Chapter 4 The RFP The RFP, or request for proposal, is the document in which the customer formulates their requirements to potential suppliers. The suppliers are able to prepare a proposal on the basis of the RFP. Before issuing an RFP, customer organizations can issue an RFI, or request for information. This is a document in which the customer can stipulate their requirements for specific characteristics of the supplier organizations, for example, in terms of experience, competencies, size and stability. In addition, the customer can obtain valuable market information by issuing an RFI, which can help in preparing the requirements that will go into the RFP. Based on the information received from suppliers, the customer can make a pre-selection: in practice, the customer selects around five suppliers who have responded most satisfactorily to the proposed requirements. Only those suppliers will receive the subsequent RFP. Sometimes the customer announces the contract opportunity to suppliers in advance of the RFI. The objective of this is to announce the scope and nature of the desired service so that suppliers can prepare for the actual RFI and RFP. In the European procurement regulations this is known as the contract notice. Sometimes a market exploration precedes the RFI, which does not necessarily involve the same parties as those who will receive the RFI. A market exploration can be of value in innovative outsourcing situations. It enhances the customer s knowledge, which positions them better to formulate their needs and wishes. In the RFP phase the pre-selected suppliers make proposals, also referred to as offers, based on the specific requirements and instructions in the RFP. This phase leads to the selection of one or two suppliers 5 with whom the customer will proceed to the further process of due diligence and the request for best and final offers (BaFO). The advantage of proceeding with two parties is that it enables the continuation of the competition model. After selecting the final candidate on the basis of the BaFOs, the final negotiations and contracting with the candidate follow. 5 In practice, there should be two candidates at the point at which the BaFO is requested.
32 it ou t s o u rc i n g - pa rt 1: c o n t r ac t i n g th e pa rt n e r - a ma nag e m e n t gu i d e It is essential that the requirements in the RFP are as clear as possible: this makes it more likely that the proposals will be of a high quality and enable meaningful comparisons. In this chapter, the structure of the RFP is presented in the form of a table of contents (see section 4.1). This table of contents is based on ISPL (see Appendix B) and on the practical experience of the authors. In practice, RFPs can include different appendices; for example, it normally includes one that describes the existing situation in the customer organization. Section 4.2 provides several style recommendations for an RFP. In Chapters 5 to 10 of this book, we provide advice on the correct preparation of the contents in an RFP. 4.1 The RFP structure Table 4.1 gives the recommended design for an RFP: Section Title page Disclaimer Table of contents Introduction Objectives Background information on outsourcer Description of current situation Service requirements Transition requirements Governance requirements HR requirements Content In this chapter, the customer gives instructions to potential bidders on the format and content of their proposals, the procedures to be followed, and the timeframes to which respondents must adhere. This chapter also provides a guide to assist bidders to quickly understand the purpose and intention of the RFP. See also Chapter 3 of this book Covers the objectives, processes, information systems, and, if relevant, the structure of the customer s organization. Provides descriptions of the services to be outsourced (along with operational SLAs as appendices to the RFP, if applicable), and information on personnel, assets and contracts (presented as appendices). This is a crucial chapter because suppliers will base their cost estimate and proposal on the information provided here. Includes descriptions of the required services (with detailed appendices, if necessary). Discusses the transition objectives and the desired transition results; it includes the requirements to the transition plan, based on a risk analysis. Consists of the most important reporting requirements as well as those for managing the service delivery, with a discussion of roles and responsibilities and competencies in the demand and supply management organization. These requirements are also based on a risk analysis. Addresses the requirements relating to the transfer of staff.
