Fatal flaws in procuring expertise through RFPs

February 2015

• The RFP is a flawed tool for procuring expert advice to assist in buying energy and managing energy price risk.
• RFPs pre-define the problem and specify the desired solution, restrict communication, and take an unbalanced view of risk and reward.
• If an organization must use an RFP, there are ways to limit the damage.

Many organizations faced with the need to source energy expertise resort to that old procurement warhorse, the Request for Proposals or “RFP”. Some public buyers, subject to the Broader Public Sector Procurement Directive, feel compelled to use an RFP when obtaining consulting advice. Yet in many ways, the RFP is a fundamentally flawed tool for procuring expert advice to solve a complex problem. So flawed is it that in many sectors where innovative thinking and problem solving are central to the task – management consulting, software development, web design, advertising – leading service providers are increasingly opting out of responding to RFPs.

What’s so bad about RFPs? Aren’t they the only fair way to compare service providers and make an informed choice?

There are three ways in which RFPs are fatally flawed when it comes to procuring expertise.

RFPs pre-define the problem and specify the desired solution

The whole point of procuring expertise that does not exist in your organization is to bring added experience and insight and fresh thinking to a vexing or complex issue. The RFP process usually involves the buyer specifying exactly what solution they want to buy, and asking the prospective vendors to provide the specified evidence to show that they can provide that solution.

But problem definition and the development of alternative solutions are two areas where the buyer critically needs the input of the expert they are looking to retain. By skipping this part and assuming they know the problem and the required solution, the buyer is eliminating the expert’s ability to redefine the problem in a more helpful way, or to identify innovative solutions that have not been thought of before.

Experts who understand how important the problem definition phase is to achieving a good outcome are often chased away by an RFP that takes this part of the process out of their hands, because it puts at risk their ability to deliver the best outcome. For this kind of advisor, the only thing worse than not getting the job, is getting the job when you are prevented from doing it well.

Those left to respond may be those willing to simply “give them what they asked for”, whether or not that is suitable in the circumstances.

RFPs restrict communication

Communication is central to the advisory relationship. Good advisors have to listen more than they talk, and have to be active listeners – asking probing, sometimes challenging questions, considering the answers, and then probing again until the client and the advisor come to an understanding of what the problem or deliverable is and how best to address it. This is a back-and-forth process, and sometimes it takes place over a few meetings rather than just one.

The RFP process prohibits this communication process. Most RFPs restrict communication between prospective proponents and the RFP issuer. Proponents have one chance to send questions to the RFP issuer in writing, who then responds. And then communication ceases! There is no opportunity to ask the follow-up questions that naturally spring from the answers to the first questions. There is no conversation, and as a result there is no discovery, and no understanding.

Aside from the fact that it restricts information flow, this prohibition on communication actually robs the buyer of the opportunity to evaluate the proponents’ communications skills. Face it, the skill required to write answers to stock RFP questions is quite different than the skill required to probe and understand the client’s business and the client’s needs. The procurement process should be designed to test the proponent’s consultative skill, not their RFP-writing skill.

RFPs take an unbalanced view of risk and reward

The fees proposed by proponents are an important consideration in the scoring of most RFPs. Buyers want to show that they got “value for money” in a competitive process.

In most energy procurement engagements, the fee paid to the advisor will be less than 1% of the buyer’s total energy spend. If there is a 20% difference in the fee proposal from Advisor A to Advisor B, it means a difference of 0.2% of the buyer’s energy spend.

In typical market conditions, price volatility can mean that the buyer’s annual energy costs can change by 10% in a month. The economic impact of lowering the energy spend while controlling energy price risk is orders of magnitude greater than the fee differences between advisors. Choosing one advisor over another because they are cheaper is false economy. Do you really want to select the advisor who will do exactly what you asked for – no questions asked – for a small fee over the advisor who challenges you to see that the effective solution is a little more complex than that, and who therefore has a fee that is 20% higher?

Overcoming the RFP flaws

By their nature, RFPs represent obstacles to the effective procurement of expertise to assist in buying energy and managing energy price risk. Yet, many organizations will feel they are a necessary evil. What can be done to limit the damage of the RFP on the process of procuring expertise?

• Rather than simply drafting and posting an RFP as the starting point of the process, buyers should research the service providers in the sector, looking specifically for differences in their approach. The RFP must be written broadly enough to include alternative approaches that may bring greater value. A Request for Information stage may help in this regard.
• The RFP evaluation should include at least one meeting with prospective service providers. Instead of providing a tight script of questions that the proponent must respond to, consider letting the proponents steer the meeting, and assess what value the meeting has created for you. At the end of the day, that is the capability you are looking to buy.
• Abandon the idea of allocating points for the fee proposals relative to the lowest fee. Would you choose a lawyer to defend you or a doctor to operate on you based on the lowest fee? Set a budget amount you are willing to pay to obtain the expertise you need. Any service provider who offers a fee within your budget gets a passing grade on this requirement. Any whose fee is beyond your budget is excluded. Then you are free to choose the best service provider available within your budget.

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