This is the last instalment in a series of articles outlining steps customers can take to improve their RFP process when sourcing complex services. In the last TLQ, we looked at timing and staffing. In this edition, we examine budgeting — and specifically the importance of accounting for all the costs of carrying out an RFP process. We also touch on several tools that you might use to increase your prospects of a successful RFP.
Building Better Budgets
The actual costs of carrying out an RFP process are often higher than clients expect. This is typically the result of underestimating the time and resources required to successfully see a RFP process from start to finish.
When thinking about the project budget, it is important to take into account not just the costs of the solution or services being purchased, but also all the incidental costs of running the procurement process, negotiating the agreement, and project-managing the purchased services after the agreement has been signed (e.g., staffing for your PMO). These can be separated into up-front capital costs and ongoing operating expenses.
In addition to including these costs in the initial budget, revisit and revise your budget following receipt of the RFP responses, as well as during and after the negotiation of the final agreement, and keep the project sponsor informed. This keeps management and the board up-to-date and engaged in the process, and will immediately highlight any potential impediments raised by cost issues.
One global outsourced-services provider estimates that ongoing project-management costs run approximately 10 per cent of the annual project fees, so unless you have properly accrued for these costs, any contingency that may have been included in the annual budget will be eaten up.
As well, expect project-management costs to be higher during the earlier phases of the project as the parties get to know one another, develop workable processes and procedures for managing change, and address any immediate scope or other issues.
Your project will have a better chance of being "on budget," which is one measure of success, when your budget reflects all of the true project-management costs.
Choosing the Right Tools
The following items will not be applicable to every procurement situation, but you may wish to take some of them into consideration when entering into your next RFP process:
1.Fairness Monitors — Depending on the size of your transaction and the competitive playing field in the relevant area, engaging a fairness monitor is a tool to be considered. They are most commonly used in large-dollar-value public procurement processes by government entities. A fairness monitor is like an ombudsman who is retained by the customer, but operates autonomously from the customer, to help ensure that the overall RFP process has been carried out fairly and transparently and in accordance with the rules applicable to the RFP. The fairness monitor will usually be engaged before the RFP is issued, and he or she can engage in the RFP evaluation process, either directly or by advising an RFP evaluation committee, and sometimes engaging in discussions with vendors. He or she will be privy to all communications with proponents. Ultimately the fairness monitor will document that the RFP process was fair, open and transparent, characteristics that have become increasingly important in public sector procurement over the last decade.
2.Information Control Office (ICO) — Having a dedicated person in charge of an "information control office" can be a worthwhile investment for a complex RFP process where you anticipate ongoing communication between your organization and vendors. The ICO will be responsible for developing process and policies for communications and information exchange, and for administering those policies, both internally and externally, to ensure a fair and equitable RFP process. An ICO gives vendors a clear path for communicating with your organization, and will provide the required Q&A process.
3.BATNA — BATNA refers to "Best Alternative to a Negotiated Agreement," and it essentially means that you should know your options before negotiating the agreement so that you can suggest acceptable alternatives, or walk away from a deal when appropriate. In fact, you should consider your options during the RFP planning phase. Knowing your BATNA helps in drafting the RFP, during the assessment of proposals and at the negotiating table — it is a highly effective tool to help ensure a successful project.
4.Proponent Honorarium — In certain complex procurements, it may be appropriate to pay an honorarium to each vendor submitting a response to your RFP to help offset the costs of preparing the response. This would usually only be done following an initial RFQ (request for qualification) process where potential vendors have been pre-screened and a small number have been selected to submit a full RFP response. The amount of the honorarium turns on the ultimate value of the project and obviously would not cover all of a given proponent’s costs; it does, however, encourage the submission of a quality response. A tighter, more streamlined RFP process will result in better-quality proposals from vendors and lead to a more successful project. Investment up front, by all stakeholders, can result in efficient procurement processes that save time and money for both customers and vendors.