it ou t s o u rc i n g - pa rt 1: c o n t r ac t i n g th e pa rt n e r - a ma nag e m e n t gu i d e 33 Section Financial requirements Legal requirements Supplier selection process Content Formulates the requirements for the suppliers financial proposals. The customer formulates the contractual requirements from a legal standpoint. Describes the model for evaluating the proposals, which the customer will use in selecting the successful candidate. Table 4.1 The structure of the RFP 4.2 The development of the RFP The process of developing the RFP is very important. Unfortunately, customer organizations sometimes devote far too little time in collecting the structural data - for example, for Chapter 4 of the RFP, the description of the current situation, or in formulating clear requirements. The extra time that the organization spends on the quality of the RFP will be repaid many times over during the negotiating phase. The following are some tips for creating an effective RFP: Prepare an integral plan for the entire tender process from the RFI through to the contracting phase. Make use of accepted project management methods, such as PRINCE2 and PMBoK 6. Assume a procurement timeframe of six to nine months (depending on the scope). Ensure that there is complete clarity about the evaluation criteria for selection of suppliers and a process for learning from the process to improve future decisionmaking. Make individual responsibilities clear among board, management, procurement, human resources, and IT-related participants. Ensure that the tender team has adequate outsourcing experience. Leave the financial analyses to the experts. Keep the lines of communication with affected personnel as open as possible and engage their involvement through the use of reviews and sounding board sessions. Focus the project not only on the tendering stage, but also on the preparations for the operational service and the demand and supply management organization. Begin as early as possible to collect the necessary data. 6 PRINCE2 is the standard UK government methodology for project management. PMBoK (Project Management Body of Knowledge) is a project management method developed and maintained by the Project Management Institute (PMI).
34 it ou t s o u rc i n g - pa rt 1: c o n t r ac t i n g th e pa rt n e r - a ma nag e m e n t gu i d e Chapter 11 of the RFP deserves particular attention. Ultimately, the customer establishes the evaluation criteria (some of which may be of a go/no-go nature) and their respective weighting. The preparation of these criteria requires precision. It is recommended that this discussion of criteria is open: they comprise the pre-eminent basis of information for suppliers in devising their proposals in response to the RFP. The allocation of weighting is done by the steering committee during the tender phase of the process, so it is recommended that a well-prepared and experienced procurement expert manages this process. To get a feeling for the appropriate weighting of the evaluation criteria, it might be of value for the steering committee to imagine what the consequences would be if the supplier could not satisfy a certain criterion! 4.3 General style recommendations for RFPs A number of style recommendations are essential for the creation of a good RFP. The most important of these is that the customer organization is very explicit about what they expect. This is achieved by following the recommendations below. Use clearly numbered instructions that require concrete information in response. Examples are: 'Instruction 001: Describe...'; 'Instruction 002: Confirm that...'; 'Instruction xyz: Give at least two...', etc. The supplier must follow all of these instructions in writing their proposal. An RFP may include several hundred instructions (depending on the level of detail of the description). Use clear forms and tables that can be completed by the supplier. This compels the supplier to follow the standard structure, and makes it much easier to compare the proposals for factual information, such as personnel figures, as well as in the financial part of the proposal. Formulate questions as openly as possible on topics that pose some uncertainties, and in which suppliers can differentiate themselves qualitatively from other applicants (eg quality management, the transition approach and the location strategy). This will also make it easier to compare the different proposals.
