Bid Process and Rules

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1 Slide 1 Bid process and rules Welcome to this module on the bid process and rules. Slide 2 In this module This module provides the high-level procedures and considerations necessary for running a competitive procurement and will consider when other forms of procurement may be appropriate. From a sell-side perspective it is useful to understand what conditions enable an effective bid process and the buy-side's motivation. Such insight provides a better understanding of how to deliver a more effective response. As indicated in other modules, the buyer needs information to support their purchasing decision. They may request this information from potential suppliers in three different ways, an RFI, an RFP or an RFQ, which may be collectively referred to as RFx. An RFQ is used when a buyer simply wants to know how much the supplier will charge for an item or service. This describes the item or service as required and requests a supplier response, which should cover the rate, payment terms and delivery period. RFI is appropriate when the buyer asks for more details about the product / service and the supplier, and the response should provide price, product literature, strength of the supplier and answers to the buyer's query, key features of product and other conditions. It may also enable the supplier to set out alternative offerings or commercial models that may affect how you formally approach the market. An RFP is the most complicated and provides complete and detailed information about the requirement and goals of the buyer in formal documentation; it also contains instructions for preparing the proposal, the draft of a standard contract and standard response form, and outlines the criteria for proposal evaluation. Slide 3 Bidding process; Preparation Preparation is the key to a good procurement. Try to gather as much relevant information about what you are procuring, the individuals involved, the business need and timing, and any costs or budgetary comparisons with previous procurements. Be aware of your internal process and who needs to be involved in the procurement at various levels. Early on, try to locate the managerial sponsor who will eventually approve the procurement. Slide 4 - Bidding process; Research Research any potential suppliers, checking trade groups, periodicals, advertisements, and naturally word-of-mouth from friends, colleagues, networks at your disposal. Gather research on the supply and demand for the product. You may need to consult an industry expert and stay close to your end-users to find out what business need they are trying to solve and what constitutes success for them. Slide 5 Bidding vehicles and when to use them RFI, RFP, and RFQs communicate your needs to the supplier and the level of your confidence in the solution. The boundary lines for RFI, RFQ and RFP may overlap, but the descriptions given earlier in the module reveal the main purpose of the documents. Of the three, the RFP takes the most time to prepare and manage. If you can use an RFQ, it will be easier than an RFP. IACCM 2015 Page 1

2 The RFI is usually a preliminary step before issuing an RFP. The RFI helps to gather information to be used in the eventual RFP, and in some cases may help you decide not to issue an RFP at all. Sometimes a mini-rfp (an RFP with few requirements and few price components) is more appropriate for smaller or less complex procurements. Slide 6 - Exercise Please take a moment to complete the task on screen. Slide 7 Exercise Answers Let s look at the answers. Slide 8 - Other processes outside of the RFI, RFP or RFQ An RFI, RFP or RFQ may not be appropriate in all cases, especially if time is of the essence or if only one supplier offers the product you want. In a sole-source environment, you may want to consider a longer-term commitment with the supplier to lower the price or investigate developing alternative sources of the product, or building it or supplying it yourself. Pre-existing relationships with suppliers take precedence for pricing. You may have better (and faster) options than using RFQs: electronic business exchanges and reverse auction sites may give you faster and lower bids for RFQ-type procurements Slide 9 - Definition and contents Some organizations have well-developed libraries of RFxs. If yours does not, then you might develop a standard to use in the future. Don't overburden the RFx with questions or requests that would make more sense for only the finalist suppliers to answer. You don't want to discourage companies from bidding by setting the bar too high. It is important to remember that the bidding process can result in substantial costs for the suppliers; show the same respect for them as you hope they will show to you. You may include your company's standard or amended contractual terms and conditions in an appendix, but you should not require the initial set of suppliers to reply directly to those terms and conditions in the first round of bidding, unless there are elements that are so critical or unusual that you consider the ability to comply absolutely critical. You are simply putting the suppliers on notice' concerning the language you expect to apply to the transaction and this should assist them in assessing risk and pricing. Suppliers should tell you if they can't accept your required language and you should encourage them to indicate the price impact (benefit) associated with their variation. The interaction between buyer and supplier on terms and conditions is one of the key aspects of the role of the contracts professional and there should be a clear process to map out the route to achieving resolution. Slide 10 - Purpose and timeframe When crafting any RFx there is a risk that you become so familiar with the procurement that you leave out key aspects in the description. To avoid this, ensure clarity over what you are trying to achieve through the procurement. For especially significant projects it is worth engaging a person in your company (with no exposure to the procurement) to read the RFx introduction: If that person can articulate the procurement's basic value proposition, then you are doing a good job. Setting the dates is important, but the most important date is the Response and Bid Due Date when the suppliers must submit their response. We suggest using an 'Intent to Bid' Due IACCM 2015 Page 2

