Responding to RFPs. Slide 1 Responding to RFIs and RFPs Welcome this module on responding to RFIs and RFPs.

Transcription

1 Slide 1 Responding to RFIs and RFPs Welcome this module on responding to RFIs and RFPs. Slide 2 In this module Companies today are spending more time planning and conducting a comprehensive screening process to rationalize their supply base. So selecting the right supplier is one of the most critical decisions a purchaser will have to make, and so suppliers need to be well versed in the best practices for ensuring they are a chosen supplier. During this module we will cover: The procurement process from both a purchaser s and supplier s perspective Information on executing non disclosure agreements The rationale for a bid process and the bid process itself The role of Contract Management in the bid process Slide 3 Background: The procurement process Purchasers need to obtain goods or services to run their business and obtaining goods or services induces uncertainty and risk since it involves dealing with outside organizations not completely within the purchaser s control. Contracts with suppliers that deal with the key elements relating to the goods or services being obtained are the means of managing that uncertainty and risk. In the course of deciding who to purchase from, the purchasing organization will go through a process of analyzing the risks that purchasing from a 3rd party will create, identifying potential suppliers, defining and specifying its requirements, drafting the contractual terms and conditions and deciding the key factors upon which a supplier will be chosen (the evaluation criteria ). If a purchasing organization has uncertainty in relation to any of the areas raised above it will often issue a Request for Information (RFI) as a method of gathering information from targeted potential suppliers in order to prepare for a follow-on interaction with those suppliers. An RFI does not indicate that a purchaser is seeking a specific contractual relationship, but instead asks potential suppliers to submit information on their capabilities and expertise. Potential suppliers will do so because the RFI indicates that there will in almost all cases be a follow-on interaction that may lead to an award of contract. It is important for potential suppliers to understand that an RFI is typically used to: Obtain up to date technical information on available products Identify consultants and experts Develop consortia, alliances, partnerships and build a supplier network Obtain information to support decision making Prepare for an effective Request for Proposal When an RFI is unnecessary or has already been undertaken, then purchasers will normally request tenders, quotes or bids in writing through procurement documents generally known as solicitations. Solicitations generally take the following forms: Request for Proposal (RFP) Request for Quotation (RFQ) Invitation to Tender (ITT) Solicitations should set out the purchaser s needs clearly and in sufficient detail to ensure certainty during the contractual relationship with the ultimate supplier. A high quality IACCM 2015 Page 1

2 solicitation is crucial for the success of the purchasing activity. What all these documents have in common is that they are a request for a supplier to make an offer, which is capable of acceptance by the purchaser. The purchaser is seeking a contractual relationship with the supplier it deems most meets the evaluation criteria. Slide 4 Execution of NDAs In all but the rarest of cases, both RFIs and RFPs contain information which is likely to be commercially sensitive to the purchaser. The purchaser will invariably wish to protect such information by requiring all intended recipients to sign a non-disclosure agreement (NDA) prior to issuance of the RFI or RFP. From the supplier s perspective, the information provided in response will also be commercially sensitive in that it will detail some or all of the following areas: Current strategy and possibly future direction Current and possibly future technology Service capabilities Operational methodology Pricing Existing customers or market potential It is therefore clearly critically importance to both parties to have in place a non-disclosure agreement before sensitive information is released. A purchaser s NDA should be reviewed and approved by the supplier s Contract Management organization before signature. Slide 5 Identifying an opportunity For a supplier being successful in business requires the ability to identify potential contract opportunities and to win and then perform such contracts. When potential business is identified it is critical that the supplier can recognize whether that opportunity is one they want to win and so prevent valuable time being wasted on opportunities they couldn t, or wouldn t want, to win. A potential contract must be appropriate i.e. fit within the strengths of the supplier and be commercially sound i.e. enable the supplier to earn a profit or gain another benefit such as increased market presence or the opportunity of future business. Suppliers need to explore the market place by engaging in pre-sales activity that will enable them to be able to define both existing and potential customers and create a sales or business plan based on customer needs and understand the competition. With all sales opportunities, time is of the essence. Supplier s need to do what they can to influence a purchaser s decision making process in their favor as early and as quickly as possible to improve their chances of success and reduce the opportunities available to their competitors. Timeliness is made more critical with RFIs and RFPs, as they will contain a date by which a response must be submitted. In such situations a bid process is vital to the decision making process. Slide 6 Commercial contracts involvement The precise role of the contracts expert varies. At its simplest, the role is about compliance. In a rule driven organization, the contracts group has primary focus on risk avoidance, so is looking to avoid specific high-risk contractual terms. If its purpose is largely to review and perhaps negotiate a limited set of terms (for example, areas like liabilities, indemnities, and other legally oriented provisions), the opportunities to shape the deal and add value may be limited. IACCM 2015 Page 2

