How To Write An Rfp

Transcription

1 1. INTRODUCTION Considerations in preparing a Request for Proposal Martin Cotterill and Brian Meenagh 1.1 An important part of any successful outsourcing engagement is the work undertaken upfront by the Customer in defining its and identifying and evaluating the suppliers best suited to meeting its. Much of this work is captured in the preparation and subsequent evaluation of a Request for Proposal ( RFP ). 1.2 This white paper sets out some considerations for Customers in preparing a RFP. It describes the purpose of the RFP process, provides guidance on evaluation criteria and outlines the importance of timing in maintaining competitive leverage. 2. THE PURPOSE OF THE RFP PROCESS 2.1 The primary functions of a competitive RFP process are: to increase the level of certainty and confidence that the Customer is able to place on the solution proposed by the suppliers. This includes the technical, commercial, operational, legal and relationship elements of the proposed solution; to identify the supplier that meets the Customer s ; and to facilitate the negotiation of a contract with the preferred supplier from a position of leverage with all major issues agreed prior to down-selection, which usually results in a severe loss of the Customer s leverage. RFI EVALUATION CRITERIA Commitment to the Industry Scalable and robust technology platform Market leading range of service offering Track record of successful partnering and relationship management Cultural fit, to include innovation and creativity Market competitive and strategically aligned financial arrangement Consistency of pricing bids Pricing structure and framework established in the RFP Consistency of performance and scope Known constraints and RFP EVALUATION CRITERIA (BASICS) Performance commitments Commitment to put meaningful risk against performance and outcomes Pricing evaluation Scope Definition Technical and Operational solution Governance approach and methodology Compliance with terms Value Adds DOWNSELECT 2.2 The basic shape of the RFP, and the fundamental that it must address, are therefore driven from the criteria upon which these outcomes will be evaluated and

2 determined by the Customer. The diagram above illustrates the funnelling process that underpins the determination of price and and the selection of the preferred supplier as part of the procurement process. 3. DEFINING CORE EVALUATION CRITERIA 3.1 The core set of evaluation criteria for the RFP should include a minimum set of basic elements that will underpin the deal and drive the contract that the Customer eventually signs with the preferred supplier. For an outsourcing deal these elements should include evaluation of the following items Performance commitments What level of performance will be delivered by the supplier: from day one (maintaining existing levels of performance that are, agreed and priced); and through the term (improving the current levels of performance to a new set of service levels as a result of the implementation of the supplier s solutions)? Whether the performance levels are, adequate and measurable Commitment to put meaningful risk against performance and outcomes What is the service credit regime and the level of fees put at risk by the supplier? What benefits will be delivered and committed to by the supplier through their improvement initiatives? Whether such commitment is meaningful (e.g. financial, through a risk/reward proposal). The Customer should also consider whether the RFP (and ultimately the contract) differentiates between: service performance measurement, i.e. employing service level metrics and measures that correlate to the service lines in the Description of Services with service credits providing the contractual teeth to drive performance; and business performance measurement with a business outcome-driven scorecard and corresponding metrics and measures that are aligned to the Customer s annual objectives (with a risk reward component whereby the supplier places a percentage of its fees at risk against outcome delivery and has the ability to earn enhanced fees for superior performance over the whole scorecard) Pricing evaluation (d) (e) Whether the pricing proposals can be compared with certainty. How certain is the price? Is the pricing structure acceptable? How stable is the price to changes in the Customer s business and customer base? Whether the price meets the Customer s base case. The pricing structure should determine the charging basis and provide the Customer with pricing control, variability (where appropriate) and certainty. This initial analysis in the development of the RFP document will determine what service lines are charged on what basis and how granular each pricing unit needs to be for the purposes of validating prices against the Customer s base case. There are three main types of pricing units that may be used depending on the level of variability and control required by the Customer:

3 fixed-price elements: for services that have no sensitivity to volume variation; unit-based price elements, which include: o o wide units for services that should be desensitised to volume variation; and narrow units for services that are volume sensitive and for which a high degree of month by month variation is acceptable; and day rates: for additional services that cannot be accommodated within the fixed or unit pricing structure. The key consideration for the Customer is ensuring that the pricing units for the service lines correlate to a resource unit that the Customer is in control of rather than one that the supplier can control (such as pricing on a time and materials (T&M) basis). The pricing structure can often employ all three types of pricing units across the service lines to maximise certainty and predictability or roll up into a single unit price with day rates for out-of-scope services Scope definition (d) (e) How adequate and certain is the scope of services? How is the Customer protected through the term of the agreement with the preferred supplier from change? What flexibility is built in to the scope so that it can evolve (e.g. technology neutrality, platform portability)? Has the supplier understood and accommodated the Customer s existing environment? Is the division of responsibilities well and understood? Technical and operational solution Is the preferred supplier s solution understood and acceptable? Does the solution address the Customer s solution and map to a transition plan with committed milestones and deliverables? Governance approach and methodology (d) (e) Does the Customer have certainty and confidence in the supplier s ability to manage the services and perform the obligations? Has the supplier demonstrated its capability in managing a deal of this nature and how is this manifested in the governance of the contract, services and business relationship? Has the supplier accepted the Customer s change management regime and restrictions on the effect of change on the pricing? Is the supplier s response to the Customer s governance, risk, compliance and audit acceptable? Is the supplier s proposal for reporting the necessary management information and data sufficient for the Customer to effectively manage the contract, discharge its legal and regulatory obligations and run its business? Compliance with terms Each main section of the RFP (e.g. Pricing, Service Levels, Governance and Change, Transition, Description of Services and Exit Management) should contain a set of key terms that can be evaluated and ranked for compliance so that the critical red and amber issues can be negotiated prior to down-selection. Prior to selecting a preferred supplier, the Customer should determine whether: there are any outstanding red issues on the legal terms and conditions;

4 there are any outstanding red issues on the key terms for each of the main sections of the RFP (e.g. Pricing, Service Levels, Governance and Change, etc); and the amber issues are understood and form an acceptable base from which negotiations can proceed. 3.2 To enable the Customer to be able to assess the core evaluation criteria, the responses from the suppliers will need to exhibit certain common characteristics, i.e.: scope certainty; consistent solution and transition proposals based on a set of common ; consistency of pricing proposals and the ability to make comparisons between suppliers; consistent structured performance level proposals against each main service area; proposals based on a common set of baseline data and information as to current environment, volumes, constraints and assumptions; and comparability of responses to each of the key terms and. 3.3 The RFP must therefore be structured so that it facilitates these response characteristics and, ultimately, allows the Customer to evaluate the criteria from the supplier s proposals and define the base from which the eventual contract is formed. Transformed Service Levels Service credit mechanism Benefit realisation and any risk reward Performance measurement Change management process Governance Service Level Requirements (Day 1) Contract management Performance commitments Risk against performance outcome Compliance Pricing Requirements and structure in RFP Governance approach and methodology Pricing Units Consistency of pricing bids Pricing structure and framework established in the RFP CONTRACT BASIS Legal terms Base Case Pricing evaluation Compliance with key terms Financial responsibilities Scope Definition Technical and operational solution Asset treatment Security and BCP Scope certainty Solution Transition Scope definitions Defined interfaces with retained organisation and third parties Exit management terms Responsibilities matrix Defined constraints Solution requests SWIP provided resources Current environment information 3.4 The diagram above defines key elements (the outer ring of the diagram) within the RFP that underpin each of the core evaluation criteria and drive the response characteristics. 3.5 These elements can then be structured into a RFP form that will map to the contract form so that the transition from RFP to contract development and formation is as efficient as possible. In the sections that follow the starting points and process by which this is achieved are set out.

5 4. TIMING CONSIDERATIONS 4.1 The quality and timing of the definition, interrogation and evaluation process has a direct impact on: the ability of the Customer to structure a deal that capitalises upon the leverage of a competitive process; and the ease or difficulty with which the Customer can achieve its desired commercial and contract terms. 4.2 The golden rule is: the greater the level of definition that can be achieved up front the lower the overall effort to achieve the desired result. This is illustrated in the diagram below. Defining up front can dramatically compress the overall timescales for the deal and reduce the amount of agreements to agree left in the contract, which only promote uncertainty and ambiguity and increase the number of dimensions along which change can operate. RFI RFP PROCESS DOWNSELECTION Failure to resolve key deal issues up front and define the key of scope, performance and price results in increased effort and difficulty to achieve optimal deal outcome Effort in defining deal up front minimises re-work, ensures greater efficiency of effort and maximises leverage for better deal outcome RISK EFFORT PROJECT TIME The Golden Rule the importance of defining up front 5. SUMMARY The creation of a comprehensive and detailed RFP which sets out the Customer s technical, operational, commercial and legal and subsequent evaluation of that RFP is an essential factor in determining the success of any outsourcing engagement. Latham & Watkins has prepared a number of templates and evaluation tools to be used by the Customer in the RFP process. Please contact justin.cornish@lw.com if you would like to receive further information or discuss this topic further.

6 This white paper is intended to introduce current and prospective clients to some of the issues Latham typically handle in outsourcing transactions. It is neither a comprehensive issues list nor a complete discussion of the listed issues, and it should not be treated as legal advice. CONTACT Martin Cotterill Justin Cornish Brian Meenagh martin.cotterill@lw.com justin.cornish@lw.com brian.meenagh@lw.com