3 Date to canvass how many suppliers intend to respond. That will give an early indication whether your RFx has hit its target audience properly or whether you need to send it to additional suppliers. Slide 11 Administrative Information Try putting yourself in a supplier s position and ask what kinds of questions and directions the supplier needs in order to respond adequately. Note that when it comes to RFPs, large suppliers often have specialized RFP response teams that are used to getting standardized RFPs and will expect you to supply this kind of information upfront. The choice of a primary point of contact(s) should be made before issuing the RFP since the suppliers' questions can start arriving shortly after they have looked at the RFP. You can also have the overall RFP project manager as the main point of contact, with a secondary technical contact. In that case, the technical questions are logged and forwarded to the technical contact and then sent back to the suppliers through the primary contact. This process is slower, but ensures better control and flow of information. Slide 12 - Technical requirements The hardest part in developing any RFP will be to create a good set of requirements as discussed in the module on requirements gathering. Your requirements team needs to understand the business proposition for the procurement - the problem you're trying to solve. Remember, if the procurement is simply getting a particular item because you must have that item, then an RFQ is more appropriate. That is, you issue an RFP because there are multiple solutions to the procurement or because the supplier s solutions differ from each other but they could all be satisfactory. Technical requirements in an RFP should be those that are absolutely necessary for compatibility, performance, or future enhancement. Always question technical requirements that specify a particular supplier's standard or appear arbitrary in terms of specification. Sometimes a more general way of specifying a technical requirement will be fairer to all suppliers and provide you with a better solution. Your company may have particular standards for a system, often industry standard specifications, which many manufacturers meet. Those company standards should be referenced if applicable. Slide 13 Suppliers Requirements Response It is recommended that you send two spreadsheets along with the RFP. On one, have a list of requirements in a gridded format allowing suppliers to check-the-box for an answer with an explanation. On the other, have a cost format listing the kinds of cost details you need (initial purchase price, future maintenance price, price of upgrades). Spend some time practicing filling out the spreadsheets yourself before you send them; this will help to ensure that it is clear and eliminate most oversights. Slide 14 Scoring and Ranking the Vendors Think through and establish the proposal scoring process and overall weightings before you send out the RFP. This helps validate the RFP contents and ensures you ask for everything you need for the initial bidding round. You can always ask for additional information in your best-and-final-offers round. IACCM 2015 Page 3

