Request for proposal (RFP) is a tool to formalize the process of documenting, justifying, and authorizing procurement in an organization (Cooper & Schindler, 1998). To evaluate different alternative offer by various supplier, client could use RFP as a tool to provide mechanism to establish, monitor, and control performance of supplier (Cooper & Schindler, 1998). De Loof (1997, p.223) believes that call for tender is essentials for the supplier to write a realistic tender response and for client to select best supplier. Lacity and Hirschheim (1995, p.199) suggest using RFP as a tool to compare in-house provisions to vendor offering in outsourcing decision-making. This paper tried to define the content of an RFP, process to produce an RFP, and process being done to evaluate vendor’s response.
An RFP contains mandatory requirements that all bidders must meet, but may also give supplier to propose appropriate alternatives solutions (Lacity & Hirschheim, 1995). Content of an RFP could be varying from a different point of view. In general, an RFP could contain the following parts (Cooper and Schindler, 1998):
Proposal Administration Information
Proposal administration information contains all the information regarding the administration of proposal itself (Cooper & Schindler, 1998). The first part contains timetable or schedule of the RFP process such as RFP’s release date, contact person, proposal’s submission date, and the dates of evaluation and selection. Potential supplier must be given enough time to make a proper response to an RFP. Next part of this section includes all the requirements for preparing the proposal and describes how the proposals will be evaluated (Cooper & Schindler, 1998). Demanding uniform format for tender responses will facilitate comparing the responses (De Loof, 1997).
According to Cooper and Schindler (1998, p.663), De Loof (1997, p.225), or Lacity and Hirschheim (1995, p.196) technical section contains information needed by supplier to create proposal. It contains:
- Problem statement
RFP should describe the problem to be addressed including description of client’s organization current situation and operation (Cooper & Schindler, 1998). Supplier could use description of current situation in the RFP to determined where they have to start and what input available to support their activities (De Loof, 1997).
- Description of functional requirements
The requirement should be specified as comprehensively as possible to allow vendor and other parties involved to determine the appropriate response (De Loof, 1997). Functional requirement is more than just a technical requirement. RFP with too much technical detail and lack of other functional requirement could be incomprehensible to another member of organization involved in the development and evaluation of RFP (Lacity and Hirschheim, 1995). For each requirement, a cost benefit analysis should be made. Sometimes vendors could propose better solutions than what a client could ever thought. In that case, a separated proposal could be submitted in order to avoid it being impossible to compare with another vendor’s response.
- Identification of constraints
This part describes all constrains faced by the project, which are predicted or assessed during the development of RFP. Vendor should be informed regarding the constraint in order to response with appropriate solutions.
Cooper and Schindler (1998, p.663) recognize that each project requires some level of management. This section contains the extent to which the corporation expects schedules, plans, and reports. This section also contains requirement of implementation schedules, training and reporting schedules, and other documentation. All references and qualification required from the vendor should be included. The next part is regarding outsourcing relationship. According to De Loof (1997, p.224), client should specify how the outsourcing relationship must be organized. All issues regarding personnel and disposition of current assets that will be likely affected by the outsourcing should be discussed, including what the vendor should do regarding these issues (Lacity & Hirschheim, 1995).
This section contains all information regarding financing of the project. Lacity and Hirschheim (1995, p.196) believe that cost should never be included because it will temper with the bids and providing vendors with a number to back into. Cooper and Schindler (1998, p.663) believe proposals with different approaches could be compared using a rigid format and supplier need such specification. In order to achieve appropriate response, budget estimation should be included in the RFP to reflect organization capability to finance the project and to compare proposals from vendor. After all one of the main reason to outsource is to achieve economies of scale or cost saving. Client should be able to compare economies of scale or cost saving from various vendors’ proposal within their financial capability. However, the cost limitation should not be applied in a rigid restricted way. Vendor must be allowed to propose differently and that is mean excess the estimated cost limitation. De Loof (1997, p.224) believe such a weak limitation will made client easy to compare the vendor’s proposals but also give creative vendors a room to propose different solutions.
Contract and License Section
According to Cooper and Schindler (1998, p.664) this section includes all types contract the vendor expected to sign and any nondisclosure agreements including expected contract termination mechanism. All issues regarding intellectual property right ownership and usage should be discussed and clarify in this section in order to avoid violation of such rights. Last but not least, all issues regarding security and confidentiality should be discussed (Lacity & Hirschheim, 1995). Sample of intended contract could be included. This section also contains terms of payment and required benchmarks.
