The RFP method is supposed to objectively select and hire the best professional services for a particular job. But does it accomplish this? The evidence says no
As a CA, are you aware of what the most commonly used method of professional service procurement is costing you? As purchasers and vendors of professional services, CAs need to be well-informed of the deficiencies and costs hidden within the request for proposal (RFP) method. It is increasingly characterized as inaccurate and expensive by experts across North America.
The RFP process has long been touted as a way for buyers to objectively evaluate and select from multiple professional service providers while keeping a lid on costs. Unfortunately, far too many RFPs issued by private sector, nonprofit, or government buyers fail to achieve these desirable goals. That’s because using the RFP process actually increases the cost of buying professional services — such as accounting and management consulting — while decreasing the likelihood of selecting the right service provider.
In fact, while vendors and purchasers may still believe that an RFP is the most comprehensive method of procuring suitable professional services, it is actually an unsophisticated and inefficient process based on questionable science.
There are three premiums that must be paid by every RFP user that those using other selection processes do not pay, or pay to a much lesser degree: the lawsuit premium, the inaccuracy premium and the inefficiency premium.
The Lawsuit Premium
A cost built into in every RFP is the cost of avoiding a lawsuit by a participant challenging the accuracy and integrity of a selection process.
In 1981, a Supreme Court of Canada decision known as the Ron Engineering case illustrated that “competitive procurement, whether by way of an RFP, RFQ, Invitation to Tender or otherwise, can have serious legal ramifications.”
This means that additional resources must be allocated when writing an RFP document to ensure its accuracy. These resources can range from engaging a lawyer to write or review the document to the lesser cost of using a tool like the Purchasing Management Association of Canada RFP Creator, marketed as a CD-ROM compilation by lawyers featuring more than 1,000 sample legal clauses for purchasing professionals to use when drafting RFPs. Not included in this premium is the potential cost of defending, and possibly losing, a lawsuit based on the clarity of language within an RFP document and process.
Although all selection processes (soliciting referrals, multiple firm interviews, sourcing thought leaders or subject matter experts, etc.) must define the criteria by which to choose a professional services partner, an RFP document and process has a significantly increased obligation to avoid legal issues.
The Inefficiency Premium
Blair Enns, president of Enmark Performance Development, one of the world’s leading sales and marketing advisers dedicated to advertising agencies, likes to remind his audiences that there is no such thing as the cost of selling, only the cost of buying. Nowhere is this statement more accurate than when using an RFP process to purchase professional services. The reasons why are obvious, yet rarely discussed.
First, in most for-profit professional services firms, countless hours are spent responding to RFPs — most of which are not won by the firm. These unpaid hours are factored into the rates subsequently charged to other paying clients, meaning that every professional services client is paying a premium to support the buying processes of other potential clients.
If the standard RFP process is inefficient, vendor rates will be higher than if the standard buying process is efficient and consumes less of their time.
Profit-oriented vendor firms will not take a loss to absorb the inefficient practices of their potential clients. It’s ironic that most RFP documents include a statement indicating that all costs associated with the preparation of a response to the RFP must be borne by the vendor when, in fact, they are always borne by the purchaser.
Second, Enns says that professional services firms’ managing partners are aware that their billable hours factor in compensation for the inefficiency of responding to RFPs and therefore are willing to adjust their rates downward if that inefficiency is removed.
Although one of the basic premises of an RFP is to increase competition in order to drive down the prices, it actually succeeds in achieving the opposite. Buyers are more likely to receive a reduced rate if they avoid the RFP process and negotiate exclusively with one vendor. Not only can the vendor eliminate the RFP premium from the price, it can more easily optimize proposed solutions because of access to buyer information that it would not normally have in an RFP process.
Time to Change How Professional Services are Purchased
Buyers have the opportunity to create strategic advantage for their organizations when procuring a professional services firm. However, they must first abandon their reliance on the constraints of the traditional RFP process.
An organization can achieve better value and reduce the cost of procurement by meeting with the top two or three expert firms in the industry and functional area of need (accounting, consulting, advertising, insurance, etc.). After gathering some basic information, it can invite one firm to propose an agreement for services — a collaborative instead of adversarial approach that generates a more valuable proposal. In other words, instead of wasting time and money with RFPs providing faint hope to firms that could do the work, only engage experts that should do the work.
While such a change may seem like a great leap of faith in terms of accountability, transparency and objectivity, this becomes a nonissue when we acknowledge that the current RFP process does not ensure integrity. The process is, in fact, malleable enough to shroud inappropriate actions in a veil of legitimacy. Many would agree that it was the easy manipulation of the RFP process that enabled the Canadian government’s massive sponsorship scandal, even though significant resources are allocated within that organization to maintain the integrity of that process.
Imagine if a fraction of the millions of hours spent writing meaningless proposals for professional services RFPs in Canada was instead shifted to productive consulting, accounting or other advisory efforts. Canada’s sharpest minds could increase the profits of our companies and drive social improvements for our communities instead of droning on about their people and process.
Traditional RFPs have demonstrated limited usefulness in procuring professional services. It’s time for purchasers to radically change or abandon this archaic process, and use more accurate and cost-effective means of finding, evaluating and hiring the firms that are right for them.
IF YOU MUST PARTICIPATE IN AN RFP
CAs who must write an RFP should utilize the guidelines below. Conversely, if you are a CA who must respond to an RFP, check to ensure these guidelines have been respected. If not, there is a good chance the result will be more expensive and more random than you think.
- Use objective, measurable and specific language.
- Include a project budget.
- Evaluate and score sector and functional expertise only (use a mandatory criteria category for all other relevant criteria).
- Provide complete, substantial and candid responses to questions from the vendors.
- Request any sort of solution as part of the proposal.
- Evaluate or score people, process or service levels.
- Share your responses to vendor questions with other vendors.
- Evaluate or score price or hourly rate.