chapter 5 The supplier instructions In this chapter we explain a part of Chapter 1 of the RFP in more detail: the section on the instructions for suppliers. This section is made up of three parts: instructions for the content of the proposal (section 5.1) instructions for the format of the proposal (section 5.2) information about the tender procedure and timelines (section 5.3) 5.1 The contents of the proposal When the customer specifies clear instructions to suppliers for the contents of their proposals, it is much easier to compare the various proposals. The recommended structure of the proposal is shown in Table 5.1. Title page Table of contents Management summary Supplier s contact information Legal signatures 1. Introduction 2. Service delivery proposal 3. Transition proposal 4. Governance proposal 5. HR proposal 6. Commercial proposal 7. Legal proposal Appendices Table 5.1 The recommended structure of the proposal Make it clear to the supplier which instructions from the RFP must be addressed in which chapter of the proposal. See the style recommendations in section 4.3 of this book. The management summary should be no more than two pages. This is where suppliers can explain the ways in which they distinguish themselves from the competitors. A good approach is to direct the supplier to Chapter 11 of RFP, which explains the criteria by
36 it ou t s o u rc i n g - pa rt 1: c o n t r ac t i n g th e pa rt n e r - a ma nag e m e n t gu i d e which the proposals will be evaluated. Suppliers can use the management summary to express how well they expect to score against these criteria with their proposal. It helps to improve the professionalism of the suppliers proposals and raises their awareness of the themes that the customer organization values. It also compels the customer organization to be absolutely clear and transparent about its evaluation methods. The above proposal design indicates that in Chapter 1 of the proposal, Introduction, the supplier responds to the instructions the customer has laid down in Chapter 1 of the RFP. This chapter also offers space for a summary of all of the prerequisites that the supplier proposes in order to provide the requested services, and the assumptions assumed in formulating their proposal. Chapter 2 of the proposal, Proposed service delivery, enables suppliers to describe the services they offer, at the requested level of detail. Chapter 3 of the proposal, Proposed transition, describes the major decision points the supplier has identified in regard to the transition (for example: customer decisions regarding investments in the infrastructure and application portfolio; acceptance by the customer of interim results; transfer of contracts; completion of the migration of the data center). Here the optimum transition strategy is explained, based on the findings of the supplier s own risk analysis, which phases are considered best for the transition, and what specific measures are proposed for managing those risks. This part also explains how that strategy has led to a series of major decision points for the transition. If appropriate, the supplier explains where they diverge from the RFP. If the supplier really understands the customer organization and has sufficient experience with similar outsourcing projects, this is where they can fundamentally distinguish themselves, for example, by pointing out additional risks, or by suggesting ways of managing those risks that the customer has identified in the RFP. Finally, the transition results and (to the extent that the customer wishes) proposals for a governance structure for the transition period, are part of Chapter 3 of the proposal. Chapter 4 of the proposal, Proposed governance, describes the major decision points the supplier has identified for providing the required services. In addition, Chapter 4 includes proposals for a reporting and administrative structure, along with a related risk analysis and even (if the customer wishes) proposals for a governance structure, though in this case, covering the service delivery period. In Chapter 5 of the proposal, HR proposal, the supplier describes they plan to comply with the established HR requirements for the transfer of staff. In Chapter 6, Commercial proposal, the supplier explains their commercial proposal for the transition and the service delivery, in accordance with the pricing structure that the customer has proposed
it ou t s o u rc i n g - pa rt 1: c o n t r ac t i n g th e pa rt n e r - a ma nag e m e n t gu i d e 37 in the RFP, and the requirements that the supplier proposes for conducting the due diligence. Finally, in Chapter 7, Legal proposal, the supplier confirms and certifies that all of the legal requirements are met, and raises any legal considerations that need to be brought to the customer s attention for possible inclusion in the contract. Examples of frequently requested appendices include references and samples of management reports. The seven chapters from the proposal structure described here correspond one-to- one with chapters 1 and 5 through to 10 of the RFP structure from Chapter 4 of this book (Table 5.2). In writing their proposal, the supplier is required to follow the sections as outlined in the RFP. RFP Proposal 1 Introduction 1 Introduction 5 Service requirements 2 Proposed service delivery 6 Transition requirements 3 Proposed transition 7 Governance requirements 4 Proposed governance 8 HR requirements 5 HR proposal 9 Financial requirements 6 Commercial proposal 10 Legal requirements 7 Legal proposal Table 5.2 Chapters in the RFP and in the supplier s proposal As a footnote, we should point out that, starting with Chapter 6 of this book, suppliers can find information that may be helpful in completing chapters 2 through to 7 of their proposals in response to the RFP. 5.2 The format of the proposal Both the content of the