PRODUCING AN RFP
When an organization has reached decision to outsource one or more of its function to the external parties, it should prepare to find one or more suitable vendor. Tender is one of the most popular ways to determine which vendor is chosen. Client should prepare detailed call for tender or RFP (De Loof, 1997). RFP should reflect the current situation faced by the client and the expected or required solutions from the vendor. In order to produce high quality RFP client should follow several procedures as follow (De Loof, 1997 and Lacity & Hirschheim, 1995):
Informing the affected staff
If the outsourcing decision has been made, the staff of affected business unit must be informed. They must be well informed about the outsourcing plans and the expected result in the future (Lacity & Hirschheim, 1995).
Setting up tender teams.
De Loof (1997, p.226) recognize that the selection process of vendor’s proposal require up to date knowledge of the project, vendors and their qualities, knowledge and experience with tendering procedures, skill to select appropriate vendor, and negotiate good contract. Lacity & Hirschheim (1995, p.195) suggest performing of tender teams. Tender teams consist of evaluation team, RFP team, and internal bid team. Evaluation team headed by a senior executive and contains representatives from affected business units and other senior manager. RFP team headed by a manager who will not be affected but posses the knowledge of current project. The team leader should capable of creating detailed proposal with the help from affected business unit member. An internal bid team will comprise a number of affected business unit manager and employer but do not involved in both evaluation or RFP teams. To ensure a fair play, internal bid team should be removed from the organization.
De Loof (1997, p.222) suggested risk analysis in the tendering process. Risk exposures could affect tendering process or outsourcing relationship. Risks faced by tendering process are regarding the uncertainty or large changes in the business world. Client should document the current situation in order to provide vendor with adequate information on which to base the tender response.
De Loof (1997, p.222) describes that tender teams should prepare the steps in tendering process. In general tendering process could be identified in two phases pre-selection and selection phases. Pre-selection phase is questioning vendor as many as possible. Selection phase is making of a shortlist from the vendor’s response from the pre-selection phase according to pre-defined criteria.
Write an RFP
RFP team should write an appropriate RFP. Content of an RFP have been discussed in the previous section of this paper. Approved final version of the RFP should be duplicated and send to the vendor. RFP could be sent to all available and known vendors or to pre-selected vendor based on certain criteria (De Loof, 1997).
Determine Evaluation Criteria
Evaluation team has the responsibility to set up criteria to evaluate responses from vendor (Lacity & Hirschheim, 1995). In the criteria making process, the evaluation team should keep the outsourcing goal in mind to produce appropriate selection criteria (De Loof, 1997). De Loof (1997, p.224) also suggested that the evaluation team should prepare to evaluate separate proposal from a vendor that contain different solution from the pre-defined solutions in the RFP. More detail evaluation process will be discussed in the section of this paper.
PROPOSAL SELECTION PROCESS
Vendor sends its proposal as a response to the RFP. The entire proposal accepted from the vendors should be evaluate to determine which vendor would be selected. Evaluation team should evaluate based on the pre-defined criteria. The selection process could start by sending the RFP to a pre-selected vendor based on a certain criteria (De Loof, 1997). Vendor could be asked to submit list of references from past customer or formal qualification certificate in the proposal. Client could send request of recommendation from the previous vendor’s customer (Cooper & Schindler, 1998). De Loof (1997, p.226) provides general guidance to evaluate tender responses:
Determine Selection Criteria
Each proposal evaluation is unique and different. However several common criteria could be used to determine selection criteria. Lacity and Hirschheim (1995, p.197) suggest criteria on personnel issues, disposition of current assets, disaster recovery, security and confidentiality, conversion process, access to new technology and technical talent, contract administration, and termination. Brambert (2000, p.1) suggest 10 general selection criteria, which are:
- Technical acumen
Client should assess the technical capability of the vendor to conduct outsourcing. Several vendors have been awarded certificate based on the past performance in conducting outsourcing using certain product or techniques, such as ISO certification. Client could also look for higher-level reseller programs (such as Novell Platinum), individual training, and individual certification. All of that certification is a good rule of thumb to predict the success of outsourcing process.
- Reference and similar project
Each outsourcing project is unique in nature. However, client should make sure that the vendor has experience in delivering similar solutions. It is a good idea to find out vendor previous performance by asking it’s past customer. Client should know how the solutions was developed, implemented, and the current performance.
