Procurement: Counting the cost

It may have raised the hackles of a sensitive industry, but procurement is not a dirty word. Jo Bowman reports.

Call them what you will - procurement directors, supply chain managers, market sector strategists - but the chances are that you'll be seeing them at far more PR pitches this year, as big business and the Government demand ever greater justification for each penny that's spent.

Their growing prominence in the hiring process in recent times, a spillover from their greater role in the recruitment of advertising agencies, has prompted much hand-wringing in PR circles over fears that number-crunchers will get the last word on public relations, something that can often be difficult to quantify.

Some PR consultancies even claim they've been served with procurement documents before they're told the nature of the work they're being asked to pitch for.

But as the industry slowly gets used to the involvement of contract and recruitment specialists in the client-consultancy relationship, both in-house and consultancy PR practitioners are finding that procurement is not necessarily a dirty word.

While there is - and has always been - a danger of cost considerations outweighing creativity, it can benefit both sides to subject the pitching and payment process to greater scrutiny. And, some believe, it may even drive up revenue for consultancies.

Clients demanding professionalism

'Procurement managers are here to stay, but I don't think this is something to be scared of,' says PRCA communications director Martin Cairns. 'In a way it's quite good news, because if clients are demanding professionalism they're taking PR more seriously.'

Despite not having an estimate for the proportion of PR pitches involving procurement, the PRCA has recently published a guide 'to forming a transparent relationship' between client and consultancy, endorsed by the advertisers' body ISBA, which estimates that half of all pitches for ad agencies now involve procurement teams.

Compiled with the Communications Purchasing Action Group (COMPAG), the guide says consultancies should be clear about how, and what, they charge for everything they do and that clients should be equally honest about how the results of their PR will be assessed.

Expert's advice would be welcome

Virgin Mobile, for example, says procurement has not so far had a role in recruiting PR consultancies, but provided there was proper consideration of the sometimes nebulous nature of PR, an expert's advice on the nuts and bolts of a contract would be welcome.

On the consultancy side, however, there is concern that people with more experience of ordering paperclips than appreciating good PR are having a say in the process. Indeed, few companies have procurement specialists with any background in marketing and, when clients talk about 'maximising value', everyone else hears 'minimising costs'.

The PRCA is planning seminars for procurement managers later this year that will explain to them exactly what PR is and what PR consultants do.

Even so, Burson-Marsteller deputy chairman Gavin Grant says procurement teams are already making sure a pitch is fair, and that the client is focused on what it wants to achieve through PR. He warns, however, that if taken to extremes - for example, calculating a year's PR as, say, ten press releases multiplied by a PR manager's hourly rate - a focus on cost can backfire.

'There's a danger of knowing the price of everything and the value of nothing,' he says.

Search firm Agency Insight managing director Andrew Melsom believes procurement teams might be disappointed when they are unable to find huge savings from PR. A competitive market already demands that fees are consistent and that only those who are professional in their dealings succeed.

'A large company is being responsible if it knows it's being ripped off, but it won't find a big prize in PR fees,' Melsom says.

Cairns argues lower fees are not necessarily the result of more closely watched budgets. 'It's not just about what a PR consultancy costs,' he says. 'It's about whether it delivers on value, and the end result the firm is going to get for what it's spending.'

MICROSOFT - PR procurement specialists

Procurement is such a key part of life at Microsoft that the company has procurement managers who specialise in negotiating contracts for PR and other marketing services.

'They're inevitably becoming more involved as the company gets bigger,' Microsoft UK group PR manager Hugh Davies says. 'If a multi-million-pound business is letting contracts with quite sizeable numbers as the business grows, it needs to be more aware of the money flowing through the business. If you're signing six or seven-figure agency contracts, procurement people can bring a lot of value.'

The procurement team advises the in-house PR team on the right contract, helps to check that everything is covered, and at the right price, and advises on the review or pitching process.

Microsoft UK currently has a roster of agencies that are offered work first as new opportunities arise. 'They back us up and advise us so the PR people can do what they do best, which is look out for all the good things agencies do on the creative side,' Davies says.

For a new pitch, the in-house PR team selects which agencies are in the running, while procurement checks they are suitable partners. 'We need to know they're not going to topple over in the middle of a campaign, like you would with any contract,' Davies says.

Procurement is not just about getting costs down, however, and Davies says it is the procurement team's responsibility to make sure agreed fees are fair and transparent, and are delivered as agreed. 'Nothing is worse than working with a demotivated team,' he adds.

Most contracts are based on consultancy time rather than results, although there are some provisions for bonuses. Davies says procurement's involvement does not detract from the in-house PR team's ability to get the service it needs from the people it wants.

'Every business has to keep costs down, and these people are experienced in negotiating,' he says. 'It's very much the in-house marketing organisation or the PR team that makes the selection. The procurement team's there to make sure we don't mess up at the edges and that everything's really workable.'

SHELL - In-house team heavily involved in ensuring any relationships adhere to the firm's business principles

Shell Group's procurement specialists are as interested in pitching consultancies' other business dealings as they are with what they could do for Shell's PR.