3 The more restricted the role and the more it is rules driven, the later the contracts group becomes involved. It is in danger of being perceived as a business prevention department, and in such circumstances, other groups (especially sales) will seek to avoid its involvement. A typical indicator of this rules driven approach is when the contracts group frequently complains that it was involved too late. At the other end of the spectrum, there are contracts organizations that are fully engaged throughout the bid process and may even take prime responsibility for it. At companies such as IBM or certain divisions of Alcatel, the bid management facilities and resources are owned by the contracts group. In such environments, the organization is looking to the contracts professionals to take a lead role in shaping the deal and overseeing the crossbusiness coordination necessary for its success. There are of course many variants between these two positions. Often there may even be variations within the same company if it handles multiple contract and relationship types. As already mentioned, the key to best practice is to have clarity throughout the organization of what the scope of the contracts organization s role will be and how this varies by type of deal or relationship. Slide 7 Why have a bid process? The bid process is a critical activity in any company. It represents the key decision-making phase in turning an opportunity into profitable business. Not only is bidding a critical part of winning new business but it is also resource hungry and stressful. There is never enough time to prepare the perfect bid response and invariably there are never enough resources due to competing business demands. To ensure that everyone involved in preparing the bid is working in the same way towards the same goal is vitally important. It is important to understand that there is no one process that will work for all companies and for all bids no matter what the size. What works for a complex, high value bid may very well prevent a low value bid going out on time. In the same way, responding to an RFI is likely to be less taxing on resources than responding to an RFP, if only because a response to an RFI does not constitute an offer which can be contractually binding. The critical thing is to have a process and to follow that process where practical. An effective bid process is built upon: Clear and mutual understanding of its goals and the values different participants bring to it Service level commitments and performance measurements A front-end that operates intelligently to segment and prioritize opportunities A defined workflow that outlines review and approval roles and their timings Information / data gathering that collects what is needed and also captures history and precedent Some key indicators of best practice include: The percentage of business requiring review / approval (both as a % of total business and improvement over time) Average cycle times (how long the process takes by major deal type and improvement over time) Internal satisfaction measurements and improvement over time Win / loss rates and cause analysis Project reviews, identifying change dispute levels and linkages to bid process IACCM 2015 Page 3

4 Slide 8 Bid / no-bid decision Deciding whether to respond to an RFI or RFP should be a conscious decision involving those individuals who have the expertise and authority within the company. Bidding is an expensive business and the bid / no-bid decision is critical, as heavy investment of time (and therefore money) is about to start. The bid / no-bid decision means analyzing the risks versus the opportunities of a potential business deal and then deciding whether to proceed. A bid / no-bid meeting is the recommended forum for decision making of this importance. It is worth bearing in mind however that even if a decision is made to proceed with a bid, circumstances change and the flexibility to revise an earlier decision is vital. Those involved with the bid should continue to question the bid decision at all stages of the bid process. The following inputs are needed for a bid / no-bid decision: The solicitation this should be circulated to those individuals who are to make the bid / no-bid decision as soon as possible after receipt to enable a full and detailed study of all relevant issues Purchaser specific information the primary needs of the purchaser and any information that exists around budget and strategic plans Competitive analysis strengths to neutralize and weaknesses to exploit Supplier specific information market strategy and where appropriate bid costs and available funding This information (if analyzed honestly) will provide the supplier with: Understanding of the risks associated with the project Analysis of supplier s ability to respond successfully and pricing analysis Make / buy strategy Timeline for bid activity Plans to influence purchaser at high levels Key proposal features (critical success factors, resources required and a strategy to win) Key themes that need to be reflected throughout the bid The role of the contracts organization is fundamental to this process. That said the contracting organization does not operate in a vacuum and the bid process needs to ensure all relevant decision makers are involved as appropriate. The outputs of the bid / no-bid meeting are: Whether to continue with the preparation of the proposal or not Approval of the funding required to bid (where appropriate) Identification of whether teaming partners and / or subcontractors are required Slide 9 - Bid / no-bid decision Take a moment to complete the task on screen. Slide 10 - Bid / no-bid decision Let s take a look at the answers. Slide 11 The bid team The structure of the bid team will depend on the size and complexity of the proposal but one thing is certain, the ability to co-operate, communicate (including the ability to receive and deliver constructive criticism) and put the task of preparing the bid first is vital if the bid is to be successful. In general a bid team should include people to handle the following roles: IACCM 2015 Page 4

