Procurement professionals know running a successful RFP is both art and science
November 22, 2011
by Joel Ramsey
Purchasingb2b: Print Edition – October 2011
Procurement professionals know running a successful RFP is both art and science. You must know your company’s business and how suppliers can meet your requirements. This is at the core of the procurement process. But there are ways to get more value from an RFP and reduce risk, including the following best practices:
Look inward before outward
Ensure the RFP reflects your business’s requirements and objectives. Co-ordinate with company stakeholders on what you intend to buy and why. Sometimes, you must step back and ask “Do we really need to buy this?” or “Can we do this better in-house?” This process can be tedious but pays off in the long run.
Make rules you can follow (then follow them)
Prescriptive rules show the process is fair, respondents’ expectations are clear and the timeline synchs with internal processes. But the decision in the Tercon case shows a buyer—the BC government—sued for not following its own procurement process. This reminds us an RFP is a contract between buyer and supplier that can be breached by either party. Ensure the process is flexible enough to make unexpected decisions. Search the RFP for the words “will” or “shall,” and see how many of those apply to your company. Some may need to be changed to “may.”
Circle the wagons
Co-ordinate with company stakeholders on the message to suppliers. Despite RFP rules forbidding it, respondents often phone or email contacts at your company to get the scoop or pre-empt bad news. Besides mitigating liability risk for failing to follow one’s own process, this empowers procurement to prevent end runs around the process.
Get legacy suppliers on board
If your RFP is part of a larger business initiative or technology project, there are likely inter-dependencies between the products and services your company is seeking in the RFP and the products and services it’s already using. You may need to share information about these legacy products and services with new respondents to get responses with fully integrated solutions. If confidential, consent to disclose it. If legacy suppliers are responding to the RFP, ensure a condition of responding is consent to share information with other respondents. If not, request consent up front.
Failing to maintain confidentiality is not just a legal risk, but can undermine the business value of the process itself. Suppliers who are not confident sensitive information will be kept confidential are more likely to hold back this information from the RFP author. This can lead to a lack of continuity between your RFP requirements and responses.
Competition, competition, competition
Competition can lead to better pricing, better legal terms and better negotiation behaviour by respondents. Although a competitive process can take time (particularly with key contractual documents or provisions negotiated competitively with other business terms), it often shortens negotiations and fosters communication between your company and respondents.
Price isn’t everything
It’s tempting during a RFP process to focus on price as a determining factor in selecting a supplier. Be wary if a respondent quotes a price that’s so much lower than other respondents as to be unprofitable to the respondent or result in a loss. Equally dangerous are pricing terms that draw attention from other deficient terms like service level metrics, delivery deadlines and non-performance remedies.
Build RFP budgets
The business case that underlies the RFP should account for not just the products and services your business intends to buy, but the costs of running the process. These include costs to run the procurement process, negotiate the agreement and project manage services after the agreement has been signed. These can be a significant portion of the project costs but are sometimes overlooked.
Commoditize or customize?
It helps to ask “How much do we need to build from scratch vs. bought out-of-the-box?” The difference can be between meeting your business case and tripling it if the project goes awry. In the software world, there’s a trend towards procuring software as a service that doesn’t require much customization. As cloud computing becomes more viable, the move towards commoditized software functionality will become more pronounced.
Engage legal early
Engage counsel early to manage legal and business risk before investing in strategies that are ineffective or put your business at future liability risk. b2b
Joel Ramsey is a partner in the Technology Group at Osler, Hoskin & Harcourt LLP in Toronto, specializing in technology, outsourcing and related areas of law and commerce.