4 The requirements must be prioritized since not all requirements will be mission-critical; If they aren t prioritized it will be difficult to differentiate among the suppliers. So prioritization assists the decision-making process and should also be appropriately communicated to the suppliers so they can understand the priorities when they formulate their proposals. Failure to comply with a must-have priority requirement may eliminate a supplier from the final decision. You will use the developed scoring matrix to make preliminary supplier selections and the final supplier selections. The detail of any scoring matrix can be developed after the RFP is issued but absolutely before any proposals are received. This avoids the possibility or perception that the awarded scores have been influenced by a particular proposal or supplier. Slide 15 - Suppliers cost response You will simplify the management of any RFx by clearly separating the requirements evaluation from the cost evaluation. Spending time developing the cost spreadsheet will help you focus on the kind of pricing you want back from the supplier. It will facilitate comparison and reduce confusion when making comparisons. Resist efforts by the suppliers to supply their own formatted cost responses. It will just complicate your internal evaluation process and make it harder to compare prices. However, if a supplier has identified a cost category that has not been included in your cost matrix, be sure to explore how other suppliers have addressed those costs. It may be common to all suppliers, but was overlooked in the formulation of the evaluation spreadsheet. Slide 16 - Evaluation criteria for the decision The RFx has a natural progression from high-level description, to requirements, to cost elements then to the overall evaluation process. The suppliers should have some idea of how you are going to grade them, but allow enough flexibility so you are not locked into a particular method or weighting scheme. The suppliers should not know the specific weights of your ranking (otherwise they may contest your evaluation) Don't disclose unnecessary or competitive information to the suppliers. This is a fine line, but you do want to protect your internal team members from being inundated with direct supplier questions or having to deal with the suppliers' complaint if they lose. It is part of your job, as the RFx lead, to be the buffer between the supplier and the internal team managing the balance between ensuring information is treated appropriately and that a useful dialogue is has with the prospective suppliers. Slide 17 - Managing the RFx process We cannot emphasize strongly enough that you must establish an overall single point of contact (POC) for the RFx and broadcast this both internally and externally. Also, the supplier should provide a single point of contact on their side. The RFx should note very clearly that attempts by the supplier to go around the POC will result in disqualification. Remember that as RFx team lead / POC, you are managing two processes: (1) supplier-company interactions and (2) intra-company communications. Both are equally important to a successful RFx process. IACCM 2015 Page 4

5 Slide 18 - Some key management principles As the supplier-company interface, you take many perspectives as the gatekeeper. Remember that one of your goals is to encourage competition and keep good suppliers interested in bidding on your business - now and in the future. You may not have much choice concerning who joins your RFx team and the role of the contracts professional varies from company to company. It is nevertheless important to educate your team members on the RFx process and pitfalls. If you do have some choice in selecting team members, especially those involved in creating requirements or the cost spreadsheet, try favoring those who have a good grasp on efficient and precise language with a business or technical background. Even in an ideal situation, you will help by educating the team on best practices. If your internal team already has experience in creating RFxs, there is still value in refreshing the appropriate approach to build on previous successes and address any old bad habits. Don't forget that senior management should approve the team at some level. Slide 19 - Managing the project The RFP process is generally only used for a large procurement (whatever your company considers large). Thus you should treat the RFP process with the same consideration your company uses for managing other large internal projects. In most companies, that includes a project plan with staffing expectations, milestones, and some sense of critical sub-project components. At a minimum, the due dates referenced in your RFP should be mapped into your project plan to ensure they are reasonable and that you have adequate staffing to support those dates. Slide 20 - Managing the supplier Expect suppliers to ask questions about your RFP, so ensure you have a question and answer process referenced in the RFP for the suppliers to follow. Be aware that suppliers will try to extract information from you, your company, and where they know them, the members of your team in order to gain a competitive edge. This may be done in a friendly way or in a deliberate attempt to slant the procurement in their direction. Your job is to maintain a level playing field. Ensure that upper management is aware of the point of contact (POC) for the procurement. You should encourage upper management to refer all RFP questions to the POC. Management will have plenty of opportunity to ask questions either during the oral presentations or through the POC. Convince management it s in their best interests to let the POC do his or her job. Slide 21 - Handling questions Since all suppliers must comply with the must-have requirements, questions about these will receive the most scrutiny. You should understand why these requirements are must-have from your company s perspective. If you don t, meet with the requirements team before you issue the RFP to ensure you do. Suppliers will also try to assess your financial assumptions (like your budget) and may ask leading questions. If a supplier has a brainstorm approach to solving your RFP issue, hear the solution and discuss with other team members; but remember that the supplier s ability to meet your requirements hasn t gone away. IACCM 2015 Page 5