5 Bid Manager manages the preparation of the bid and is responsible for ensuring the bid is submitted on schedule and within budget, if appropriate Project Manager responsible for managing the project post contract award. They need to satisfy themselves that what is being proposed is achievable Business Development or Sales Manager provides information on the customer, the market place, the competition (including likely bid price) Services representatives provide information on all services related issues Finance Manager ensures that all elements of the project are costed and validates pricing models reflecting the effect of differing profit margins Contract or Commercial Manager as a minimum they will provide input on the contractual terms Purchasing Manager ensures that all 3rd party supplier issues are covered Legal provides specialist legal advice where needed Writers experts on the technical response, management and company background who will draft the response (it is normally the case that those individuals listed above will also perform the writing task) Slide 12 Proposal preparation Now the real work activity begins. The Bid Manager needs to allocate each section of the solicitation to the individual responsible for providing the response whilst at the same time making clear the key win themes that each writer must endeavor to include as well as guidance on how much detail is expected and rules as to the terminology that must be employed. It is critical that from the start the themes, strategy and solution are clear to all involved. This ensures that the writers know exactly what is being sold and how to sell it before they put a word to paper. It is recommended that an outline of the intended proposal is prepared and circulated as set out below. A well-prepared outline is the foundation for a clear, consistent and logical proposal, a proposal that can easily be understood by the purchaser. Using the RFP as your framework, assign each purchaser requirement to a place in the outline. Break the outline into sections and subsections to ensure the different requirements are covered. This ensures that each requirement is addressed in the final proposal. Assign each of the purchaser s evaluation criteria (which should be stated within the RFP) to each section of the outline (ideally cross referencing the RFP section number). Review the intended outline to ensure it flows logically, that the purchaser will be able to review it easily, that the emphases are where you wish them to be and that it conforms with the requirements of the RFP. Assign each of the sections within the outline to an individual who will be responsible for drafting the response. State clearly where each response will fit within the final proposal. Provide specific instructions to each writer as to the themes, terminology, style and number of pages they should be providing. The outline should be circulated promptly and a meeting held to ensure that everyone fully understands and is in agreement with the outline of the proposal. The longer this first bid meeting is delayed the greater the chance that someone has gone ahead and done their own (very different!) thing. Slide 13 The role of the contract management organization For the purpose of this module, we are going to make the following assumptions about the contracts organization s role in the bid process: IACCM 2015 Page 5

6 It limits involvement to situations where it can add greatest business value While often unavoidably focused on limiting risk, the organization s aim should be to spend its time on adding value through creative solutions By creative solutions, we mean contract elements and commercial ideas that expand the value of the deal, exploit opportunities represented by risk and create sources of competitive advantage, while remaining within an overall acceptable risk profile To perform this role, the contracts organization needs a broad array of business skills and knowledge. For example, they must be able to interpret business direction and strategies and turn them into supporting commitments. They must be able to analyze and evaluate purchaser requirements and translate them into business capabilities. They must be able to assess available capabilities and determine ways in which they can meet or exceed stated purchaser s needs. They must be able to identify and creatively mitigate risk in a manner that satisfies purchaser and internal needs. It is never too early to involve the contracts organization. They should be part of the bid team from the very start and should certainly form part of the team that makes the bid / nobid decision. Slide 14 Adding commercial value As mentioned earlier, responding to an RFP involves, in all but exceptional circumstances, the making of an offer capable of acceptance by the purchaser. Even if the purchaser chooses not to accept the response (offer) without clarification or negotiation, it has contractual implications, since the customer will rely on statements and documents provided at this time and will seek to incorporate them as part of the final agreement. The days when a response to a solicitation could simply attach the supplier s standard terms and conditions are largely gone. It is increasingly a requirement that the supplier provide a point-by-point response to each and every term within the purchaser s contract. This takes time and should not be left to the last minute, especially as it may well be necessary to take a non-standard approach to some of the purchaser s contractual requirements and such an approach invariably involves gaining the approval of senior management (including the legal department). It should be made clear at this stage that the bid process should not be confused with the non-standard contractual terms approval process. Whilst both are clearly linked they should exist as separate processes. How far a supplier needs to go in agreeing to a purchaser s contractual terms will be influenced by many factors: The competitive landscape Knowledge of the purchaser s key commercial concerns Previous contracts with the purchaser The performance of previous projects for the purchaser The experience of the purchaser with other suppliers The importance of the proposed solution to the purchaser s business The supplier s approach to risk It is clearly a major benefit to have pre-established standard contract terms, which can be utilized where a point-by-point response is not required, and which will alleviate the need for active intervention or support from the contracts organization. Nevertheless it is pertinent to bear in mind that the whole bid response document will be relied on by the purchaser who will seek to incorporate documents provided at this time as part of the final agreement. A commercially astute contract manager adds real value in reviewing the proposed bid to ensure that it is contractually sound. Activities include reviewing Statements of Work (SOWs) and making clear to writers of technical responses that their language should be IACCM 2015 Page 6

