Business Angle: Consultants
Professional Surveyor Magazine - January 2011
by H. Edmund Bergeron, LLS, PE
Many small surveying and engineering firms work as consultants to large firms. They provide survey base mapping, boundary and topographic surveys, easement and right-of-way mapping, and construction-layout services. Large firms hire small firms because they do not have the expertise in house or sufficient need for a full survey department of their own.
Generally, large firms ask for a budget for the work and sometimes request competitive fees from several firms. Once your firm is selected, they furnish you with a detailed scope of work and contract agreement, which must be signed before work is started. Do you do the same when you select a consultant to work on your projects?
Let’s back up. Why would you hire consultants? You would hire them for the same reasons that large firms hire small firms: you may need a specialty service occasionally but not enough to have a full-time specialist on your staff. (The exception is when the specialist is a multi-talented person and can perform other tasks such as work as a surveyor or an engineer.)
Types of Consultants
Today’s projects are becoming increasingly complex. They include a higher level of regulatory review and a permit process that often takes a year or more. Firms often need to hire consultants to:
- provide aerial mapping,
- delineate wetlands and hydric soil,
- provide geotechnical laboratory testing,
- perform a traffic impact study,
- provide a landscape architect to design site planting and other features, or
- provide an electrical engineer to design site and other types of lighting.
Also, projects that involve federal funds may need historic and archeological review. In some cases you might hire an architect when the architectural nature of the project is very small. Our staff enjoys working with a team of specialists, and we feel it is important to our clients that we provide and coordinate their projects with the “one-stop shopping” that consultants allow us.
Hiring a Consultant
In addition to providing one-stop shopping and a project team, how does hiring a consultant affect your firm? Consider these issues:
- How can consultant fees affect your gross income?
- Do you treat your consultants formally or informally?
- What are the consequences of working with a consultant without a formal agreement?
- What impact can they have on your insurance?
First, hiring consultants increases your firm’s total billable income if you pass on their fees to your clients as a reimbursable on your invoice. Typically, the consultant’s fee is marked up to cover your administrative cost (some state and federal agencies will not allow a mark-up but will allow invoicing your administrative time). Because total firm billings may determine your firm’s professional liability insurance rate, you may be able to reduce your insurance by having the consultant bill the client directly, thus reducing your firm’s total billings. If you decide not to do this, be sure you separate the amount you pay to consultants from your total fees each year and explain this carefully to your agent when renewing your professional liability insurance. Check with your professional liability insurer to find out how consultants affect your premium.
Consultants must be paid timely even if the client is slow to pay. Therefore, directly hiring the consultant can create cash-flow problems for your firm. If you hire many consultants, this problem may be significant. The flip side is that if you drop consultants, you may lose your claim to one-stop shopping and your client may change to another firm.
Be sure that your consultants are properly insured. Their insurance should include worker’s compensation, general liability, and auto and professional liability. If you use consultants regularly, ask them yearly to furnish you with a certificate of insurance and insist that you be notified if they change insurance carriers or if coverage is dropped. If you use a consultant occasionally, ask for a certificate of insurance for every engagement.
What are the consequences of hiring an uninsured or under-insured consultant? In many cases the liability may flow to the firm that does have insurance—and that may be your firm. This theory of “deep pockets” means that your firm may be found liable whether you are or not. If a jobsite accident results in a serious injury, a worker’s compensation claim is filed against the employee’s company’s worker’s compensation policy. If the claim is denied or not covered for any reason, all of the firms involved in the project are likely to become involved in the claim. If the general contractor or developer is no longer in business and your consultants or other members of the team have no insurance (or insufficient insurance), your firm may end up contributing to the settlement even if you have no liability.
Many consultants furnish proposals that describe their scope of work and fee and ask for your signature at the bottom. This is better than no formal agreement, but many consultant proposals do not contain terms and conditions that govern things like change in scope or payment, schedule, access to the site, limitation of liability, and other terms and conditions in your agreement with your client. Try to get the consultant to agree to attach their proposal to your standard consultant agreement, which contains your standard terms and conditions and a schedule for completion of work.
Being the Consultant
When your firm is hired as a consultant to a large firm, read their terms and conditions carefully. Many large firms have standard terms and conditions similar to yours, including “payment when paid” clauses. This clause states that you will be paid within so many days after the owner pays the prime consultant. Don’t agree to this clause. I believe that your firm needs to be paid even if the prime consultant is having difficulty getting paid by the owner. That may be because of circumstances far beyond your control, and your firm’s cash flow should not have to suffer the consequences. Many years ago our firm had to pursue a large firm through the legal system to get paid. Their defense was: “It is standard practice in the design industry not pay your consultants if you are not paid.” The judge almost laughed as he ordered the large firm to pay us. If you agree to accept a “payment when paid” clause, try to get it modified to say that, if the project is terminated or stopped and the prime consultant is having difficultly getting paid by the owner, your firm will be paid within 30 to 60 days after stopping work.
I hope this article serves as a primer to consultant relations, because they are becoming a bigger and more important part of almost all of our projects. Remember: your client, as well as you and your consultants, benefit by a well-defined consultant relationship.
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