As Canada’s most connected event and association management company we are pleased to publish guest blogs by our partners. This post is written by Cal Harrison.
Associations often need to find and hire professional services firms such as consultants, lawyers, engineers, photographers, architects, and graphic designers and quite often an RFP is the methodology used to do so.
But with an RFP comes some potential problems – is your association aware of the hidden dangers?
Associations And The RFP Trap
The Request for Proposal (RFP) process has long been espoused as a means to objectively evaluate and select professional service providers – including many that serve associations and their clients.
Unfortunately, far too many RFPs fail to achieve the lofty objectives of integrity, transparency, efficiency, value for money and quality.
In its most common form, the RFP process can actually increase the cost of buying professional services while decreasing the likelihood of selecting the best service provider.
There are three key issues associations must address to reduce the cost and risk of error – legal issues, inaccuracy issues, and inefficiency issues. Please note that the discussion below should not be construed as any form of legal advice – just concepts for discussion and further exploration with your lawyer.
Legal Issues for Consideration
The Ron Engineering and Tercon cases in Canada illustrate that great care needs to be taken when issuing a formal written solicitation to purchase services as the solicitation document can become a binding agreement.
Basically there is an argument that when you issue a written RFP it can become a contract (Contract A) stating that whichever proposer best meets the stated criteria within the RFP will be awarded a second contract (Contract B) – the contract to do the actual work.
If you happen to award the work based on some criteria other than those stated in the RFP (such as the classic “we just felt the other firm understood us better”) you have just potentially exposed yourself to a lawsuit which can include cash penalties equal to (i) the losing proposer(s) cost to submit a proposal as well as (ii) the value of the profits the losing proposer(s) did not receive as a result of losing that bid.
And note that the exclusionary clauses you put in the RFP to protect you from such lawsuits probably aren’t.
One of the significant challenges when selecting a provider of an intangible service is determining what should be measured in order to identify the best vendor.
The intangible you are evaluating in a professional services firm is always expertise. This is the only important point of evaluation (if you don’t understand why expertise is such an important variable to evaluate you might want to read The Consultant with Pink Hair).
To measure expertise (an intangible) you need to review relevant tangible evidence of expertise like experience and performance on similar projects, narrow practice area focus, and credentials such as targeted education, certifications, and third-party recognition – not just client endorsements but industry recognition like a track-record of speaking or writing on the specific subject matter to professional, sophisticated, and paying audiences.
People, process, service levels and hourly rate are irrelevant points of evaluation to use when selecting a professional services firm but are ironically the most commonly used and typically the most heavily weighted variables evaluated in a typical RFP.
One other point to note related to selection accuracy and quality is that increasingly, the most respected consultants refuse to participate in an onerous RFP process meaning that while RFPs may continue to attract significant responses, they will increasingly be from lower calibre firms.
In the world of the professional services RFP, it is not uncommon for the industry cost of writing proposals to be greater than the value of the fees received by the winner of the RFP.
Let me illustrate with a real-life example.
A Canadian government agency recently issued an RFP for $50,000 worth of architecture fees. A tally of the proposal writing cost provided to me by one architecture firm came to $20,000. So the retail value of the architect’s time to write the proposal in order to be compliant with the requirements of the RFP was $20,000. The RFP wanted too much detail, too early in the process and documenting and providing that detail cost the architect a lot of money. It is reasonable to assume that any other architect submitting a compliant proposal would incur similar costs.
A total of 38 firms replied to the RFP meaning that about $760,000 worth of proposal writing time was incurred by the architecture industry so that one of them might win $50,000 in fees.
Does anybody see the lack of logic here?
Some purchasers feel that this inefficiency is not an issue for them to consider and deflect it with meaningless statements in their RFP like “The purchaser will not be responsible for any of the costs related to the preparation of this proposal”.
Although the vendors are not sending purchasers an invoice for their proposal preparation costs those proposal costs ultimately get built into every firm’s billable rate meaning every purchaser of professional services is paying a premium because of their own buying inefficiency. And this doesn’t even consider the internal costs incurred by associations to evaluate 38 proposals which can be almost as significant as the proposal writing cost. And when you take into consideration the existing demand on volunteer executives and thin budgets for paid association staff is it really a good idea to create such an artificial and ineffective administrative burden?
(Note also that in casual conversation with dozens of professional services firm owners over the years all agreed that they would provide a discount to an association that did not require them to go through an RFP process to win their work. Typically the discount identified was 10%. Now that does not mean that there should not be a competition – just not an onerous RFP.)
As a purchaser of professional services, your goal should be to evaluate as few relevant proposals as possible. RFPs usually serve the opposite goal of broadly inviting many proposals to the table in the name of transparency and value – neither of which are usually the result when using an RFP for professional services procurement.
Is it any wonder that with processes like these Canada is ranked 13 of 16 peer countries in terms of innovation by the Conference Board of Canada?
If your association purchasing policy requires transparency and fairness but also value for money and process efficiency, try the following three step strategy instead of an RFP.
- Replace your RFP with a Request for Expressions of Interest (RFEI) or a Request for Qualifications (RFQ) and ask vendors to clearly describe why they are considered experts at solving your specific type of challenge. Limit them to one or two pages listing tangible evidence of their relevant expertise and be sure to give them a budget range as not every firm of similar expertise is suitably structured or available for all size projects. (Note that the procurement process is not a time to try and determine if you can afford your project – if you have no idea what a project should cost make some phone calls first and find out before issuing any sort of documents and wasting everyone’s time).
- Based on this, invite the two or three most qualified firms to meet with you and present their specific capabilities related to your specific needs. Limit them to one hour and again make sure they know what your budget is and respond to their questions with detailed answers. Discuss timelines, expected outcomes and how you will work together (but never ask for solutions to your problem).
- Based on these interviews, invite one firm that best demonstrates its relevant expertise to submit a brief proposal including a price that is based upon your budget. This is basically a written version of what you had discussed in your meeting and will form the basis of your contract. Negotiate a final agreement from this starting point.
By replacing a traditional RFP with this process you may reduce potential legal liability, reduce your internal selection costs (as well as industry response costs which inevitably flow back to you the buyer), and increase the likelihood of selecting the best professional services firm for your specific challenge – elevating procurement from an administrator of a burdensome and bureaucratic tactical process, to a strategic asset for your organization.
Disclosure: Cal Harrison is not a lawyer. Note that all opinions should be considered commentary for discussion and not legal advice.
Versions of this article originally appeared in CA Magazine and Pro-Purchaser.