7 free from overblown marketing rhetoric. Similarly an astute contract manager can ensure that if there are any cost implications in what has been offered (e.g. an extended warranty period), they have been covered in the pricing model. Slide 15 The bid goes on We spoke earlier of the need for a meeting of the bid team as soon as possible after the bid manager has prepared an outline of the intended proposal. That meeting is critical to ensure everyone understands the strategy to be used for winning the bid in addition to their roles and responsibilities in achieving that strategy. A detailed milestone schedule is essential if the bid is to be kept on track. This should be distributed amongst the bid team and during the subsequent regular bid meetings. Any slippages should be highlighted and an action plan agreed for bring the schedule back on track. Included within the schedule there should be a solution review meeting. The solution review should be a thorough examination by the bid team of the proposed answer to the purchaser s requirements. The review needs to address whether the solution goes far enough in meeting those requirements, or even perhaps too far! Once the solution has been agreed the design should be frozen so that the task of writing the response can begin in earnest. It is normal for the design to be frozen no later than half way between receipt of the RFP and date of proposal delivery. It is critical that the date for freezing the design is adhered to if all other tasks relating to the preparation of the proposal are to be completed in a professional manner. Once the design has been frozen the task of ensuring that the right subcontractors are involved can be finalized. It is vitally important to put in place draft agreements with subcontractors to minimize risks associated with dealing with 3rd parties for whom the sole method of control is via a subcontract. If agreements with subcontractors are not in place then the sole method of covering the risk is to include a contingency in the costs, which will have the effect of raising the price. It is obviously critical that the Purchasing department is involved in the subcontracting activity as early as possible. The 3rd parties must agree to all terms and conditions which the purchaser requires of the supplier (e.g. extended warranty) and negotiating such backto-back agreements is extremely difficult after award of the main contract as the 3rd party will know that the supplier has little alternative but to accept the position the 3rd parties adopts. Finally comes the Red Team review. The task of the Red Team is to read the proposal from the Purchaser s standpoint, so the version of the proposal that is provided to the Red Team should be as close to the final version as possible. The Red Team comprises senior departmental managers who read the entire proposal or specific sections with the aim of ensuring the proposal complies with the requirements of the RFP, is clear and consistent and addresses the key win themes throughout, whilst identifying any risks to the supplier or the purchaser. The result of the Red Team review is an assessment of the acceptability of the proposal to the purchaser. The Red Team should identify strengths and weaknesses and make recommendations on how to improve the proposal. It is for the bid team to then address those recommendations. Slide 16 Approvals Approvals are an integral part of the contracting process for all companies. It is normally the case that all responses, or offers, which are capable of acceptance are subject to receiving formal internal approvals. Such approvals may be granted as part of a lengthy process or IACCM 2015 Page 7

8 via a quick meeting with the Managing Director and Finance Director. This normally means that responses to RFIs which contain no pricing (other than list prices) and which are clearly expressed to be non-binding are not subject to the approval process. It is clearly important that the milestone schedule allows time for the approval process to take place and for the information required by the approvers to be made available in good time. Slide 17 Exercise Take a moment to complete the task on screen. Slide 18 Exercise Take a moment to complete the task on screen. Slide 19 Exercise Take a moment to complete the task on screen. Slide 20 End 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 8