Many organizations faced with the need to source energy sector expertise resort to that old procurement warhorse, the Request for Proposals, or “RFP”. Some public buyers consider themselves compelled to use an RFP when obtaining the professional services of a consultant or advisor. Yet the RFP is a fundamentally flawed tool for procuring the expert advice needed to solve a complex problem. So flawed is it that in many sectors where innovative thinking and problem solving are central to delivering a good solution – management consulting, software development, web design, advertising, architecture – 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 that maximizes value for money? There are three serious flaws in the RFP process when it comes to procuring expertise.
RFPs pre-define the problem and specify a required 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 prospective vendors to answer scripted questions to show that they can provide that solution. But insightful 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. From the advisor’s perspective, the only thing worse than not getting a job is getting a job when you are prevented from doing it the way it should be done. In that case, you would be signing on to deliver an inferior outcome.
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 that maybe haven’t been raised before, 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 lead the client to new insights or a greater understanding of their needs. The procurement process should be designed to assess the proponent’s consultative skill, not their RFP-writing skill.
RFPs impose an unbalanced view of risk and reward
The fees proposed by proponents carry a material weight in the scoring of most RFPs. Buyers want to show that they got “value for money” in a competitive process.
In many energy procurement engagements, the fee paid to the advisor may 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 common market conditions, energy price volatility is such that the buyer’s annual energy costs can change by 10% in a month. The economic value of lowering energy costs 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 allow for alternative approaches that may bring greater value. A Request for Information stage may help in this exploration process to identify a broader range of acceptable approaches that can be formally evaluated. Don’t reject a novel approach simply because that isn’t how everyone else does it – doing things differently may be the key to getting better results.
- 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 creates for you. At the end of the day, you are looking for an advisor who understands your time is valuable and can use it effectively to generate new insights and greater understanding.
- Abandon the idea of allocating points for the fee proposals relative to the lowest proposed fee. Would you choose a lawyer to defend you at trial or a surgeon to operate on you based on the lowest fee? These are all situations where the value of expertise outweighs the incremental costs. Set a budget amount you are willing to pay to obtain the expertise you need, perhaps in relation to the size of the annual spend or the risk being managed. 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.
It is useful to think of risk as “the impact of uncertainty on your objectives”. Nothing in our future is certain, but we need to identify when the degree of uncertainty and the potential consequences of uncertain events are big enough to really matter. If so, then we need to do something to manage that risk. Otherwise, we can just go about our business.read more
Many organizations faced with the need to source energy sector expertise resort to that old procurement warhorse, the Request for Proposals, or “RFP”. Some public buyers consider themselves compelled to use an RFP when obtaining the professional services of a consultant or advisor.
Yet the RFP is a fundamentally flawed tool for procuring the expert advice needed to solve a complex problem.read more
You’re hitting the road for your daily commute. Driving can be risky and you want to arrive safely at your destination. You consider yourself a careful driver and you’ve adopted a strategy of maintaining 50% braking force for the entire journey.
Wait, what? Nobody drives like that.read more