- Financial background
Vendor financial conditions should be taken into account seriously. Vendors should be capable in financial term to carry out the project with sound financial strength. Client should know the vendors’ annual revenue and compared to the project estimated value. If the project value is more than one-fourth of the vendors’ annual revenue, it must be treated carefully. If the project value is more than one-half of the vendors’ annual revenue, it must not be selected unless subcontracting or splitting duties is acceptable.
- Size matching
Client should know the available vendors’ resource would be devoted to complete the project. Small-sized vendor could be devoted all its resources to the project but it might be not enough to deliver desired result. A larger vendor is more likely to reserve resources for the project. The down side is lack of vendors; attention to the project if the vendor is bigger than client and the client’s project value is smaller.
In a large project, it is common to split the duties and distributed it to other parties. Subcontracting is not likely mentioned in the RFP. Client should know who would conduct the subcontracted works and establish single contact point in order to control the project.
- Scope and responsibilities
Client has to be specific regarding project scope and responsibilities. This is important to build a good contract between client and vendor. Each part on the project knows exactly their job and responsibilities.
- Use cases
Vendor should be able to implement their solutions within client’s organization and dealing with the existing resources. Lacity and Hirschheim (1995, p.197) suggest that client should ask the vendor what they would do with the personnel and assets affected by the outsourcing project.
Due to budget limitation, cost is an important issue when comparing different proposal. Vendors must be judged by their own proposals. Extra spending would be acceptable on fixed asset acquisition, integrating solutions into client’s organization, and business process performance. Cost increase must be justified by significant performance increasing; otherwise second best solutions might be better.
- Exit strategy
Client always pays more attention on how to start the work. However, overlooked area is how client and vendor stop working together if necessary. Client should establish clearly what denotes completed project. Continuation of outsourcing relationship must be treated separately. To avoid expensive call back charges due to lack of functionality, client should include the post-implementation use criteria.
Determine Relative Importance
Importance of each of the selection criteria depends on the specific situation. It is often derived from the importance of the goal variables. All criteria must receive adequate intention.
Determine Required Values
Client should determine the desired maximum and minimum result rather than depend on comparing the proposal submitted by vendors. It could give client a better result in negotiation and not fall into taking the cheapest solutions. This requirement could be derived from internal restrictions on the budget and time limits, and data on previous similar project.
Evaluate Each Proposal to Criteria
Proposal submitted by vendors should be evaluated on each of the criteria. Each member of the evaluation team should evaluate proposals individually and then summarize the result. Vendor who could not keep to tender requirement and regulation can be a signal that it is willing or able to accommodate to the client’s need and situation. Proposal should be evaluated on their actual condition and not by others impression nor persuasion.
Lacity and Hirschheim (1995, p.199) emphasize on the need to assess validity of bids in order to ensure that the vendor could deliver the solutions they offering on time and within reasonable budget.
Perform A Critical Analysis of The Best Bids
If particular bid is considered better than current situation, client should analyze how the vendor could achieve these improvements and assert that it is not by reducing quality, leaving out requirement, or using creative accounting methods. Reference check should be done intensively to assess actual performance of the vendors.
In order to produce a high quality RFP client should now it’s current condition and justify the outsourcing decision. RFP should reflect the current situation and expected requirement to improve client’s organization in order to allow appropriate vendor response. Vendor response in the form of proposed solutions should be carefully evaluated to determine which is the best solution. Client should not depend entirely on the response from vendor but have to determine it’s own requirement. However, should there is no response that could meet the selection criteria then client should proceed with a reevaluation of the initial sourcing decision (De Loof, 1997).
Brambert, D. 2000 (May), Digital Due Diligence: 10 RFP Touchstones, ITworld RFP Centre, [Online], Available at: http://mithras.itworld.com/common/diligence.html (Date accessed: October 10th, 2000).
Cooper, Donald R. & Schindler, Pamela S. 1998, Business Research Methods, McGraw-Hill, Boston, pp. 660-664.
De Loof, L.A. 1997, Information Systems Outsourcing Decision Making: A Managerial Approach, Idea Publishing Groups, Hershey PA, pp. 174-235.
Lacity, M. & Hirschheim, R. 1995, Beyond The Information Systems Outsourcing Bandwagon: The Insourcing Response, John Wiley, New York, pp. 181-215.