Since the mid-1970s, Shell has demanded that any company it works with conforms to a strict set of business principles, which cover the protection of employees' human rights, environmental protection and policies on bribery and corruption.

Shell Group media relations spokesman Andy Corrigan says procurement's involvement in a tender process - for PR or for anything else - involves thorough checks of references and a company's background against these principles.

'It's important for us to be consistent in what we do and that whoever we work with works in a way that's consistent with our values,' he says.

'Cost is always important but it's more about the way the company works with us,' he adds. 'We've got to have a relationship with a company that really understands our values.'

Although the procurement team's role is considered key, the last word remains with Shell's in-house PR team.

'If we were looking to go through that process, procurement would help us, and their role is to be certain that it's the right sort of company with the right sort of backing,' says Corrigan. 'But it's for us to say which is the right agency, the one that can deliver according to the brief.'

Although the same underlying principles apply to all tender processes conducted by Shell worldwide, a 'lighter touch' would be applied for a single-country PR agency pitch.

'For the likely size of PR contracts in the UK, we would tend to work within procurement frameworks and guidelines but would adopt a light touch,' Corrigan says. 'As a group, we deal with procurement contracts in the hundreds of millions of dollars, and we clearly don't need to apply the same rigour to a contract in the thousands of pounds bracket.'

He adds: 'Nevertheless, at whatever level of expenditure, our suppliers are expected to meet rigorous performance criteria, deliver value for money, and meet the requirements set out in our business principles. Clearly, some of the different circumstances mean that a different approach to issues can be necessary in different countries. Human rights is not a particular issue in the UK, for instance.'

Although the procurement team ensures that Shell gets a 'keen price' for external services, Corrigan says it's vital to strike a deal with which both sides are happy; aggrieved consultants don't provide their best work.

'In setting any kind of arrangement, we would try to incentivise performance,' he says. 'And however you do that, it's important to manage any relationship you have well.'

CABLE & WIRELESS - Working with procurement

Cable & Wireless (C&W) hasn't gone through the pitching process for a PR agency for some years, but when the time comes to review contracts, the company's procurement specialists will undoubtedly be there.

Procurement is involved in the purchase of all the company's external service providers. In the case of PR, the department would work closely with the in-house PR team throughout the selection process.

'Procurement would be involved from the start, and it would be up to the individual and the team to decide who takes what role,' says C&W corporate communications manager Ed Knight.

Procurement's task would initially be to ensure the pitching process is conducted fairly and properly, then to ensure the resulting contract gives C&W the best value for money by ensuring spend is maintained within agreed budget levels. The in-house PR team would still be able to decide which agencies could pitch.

Knight says procurement's drive to keep costs down would not be allowed to overshadow the quality of PR projects, or the calibre of the consultancy chosen. 'The PR team here hasn't had any experience of that,' he says.

'I would imagine that if we were in a situation like that at any time, the PR team would resist that kind of influence.'

He is also certain the in-house PR team would retain control of how benchmarks for consultancies' performance were set, and how any payment-by-results mechanisms would be built in to the contract.

'Because the output of a PR agency is not necessarily tangible, any structure would necessarily have to take account of that,' Knight says. 'I've no doubt the PR team would be at liberty to set the parameters for measuring performance. Procurement would simply not be involved at that kind of level.'

ROYAL MAIL - A power-sharing arrangement works well

At Royal Mail, the procurement team is involved in buying everything, from major machinery to marketing services - and PR is no exception.

'This way, there's absolute consistency in the way that we do things,' says Royal Mail head of trade and consumer PR, Melanie Corfield. 'Being such a large company, we have to make absolutely sure every T is crossed - and that's been our policy for a number of years.'

A three-year PR agency roster of five consultancies was set up about a year ago, with the tender process overseen by the procurement team and run with the PR department, after the in-house PR team set out the pitching brief.

'They looked at things from a contract point of view, so they gave us advice on how to get the best deal,' says Corfield. 'We set down clearly what our needs were; we didn't let them go off and choose the agencies. We were involved at every step, and we don't feel their involvement was a problem because they recognised they needed the PR expertise.'

While the in-house PR team focused on case studies and personnel, procurement demanded that the pitching consultancies provided a raft of financial information, from fees and third-party costs to their firms' financial backgrounds and health.

Contracts were drawn up to include a clear fee structure, with incentives for good work.

'It's not totally results-based,' says Corfield, 'but in our contracts with all agencies there's an arrangement for exceeding targets and enhancing the payment. Very clear targets are set for each project in terms of media coverage or whatever is appropriate.'

Corfield says the power-sharing arrangement works well, and the agency roster that resulted from the pitch gives the in-house team the right mix of expertise and experience to back up the in-house team when it needs it.

'We've taken the view that the PR department has to work very closely with procurement,' she says. 'Our procurement people accept that we know the way agencies work - and, equally, I'm not a contract law specialist. You need both to get the best result.'

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