Pros and Cons To Hourly and Flat-Fee Consultants

Paying consultants can get expensive. When your projects take significantly longer than expected, you can find your budget quickly ballooning into something that you didn’t anticipate when you first decided to work with a consultant.

It’s important to be aware of the goals of your project when you start your consultant search. If you’re deciding to hire a consultant, it’s likely because there’s some work that your in-house staff either doesn’t have the time to complete, or doesn’t have the expertise. Knowing the specific reason you’re hiring a consultant, and what your goals for that consultant are, are very important before signing a (potentially) costly contract.

In my experience working at Epic as an EMR consultant, I saw much more examples of hourly billing as opposed to flat-fees. I also saw too many health systems spend literally millions of dollars on consultants, only to find that they were artificially inflating their billable hours. While it’s best not to assume that all hourly consultants will try to game the system and inflate their billable hours, it’s a good idea to understand the different billing mechanisms before pulling the trigger on a contract.

Hourly Fees

Pros: If you’re paying someone hourly, you’ll probably be able to more easily add on extra pieces of the project without worrying about going outside of the scope of your initial agreement. Consultants will probably be happy to take on extra pieces of the project, as it means they get paid more. You have more flexibility as the consultant isn’t pigeonholed into the initial conditions that you set forth when you signed the contract.

Cons: More hours = more money. It’s a pretty simple incentive structure. In my experience at epic, I worked with consultants who openly told me that they would “pretend” to be working just so that they could inflate their billable hours. While this is extremely unethical, and I don’t mean to imply that all hourly consultants are engaging in such deceptive practices, the behavioral economist in me tends to think that such people may do this subconsciously, so that even with the best of intentions, they still may not work quite as hard as they could be due to the fact that they get more money if they don’t.

Flat-Rates

Pros: A flat-rate means that you’ll pay exactly what you think you’ll pay. If it takes the consultant longer than they initially expected to complete a project – well, that just means that the consultant ends up with a lower hourly rate. It’s the consultant’s fault that they under-estimated. Paying a flat-fee is also a good way to ensure that you’re completely satisfied with the project,

Cons: If you’re requesting a flat-rate consulting fee, you’d better have a clearly defined outline of what the project is. If you find yourself constantly changing the scope of the project, you may expect to have the consultant firm charging for add-ons, revising their initial estimate to where it’s much higher than you initially expected. Clearly outlining what your expectations are prior to signing the contract is key in ensuring that you don’t get blindsided by revised estimates and costly add-ons.