6 As part of the project management discipline, capture and log the questions you receive from the suppliers. You ll want to send your responses quickly, but not immediately, try to wait until all the suppliers have had a chance to look at the RFP and send their questions to you. The only exception should be when you find you ve made a significant error in the RFP, which should be corrected and broadcast immediately. Treat the questions confidentially and don t reveal in your responses which company asked which question. A format would be A Company asked the following question. and the answer is... The questions do not have to be verbatim quotes; modify the questions to ensure they sound generic or to answer questions from multiple suppliers at the same time. Slide 22 - Changing the RFx timeline Always monitor your internal timeline against your project plan looking for critical path issues. When the timeline becomes extended, since it rarely contracts, suppliers will like to have more time to complete their bid responses, but internally, you may lose key project members to competing tasks. Companies tend to underestimate the time required to respond to an RFx. The response time, however, is shortened when you do an excellent job in preparing the RFx, especially the spreadsheets for responding to your requirements and cost parameters. Three weeks (from the date received) is a typical response time for a small RFx effort, but each industry has standard practices for what it considers a reasonable time to respond. But response times are highly dependent on the time of year (intervening holidays lengthen the process) and the type of procurement. Slide 23 Supplier Presentations Schedule oral presentations into your RFP timeline. The oral presentations will generally be used only for final suppliers. Try not to schedule more than one presentation per day. If you do, then consider whether scheduling the presentations back-to-back may enhance your competitive position since there is a heightened possibility of suppliers bumping into each other (however, the suppliers usually have a good idea of who s bidding and usually don t need this kind of encouragement). If the supplier is bringing a senior executive to the presentation, ensure that you have a senior representative from your company there at least to greet the supplier. Often the supplier will want to continue the oral presentation discussions over lunch / dinner at their expense. Find out your company s policy on this kind of gratuity. Generally, it is better to politely decline such offers unless all suppliers have or will extend such offers. Note that this gives the supplier an excellent opportunity to gain information through multiple channels beyond the control of the POC or RFP lead, which is another good reason to decline. Slide 24 - Evaluating the suppliers responses After receiving the RFx responses, you ll need to first check them for completeness. Any missing component, such as the cost spreadsheet, should be reported immediately to the supplier giving them no more than 24 hours to correct. IACCM 2015 Page 6

7 You ll need to schedule your team to review the responses and distribute to them the materials and the scoring sheets. It s often better to have a quick organizational meeting to discuss the procedures rather than just sending out the materials. Ensure you specify the deadlines for completion and broadcast that to management. These deadlines should already be on your project timeline. Slide 25 - Pricing considerations The cost proposal should receive extra scrutiny to ensure the supplier has complied with your format and that the bids are complete. If a supplier s bid is out-of-bounds regarding your budget, give that response further analysis to determine the origin of the discrepancy. Be careful when speaking with suppliers about their cost assumptions (so not to give away any negotiating leverage) Sometimes you can contact that supplier and ask careful questions to confirm hunches. For example, Have you broken out all the components of your bid? or You understand we requested 10 units just for our headquarters building and not for all offices?. Be sure to discuss any major pricing discrepancies with your management. Slide 26 - Evaluating the overall score Preparing the overall evaluations is the most difficult part of the task. Procurements vary too much to give specific guidance on how to combine the requirements score and the cost scores. Some companies like to use formulas such as ranking the suppliers best to worst on each category, and then use a % factor, for example, requirements score = 45%; supplier quality / reputation = 30%; cost score = 25%, and then combine the scores that way. However, simple ordinal rankings ignore percentage differences between the suppliers, so you may want to use more sophisticated weighting schemes. Some companies employ hurdle functions where suppliers must do better than some satisfactory level on each ranking criterion in order to be considered. For example, a company may have submitted the best requirements answers and have the best or lowest costs, but have a very bad reputation and be in bankruptcy. Even if their overall score is best, you might use a hurdle function to eliminate them because they received too low a score in an important evaluation category. Slide 27 - The BAFO process Generally, it s better to have two or three suppliers in your Best and Final Offer bidding round; that said, it s easier to manage two suppliers than three, and its easier to pick a clear winner. How many suppliers you should allow to continue to the BAFO round depends upon the number initially bidding, the competitive nature of the environment, and perhaps some political factors. Be sure to remind the final suppliers what s required of them next, especially if you plan to have supplier presentations of their solution. Not all RFP bidding processes need a final round; that is, you can make your selection from just the initial bids, but generally speaking, you ll get the supplier s best terms by holding a BAFO round. Weigh the time or the staff needed to conduct a BAFO round with possible improvements in price or terms and conditions. IACCM 2015 Page 7