requirements, and the format of the requirements help to make it easier for the customer to compare competing bids. One of those factors is the language in which the proposal is written: is a specific language required? Is another language permitted for the appendices (for example, is it permitted to use English for the product documentation)? Requirements can also be specified for the medium in which proposals are presented; for example, are suppliers required to submit their proposals on paper, or electronically? If hard copies are required, is there a specified paper format (e.g.: A4, Letter) to which they must conform? How many copies must be submitted? Must it be presented in a ringed binder? If electronic proposals are accepted or required, what medium should be used? CD-ROM? Is a specific word processor required? What about spreadsheets? Is Excel a must? What about graphics? Is PowerPoint the only acceptable
38 it ou t s o u rc i n g - pa rt 1: c o n t r ac t i n g th e pa rt n e r - a ma nag e m e n t gu i d e application? Should all of the documents for submission be combined in a PDF file? All of these issues, though seemingly minor, must be specified in order to ensure uniformity, which facilitates comparisons on the substance of the proposals rather than on the form. And, while it may seem obvious, the customer must not forget to specify to whom the proposals must be addressed and to designate a contact person who will handle all incoming questions regarding the RFP. 5.3 The tender procedure and timeline In this section of the RFP the customer describes the tender procedure that the supplier must follow, the guidelines for communication during the tender process that apply and the timeframes that are in effect. The European public procurement directive (92/50/EC) and the specific directive for public contracts in the public utility sector (93/38/EEC) have been updated by the 2004/18/EC and 2004/17/EC directives respectively and have been in effect for public organizations since the early 1990s. The interaction between a public customer organization and its suppliers is strictly regulated through these guidelines. An outsourcing project that falls within the scope of these directives and that exceeds certain threshold amounts 7, must be outsourced via specific procedures from the directives. The two most important procedures are: the Open procedure the Restricted procedure The customer is free to choose between these two procedures. With the Open procedure, all interested suppliers can submit a proposal directly. The contract must be awarded to the supplier who is chosen by the customer on the basis of the submitted proposals, on the grounds of objective selection and award criteria that have been published in advance, and the choice of the selected supplier made public. In practice, this approach is unlikely to be suitable for the complexity of an outsourcing contract. 7 According to Commission Regulation (EC) No 1422/2007, amending the 2004/18/EC directive for public contracts, a threshold value of 206,000 for services is in effect from 1 January 2008 through 1 January 2010 for non central government authorities and 133,000 for central government authorities.
it ou t s o u rc i n g - pa rt 1: c o n t r ac t i n g th e pa rt n e r - a ma nag e m e n t gu i d e 39 The most common procedure to date within the area of IT services is the Restricted procedure. Contrary to what the name suggests, this is also a kind of open procedure, but involves two phases. First, interested service providers can register themselves as applicants. Then, the customer organization will select a number of suppliers on the basis of publicly announced objective selection and award criteria. There cannot be fewer than five selected bidders. The successful bid is selected from among those selected for this second round; again, the contract is granted according to previously published award criteria. The European directives allow the parties to ask for further information regarding the offered services. However, it is forbidden to negotiate the actual conditions of the contract. What is new in the 2004/18/EC guideline is that the European directive now also permits a kind of negotiations through the competitive dialogue procedure. This procedure is intended for complex public contracts (including outsourcing) when the customer organization needs to discuss all aspects of the proposed contract with potential suppliers. The regulations (Article 1(11)c set out that contracts can be considered as very complex where the customer: is not objectively able to define the technical means capable of satisfying their needs or objectives and/or is not objectively able to specify the legal and/or financial make-up of a project. In this situation, the customer publishes an initial version of the RFP, which in principle leads to an inventory of uncertainties and investigation points. From the initial proposals, the customer makes a first selection from among the suppliers. The customer organization conducts a dialogue with the suppliers in which the uncertainties and investigation points are discussed. In this way expertise from the market is used to gather information and to reduce uncertainties. The customer then publishes a definitive version of the RFP with the same suppliers based on the newly acquired insights. The above-mentioned procedures do not apply to non-government organizations. As seen in Chapter 1 of this book however, it is desirable to follow a structured selection process. However, there are many more possibilities for interactions and negotiations during such a process. We have seen a development in which a request for a design or a business case is made in an early phase, for example, in the form of a mini-rfp (at cost or no cost to the customer), and on the basis of these, a partial selection of suppliers is made.
