RFP (request for Proposal), recipe for corporate treasurers – July 2012

RFPs: how best to formulate your needs to ensure your requests for proposals succeed?

How best to select your suppliers objectively and honestly, observing treasury management principles and best practice. This article goes over the basic rules that you are recommended to follow to make your request for proposals a success. Proper preparation of the RFP ensures a (more) successful project, and is a way of avoiding nasty surprises. 

Definition of an “RFP”

RFP is an acronym standing for “Request for Proposal”. During the procurement process, it is the first stage in which suppliers are invited to submit proposals matching specifications that are drawn up with as much precision as possible. The response to the request for proposals puts the corporation and the treasurer in the best position to make a fair selection of the company or companies to be used (depending on whether there is to be a second round and whether a shortlist is to be prepared). Simply responding to the request establishes the supplier’s interest in the request from an early date. Requests are therefore sometimes rejected. It is the means of clearly demonstrating the intention of embarking upon a competitive process and seeking the best combination of quality and price – and it is the combination of both that needs to be evaluated. Obviously an RFP is not issued when opening a bank account or buying some low-value service, or a low-cost piece of software that is easy to install. Typically, RFPs are used for purchasing treasury management systems software, major consultancy jobs, setting up “payment factories”, putting “cross-border cash pooling” in place at the European level, etc. Through the RFP document, potential suppliers are asked to commit to making their best possible effort to achieve the intended objective. It is also a preventative measure to avoid either side wasting time through misunderstanding or over/underestimating the customer’s needs and expectations. It is therefore much more than a simple price bid that is expected. The treasurer is expecting commitments, detailed information, a competitive price, details of implementation and the resources to be provided, completion time limits, any points not covered or outside the scope, etc. It should demonstrate the treasurer’s impartiality in choosing the supplier. There are certainly “false RFPs” and pseudo-RFPs. Their purpose is to beat down the existing supplier’s price at the time the request is put out. Many companies use them for this purpose, without adhering to the rules of fairness which would involve selecting the best supplier and not the existing supplier, even if it drops its price. Bogus requests for proposals should be avoided, since they damage the reputation of those issuing them. That is the price of credibility. When the supplier realises that the treasurer is prepared to dispense with the current service or product for another one if it is better and/or cheaper, that supplier then tries much harder, and competition becomes effective. 

What is an RFP for?

In treasury management, it is good practice to make use of Requests for Proposals. RFPs are the best way of respecting your partners, giving them the opportunity to put in a proposal and a price for a service or product, to adhere to certain professional ethics and finally to provide assurance of necessary and fair competition between suppliers. At a time when ethics are more than ever in the spotlight, requesting proposals is sound and good practice. It is also the surest way of guaranteeing that the service to which the seller has committed will be performed in accordance with the treasurer’s expectations. Defining your needs properly is the way to guarantee that the proposal will match the request. It will also avoid misunderstandings between the seller and the buyer. In short, it is a sort of list of specifications. You would usually ask for a quote for the smallest jobs that tradesmen would do on your house, but for major purchases for your department this is often not done on the pretext of having identified the product or service required. RFPs often show who has the motivation and capacity to do the job required. Buying treasury software is not like buying a dishwasher. The product often requires associated services and human and technical skills. Product life and the firm’s soundness are also essential to the project’s success over time. It is also often required as a precautionary measure, for internal control purposes, to avoid fraud, cronyism and other risks of misappropriation of corporate assets. If we look at the Bribery Act (www.legislation.gov.uk/ukpga/2010/23/contents) in the UK and at this focus on the fraud and ethics aspect in companies, we realise that RFPs are not only sound practice but also essential to forearm ourselves against subsequent criticism of the selection made. But the question then arises of how best to draft an RFP. Plenty of people talk about it, all too few put it into practice, some ignore it or even worse subcontract it to consultants, and far too many overlook its merits and the reasons for its existence.

Composition of an “RFP”

In general, an RFP must contain a series of pieces of information. It must be neither too short, nor too long. However, for purchasing a TMS for example, there is very often far from adequate precision, and omissions, inaccuracies or loopholes will cost dear over the project’s lifetime.

Alongside this traditional structure, it is advisable to add everything that the treasurer considers to be appropriate and necessary to the success of the project. Obtaining an absolute obligation (preferably) and/or a best efforts obligation is also important in preventing any subsequent disputes. Precision therefore acts to prevent disputes and misunderstandings. It is when the going gets tough that the treasurer will be glad he was comprehensive and precise in drawing up his RFP.

RFI, RFQ and RFT

As well as RFPs, there are also Requests for Information, Requests for Qualifications and Requests for Tenders. Here, the objective is to obtain additional information. They are not binding on any of the parties. An RFI does not necessarily lead to an RFP. It is also the route to a better understanding of the pricing mechanism implemented by a bank, for example for comparing the terms applied by different organisations to all of one’s subsidiaries. An RFQ is often a preliminary stage for compiling a shortlist of potential prospective suppliers who meet enough of the conditions to deliver the treasurer’s expectations. An RFQ is also often confused with a Request for Quotation, where the expectation is solely about price and where the treasurer knows that all the candidates approached are able to deliver the required product or service.

Finally, the Request for Tender is used most by public or government bodies. It doesn’t matter what the request is called, the important thing is to be certain that you get what you want. For completeness, we should mention the Best and Final Offer (BAFO) which is a sort of second and final round, or even the Best and Revised Final Offer (BARFO). (X)

Conclusions

An RFP must be meticulously and conscientiously prepared to be useful and to achieve the set objective. There are solutions offering RFP templates. Although cheap and helpful, they are not absolutely necessary. Everyone has their own method and approach. Stamp your own style on your RFP. It should have your stamp, your mark and your personal touch. Respect for the participants and fair and transparent treatment is absolutely crucial. Losers also learn about the other participants. Losing with dignity and respect is not always easy. A “good loser” should be respected and will always be well perceived at subsequent requests. If an RFP is issued, it should be genuine and honest. The best applicant must always win, and it should always be based on objective criteria. There is a real dilemma between being complete and comprehensive, and therefore producing a long and laborious document, and “making it (too) short”, with the risk of the treasurer not getting what he wants. Grey areas, or areas that have not been covered, are always pretexts for reviewing prices and claiming that the point was thought to be outside the scope. Always ask for a (detailed) breakdown of prices so that you can calculate the cost of each of the solutions on the basis of reasonable assumptions. Prices are sometimes set out in a complex manner, which makes them difficult to compare. In this case a plausible simulation must be run to make an effective comparison between proposals.  The quality and presentation of the responses is, to my mind, also a criterion to be taken into account. A company that cannot respond concisely and professionally disadvantages itself from the outset. A premium for the quality of the response should be awarded in the scoring matrix (a scoring matrix in Excel format, in general with a pre-set rating for key points). There is little useful and comprehensive literature available to help treasurers on the subject of RFPs. In time, through practice, they will end up finding a style and a template that they can keep on improving with each RFP/RFI. Even though requesting proposals imposes constraints, it is nevertheless good practice and beneficial for the issuer. Prepare yourselves well with a full and precise list of specifications so that you get back satisfactory responses that enable you to make an informed selection. A project is already an adventure full of pitfalls. Don’t make it any worse by any half measures when preparing it.

 (X) How Requests for Proposals should be used in business – http//www.negotiations.com/articles/procurement-terms/

François Masquelier,

Chairman of ATEL

 

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