By Hunton & Williams, LLP

Over the past 20 years, the Sourcing and System Integration Practice Group at law firm Hunton & Williams, LLP has completed dozens of large–scale BPO and ITO transactions for the world’s largest utility, consumer products, aerospace, technology, insurance, financial services and other companies. It recently published a report sharing its experience in achieving its goals of helping its clients deliver reduced costs, improved performance and process transformation while maintaining core business operations. The law firm shares its experience in achieving these goals, at each of five stages of the outsourcing process, from pre–RFP (Request for Proposal) planning through post–contract relationship management. Although it addresses the process from the provider’s standpoint, it is also instructive for the buyer of outsourcing services. The following is an excerpt of the part of the report that highlights Stage 2: Assisting providers through the RFP process.

Position the customer for success with a thoughtfully constructed vendor-qualification process. A successful RFP process should include the following:

• Begin with an RFI. Before issuing an RFP, the customer must narrow the field of possible providers by developing a long list (10-20) and beginning due diligence with a request for information. Ask key qualifying questions—experience, capabilities, references, etc. Select 3-5 providers to participate in the RFP process.
• Result in real offers. Any provider still in the running at the RFP stage should be capable of providing the services. The goal of the RFP process is to narrow the field for further negotiations by determining which providers will offer to sell the services desired at an acceptable price. To achieve this goal, the customer must know two things:
• The baseline services. To know the cost of providing the services, which of course is necessary to provide a meaningful price, the provider must know the services to be provided. Developing a comprehensive description of the services to include in the RFP takes time and effort in the beginning of the outsourcing project, but will save time over the course of the transaction and avoid the frustration of incomplete RFP responses.
• The baseline cost. To evaluate provider offers, the customer must know the current costs of providing the services and the elements of the process that drive those costs.
• Set the rules. Put rules in the RFP for provider responses and negotiations, and then enforce them!
• Required contract terms. An RFP must include contract terms, or at least the most important ones, and require the provider to either accept or reject the terms. For any rejections, a provider should be required to provide precise details of its proposed terms. Answering a question with another question and giving responses such as “for further discussion” should not be acceptable.
• Detailed negotiation schedule. Providers sometimes will extend negotiations intentionally to wear down the customer’s team and create internal pressure as the customer’s management pushes to get the deal done. To counter this strategy, consider including a detailed due diligence and negotiation schedule in the RFP, and require the provider to stick to the schedule as a condition of continued play. Sometimes this requires dispensing some "tough love" — both to the provider and the customer’s own management, who might want to bend the rules for short-term advantage. Demanding professional rigor from the provider early on will set the proper tone for the entire relationship and help weed out those that can’t play by the agreed rules.