40 it ou t s o u rc i n g - pa rt 1: c o n t r ac t i n g th e pa rt n e r - a ma nag e m e n t gu i d e After the RFP has been issued, several options are available for maintaining communication during the proposal-writing period. Some of the common forms are: suppliers may submit written questions; the customer responds in writing to all relevant questions. In this case, all of the suppliers receive all of the answers, with no indication of which parties have submitted which questions suppliers may submit written questions; the customer responds to all relevant questions in a pre-bid session. It is up to the customer to decide whether to do this in a single session to which all suppliers are invited, or in a series of individual sessions with each of the suppliers. The customer is responsible for preparing a written report of these sessions for the benefit of all of the suppliers the customer begins discussions and negotiations with the suppliers, who are focused on resolving for themselves the specific components of the contract, such as considerations of the strategy to be followed for the transition and the transfer of personnel. In the interest of fairness, it is essential that a protocol is prepared for recording the investigation questions, to ensure that the process proceeds transparently and consistently for all applicants. Sometimes the customer invites the suppliers individually, as a way to learn about each other s business and to discuss the primary processes of the customer organization. In the RFP the customer indicates how the interactions with the suppliers during the proposal-writing process should take place. In most cases, it is not advisable to invite all of the suppliers at once. There is a risk of negative interactions between suppliers who are, after all, in competition. Table 5.3 gives an example of a schedule that might be included in the RFP. This example has been developed both as a best practice in the private sector and as it would be done if it were to conform to the European Directives. The example indicates those activities for which different planning standards would be necessary in a European procurement process, taking into account the regulated time lines, but concluding on the same date.
it ou t s o u rc i n g - pa rt 1: c o n t r ac t i n g th e pa rt n e r - a ma nag e m e n t gu i d e 41 Activity Schedule Best Practice Schedule conforming to the European restricted procurement procedure Customer organization sends RFP 27 February 2009 27 February 2009 Supplier submits written questions No later than 13 March 2009 (about 2 weeks after sending the RFP) No later than 13 March 2009 Pre-bid session or written responses to questions Sessions for suppliers and the customer to meet and to familiarize suppliers with the customer s primary processes Customer receives proposals 20 March 2009 20 March 2009 (at least 10 days before the deadline for submitting proposals) 25-28 March 2009 31 March 3 April 2009 No later than 7 April 2009, at 9 a.m. (5 to 6 weeks after sending the RFP) Customer selects suppliers 28 April 2009 (3 to 4 weeks) No later than 21 April 2009, at 9 a.m. (at least 40 days after sending the RFP) 12 May 2009 Customer and supplier begin information sessions and mutual due diligence processes (data room, reference visits and so on); Customer receives definitive proposals 9 June 2009 (5-7 weeks) Customer selects the supplier 23 June 2009 (1 to 2 weeks) 16 June 2009 30 June 2009 Customer and supplier begin contract negotiations; Customer and supplier sign contracts Table 5.3 Sample schedule for the RFP 4 August 2009 (approximately 6 weeks) 4 August 2009 (less negotiating possible than in the private sector; primary contracting)
Colophon Title: IT Outsourcing Part I: Contracting the partner A Management Guide Authors: Editor-in-Chief: Editors: Copy editor Publisher: Gerard Wijers and Denis Verhoef Jan van Bon, Inform-IT Mike Pieper, Inform-IT Ruby Tjassing, Inform-IT Jane Chittenden Van Haren Publishing (info@vanharen.net) ISBN: 978 90 8753 030 3 Copyright: Van Haren Publishing 2009 Printing: First edition, first impression, January 2009 Design and layout: CO2 Premedia bv, Amersfoort, The Netherlands All rights reserved. No part of this publication may be produced and/or reproduced through printing, photocopying, microfilm, or any other means, without the express, written permission of the publisher. The editors and publisher are fully conscious of their responsibility to ensure that this publication is as complete and reliable as possible. Nevertheless, they assume no responsibility for any unforeseen inaccuracies that may come to light. However, they would appreciate having any such inaccuracies brought to their attention, so that they can keep them in mind for the next edition.