8 Slide 28 - Supplier notification and negotiations Ensure you have the approvals to proceed with the procurement at this time. You can report to management a not-to-exceed price for the procurement, so the approximate price of the final purchase shouldn t be a mystery. Obtaining this approval will also make it easier to negotiate with the suppliers. Proceeding without reasonable budgetary assurances from senior management could damage your relationship with key suppliers and your company accused of negotiating in bad faith. That is, you should not hold a final round unless you have reasonable expectations of following through with the purchase. The final round is aimed at lowering the cost of the suppliers proposal and ensuring that your company has a good understanding of their solution and their commitment to deliver as specified. Few modifications in requirements, if any, should occur at this time. If the suppliers pricing comes in below expectations, you might consider expanding your procurement. If so, submit your new quantities or scope to the remaining final suppliers and have them reply using your standard pricing spreadsheet. Slide 29 - The final contract The BAFO suppliers should receive your company s standard procurement contract or should respond to the standard contract you included as an appendix in the RFP. The suppliers will resist spending time on your contract in advance of getting the bid; however, you lose leverage unless you negotiate at the same time. Some contract terms may be critical to a successful supplier selection (warranty and liability, for example) and some of the requirements may need to be translated or reinforced by paragraphs and clauses in the contract. Any representations made by the suppliers in their response to the RFP should be referenced and included in the final contract. Slide 30 - Supplier award notification The process for choosing the winning supplier from the BAFO stage is similar to the one used to select the preliminary suppliers, except you may add criteria based on the suppliers presentations and how the supplier has responded to any new requirements. Otherwise, you ll use the same overall scoring matrix and adjust for the suppliers new cost proposals. Ensure you have socialized the final decision with key members of your RFP team. Create a memo to your management alerting them to your final decision and include summaries of your decision-making criteria and analysis. Contact the winning supplier(s) and finalize any contractual issues, but don t contact the winning supplier with your decision until all major issues are cleared up. Slide 31 - Supplier post-award issues You should alert the losing suppliers soon after you have alerted the winning supplier. IACCM 2015 Page 8

9 Be prepared to assist the losing suppliers understand why they weren t selected. This process should be fairly short. If you did a good job preparing the RFP, it will be easier to explain to a particular supplier why they didn t make the cut. Never disclose the confidential information of any supplier in your explanation. You can tell a supplier their pricing was too high and give some reasonable indication of whether they were close or not, but you should not give the losing suppliers enough information to pinpoint the winning bid. If a supplier failed to impress the team owing to a particular interaction or failure to adequately address a key requirement, you should mention that to the supplier s representative. Slide 32 - Exercise Please take a moment to complete the task on screen. Slide 33 - Summary If it sounds like the bid process takes a good deal of preparation and forethought, you are correct. You will be rewarded many times over for this upfront work by having a relatively stress-free procurement. Size your RFx efforts based on the complexity of the procurement and the risks to your company of not having their requirements met. Remember that the end result of the RFx will be a partnership or relationship with your supplier of choice. Look at the suppliers as potential partners rather than future enemies as you go through the bidding process. Slide 34 Next Steps This concludes our Module. Please take the time to complete the Module Feedback. Once you have completed the Module Feedback, we recommend that you go to the Attachments to review the additional information. A Module Test is available for you to take in order to check your understanding of the material or practice for the Certification Exam. The required pass rate for all Module Tests is 80%. You may take this test as many times as you wish: please allow 24 hours between each attempt. Once you have passed all the Module Tests with at least 80% you will be invited to take the Certification Exam. IACCM 2015 Page 9

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