Functions of Consultants

Stephen Chung

Managing Director

Zeppelin Real Estate Analysis Limited

September 2005

Quite a few acquaintances and friends of your humble author are in the consulting business, ranging from financial, legal and the like to architecture, surveying, engineering, and real estate. Exchanges on recent business conditions and client challenges are often part of the conversation we would have in gatherings and the following are some of the collective reasons for hiring consultants: 

A)     To spread the risks = in particular the professional liability risks. A good example would be to look at the (sizable) real estate developers in town (Hong Kong) when they do development projects. They are so well financed and strong that they actually have and can employ as many “in-house” professionals, such as architects, surveyors, and the like, as they want, yet they still ‘outsource’ many such functions to consultants, such as using architectural firms to submit the building plans and designs to relevant government authorities. This is done to limit their risks to basically business (real estate development and investment) decisions, such as a wrong estimate of market sentiment (supply > demand) or an overly aggressive financing scheme (debt > income). Should a newly developed property harbor any technical or construction defects, the liability will rest only on the contractors and consultants i.e. assuming the developer has not exerted any undue influence.

B)     Required by law or financing institutions = an obvious example would be publicly-listed companies which are required by law to hire auditors and other appraisers on a regular basis to ascertain their operational status and asset values. At times, banks will also require real estate developers to use the service of quantity surveyors to monitor the progress and construction payment of typical development projects.

C)    The client does not have the knowledge or experience = within his own organization and thus consultants are required. An example would be manufacturers seeking to build factories in China and as most of such entities are unlikely to employ architects and engineers long term, the use of consultants would be most suited.

D)    The client has the knowledge and experience but his own staff are stretched to the limit = and thus 3^rd party consultants are hired to handle the extra projects or work. An example would be certain public or government authorities which via recent changes in organizational arrangement now contain only a core staff structure and actual work are carried out by a network of consultants.

E)     The client has the knowledge and the staff capacity but still prefers to hire consultants = where certain consultants are known for having particular skills that the client’s own may not have or are not as competent. For example, famed architects not only may come up with creative designs but will also add a special touch to the completed building, and this in turn may help promote certain images and enhance asset value. Sometimes, it could also be due to the cost base of consultants being more competitive than using one’s own staff.

F)     The consultant offers the required professional and business networks = networks are built up overtime and clients, especially ones new to the market or business, may not have enough clout to bring about a certain project. At such times, consultants may lend a helping hand.

G)    Second opinion = at times the clients may already have an idea of what is to be done or they may even already have a consultant perform certain assessments. Nonetheless, perhaps due to the significant size of a project or investment, they wish to have a second opinion just to be on the safe side.

H)     To instill certain discipline in the business and investment process = clients come in different business philosophy, business objective, operational size, geographical reach, financial circumstance, investment task, and character, and not all are as disciplined in operation and management as they could or should be. Consultants, assuming a certain degree of competence, integrity, assertiveness, and guts, may assist certain clients in building up a more effective and efficient business operation, which sometimes his / her in-house staff may not realize or to be blunt, dare say anything.

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