA?
So, when to use an MSA? Before the first project, as captain obvious would say!
So, it can be done once and for all!
If you’re in category management, chances are you’re familiar with the Master Service Agreement, or MSA. But what you may not know is that MSA can actually be a valuable tool for category management.
Here’s how it works: let’s say you’re managing a category of products that are all sourced from different suppliers. You have some of your suppliers that you qualify as strategic, because you work with them on a regular basis, or they produce goods that are vital for your business.
You can’t “lock” these suppliers and control the price in the long run to mitigate the risks of disruptions. That’s where the MSA comes into play. As I mentioned before you are trading visibility on potential contracts or even promising on volumes, to get better contract terms.
When you define your panel of preferred suppliers, you should be at the same time negotiating MSA with the most strategic of them. So, your internal stakeholders can shortcut the contract negotiation process.
So, if you’re looking for ways to optimize your category management strategy, or having difficulty with managing your supplier panel, keep the MSA in mind. It might be the key to success.
Now, what about consulting?
Short answer: Yes, you can use it for consulting. No, better, you should use it for consulting. And you will find yourself using the same nooks and hooks you would use for any MSA.
First step in the process? You need to define what is a strategic supplier. And the principles for segmenting the entire supply base for Consulting Services should be the same you are using for other categories.
Because they account for the majority of their spending, businesses frequently select the biggest consulting firms as key suppliers. However, the amount spent should not be the sole factor.
A strategic supplier might be a supplier with special strategic expertise, a supplier working on strategic projects, or a supplier working on projects that have a substantial impact on the organization. If you have listened to our podcast on demand management, this is what we call the Strategic Value of a consulting project.
Another powerful strategy would be to integrate 2nd and 3rd Tier Consulting Firms (small to mid-sized) as new suppliers. It can be effective in reducing average costs and satisfying specialized or highly operational needs of your business lines. And cherry on the cake, it will help you manage the infamous Tail Spend while optimizing ROI.
A simple technique to determine whether you are efficiently employing Consultants from this Tiers is to look at your top 20 Consulting projects from the previous year. Can you provide me with a few examples of small-scale specialists? Do you hear the same names discussed frequently? Yeah, now you know what to do next.
When you negotiate an MSA for consulting services, it must include the same elements that of a consulting agreement like:
– The Project timeline
– Governance Model
– Escalation Process Guideline
– Performance Measurement
– Agreement renewal & extensions
– Payment terms & Applicable taxes
– IP Confidentiality
– Intellectual Property
– Client Policies (if they are important to you)
– Non-Compete Clause. If necessary
If you want to know more about the elements of a consulting agreement, make sure you read our article called “12 essential elements to include in your consulting agreement” on consulting.wiki
Now you have pre-negotiated most of the consulting agreement, when one of your business lines has a project, they can just focus on the scope of the project and the fees.
How to negotiate the main heart of an MSA, The price!
Talking about price, this is the heart of an MSA. But how do you negotiate it?
Let’s take a step back and look at price negotiation in consulting in general. Almost everything in a consulting agreement is up for negotiation, just like with many other intangible services. Naturally, you don’t have to (or want to) negotiate every issue.
What will be provided by the consultants?
Specifying the project’s scope and objectives in the RFP, and also defining its purpose, are sometimes a dangerous task. A bit Mission Impossible sometimes: “Your mission should you accept it is to get everyone on the same page, while advancing the strategy of your company. Good luck! And As always, should you or any of your procurement Force be caught or killed…”
But let me tell you, building a proposal in response to an RFP is very similar. It is hardly surprising that the consultants occasionally veer off course.
Besides, the scope may change throughout the sourcing process. Because you might discover, while speaking with consultants, that your expectations were too specific, too vague or too ambitious. Obviously, this cannot be prepared before you have a project.
What services will the consultants offer?
The effectiveness of a consulting project is significantly influenced by the delivery model as well. It addresses the approach used, the schedule, the governance, the staffing of the team, the phasing, or the proportion of on- and off-site work. So these are also elements that cannot be negotiated in advance.
What will the project’s cost be?
The project’s price is, of course, the last factor. There are several angles from which to view the cost. To start, you may view the whole price and contrast it with your project budget.
You can look at the price structure in terms of daily rates or the kinds of fees that are applied. The distribution of costs throughout the various phases may also be interesting.
But let me say it one more time. Please, when you are making your decision, focus on the value, the impact that you are expecting for the project. You cannot compare the price to your internal costs, that makes no sense most of the time, unless you are buying arms. The consultants bring you technical and political value that you cannot find in-house.
So, pricing can seem like a daunting task at first. After all, there are so many different factors to consider.
However, with a little bit of planning and research, MSA pricing can be relatively straightforward.
This pricing for consulting services is typically based on a rate card, which outlines the rates that will be charged for different consultant profiles, which I’m not a big fan of.
While rate cards in consulting can be beneficial in some situations, they can also create problems.
For example, if your MSA includes a rate card with rates that are much lower than the current market rates, the consulting firm may be reluctant to accept projects. Right now, for instance, the consulting market is rather tense, which means that the prices are higher than usual.
Similarly, if your MSA includes a rate card with rates that are higher than the market rates, you may be tempted to contract with consulting firms outside the MSA, which destroys the very purpose of the MSA… Consulting is a rather seasonal business, and it is not uncommon to see companies offer large discounts during off-peak season…
What I would recommend is to use the rate cards as an anchor point for negotiations! A starting point for pricing negotiations if you prefer where either party would specify their initial price. As a result, you should carefully consider these elements before entering into any consulting agreements.
And my advice or a simply a note to our listeners would be giving your suppliers some visibility on the projects they could get in the future with you
What I mean is that, once a supplier understands what revenues they can get from you and the level of certainty, they will be ready to negotiate discounts on volume! What’s great with that technique is that nobody has to place a bet on the future.
You can decide that under a certain volume, the pricing remains at market rate, and then create buckets for an increased discount for higher project volumes. Win-win. You have a pricing formula that is both fair to the customer and profitable for the consulting firms.
MSA is a legally binding agreement between you and your supplier that spells out the conditions of your cooperation on all ongoing and future projects for a specific amount of time. Unlike other consulting agreement, the MSA can be done once and for all, even though MSA is also an agreement at the end of the day.
And you should be negotiating an MSA with the most strategically important suppliers at the same time as you create your panel of preferred providers. So that the contract negotiation process may be sped up for your internal stakeholders.
The core of the negotiation in an MSA is often the pricing and is typically based on a rate card.
I am not a big fan for rate cards in general, even if I see the interest to keep some control on the price. I would say it should not be the main parameter in the negotiation. Consulting is a rather seasonal business where the prices can change significantly during the year. If you are familiar with yield management, this is exactly what I am talking about.
But a supplier will be prepared to bargain for volume reductions if they know what profits they can expect from you and the degree of certainty!
That’s how you can have a pricing strategy that benefits the consulting businesses financially while also being fair to the consumer.
And that marks the end of our podcast. Next week, Laurent and I want to talk about the Disruption in value chain in consulting. So, stay tuned.
Till then, stay safe and happy sourcing!
If you have other questions about MSA for consulting, remember you can always contact me directly on LinkedIn or by email because I am always game for a chat!
Bye and see you next week! Au revoir!
See you at the next episode. Till then, stay safe and stay connected with us through our community on LinkedIn
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