Are RFPs a waste of money?

November 2009

The recession has increased interest in many different ways of saving money, but is one of the traditional ways of achieving savings, in itself, a waste of money?

Typically, when a customer wants to renew an IT service, they would run a process where a number of potential suppliers compete for the business through a formal Request for Proposal (RFP). This can be a lengthy and therefore costly exercise that may generate savings, but are they enough when compared to the cost of actually running the process?

We have just taken a client through a renewal process for a global WAN where we only approached one supplier, in order to avoid most of the costs associated with an RFP. We went through a very similar process to an RFP, with the same discipline and rigour that we would apply when dealing with multiple suppliers, but with substantially reduced effort. This resulted in:

Savings of 23% over the previous contract for the client
Over £500,000 of costs avoided for the client
Reduced costs for the supplier

We ensured that the client was receiving value by including a market review in the process. This showed that the pricing was very competitive and was unlikely to have been beaten through an RFP.

There is also a trend in the market where suppliers are getting much better at qualifying their chances of success in an RFP and are declining to bid where they consider it unlikely that they will win. The days when a customer could issue an RFP just to “beat the incumbent supplier down on price” seem to be numbered.

Therefore, customers need to carefully consider if an RFP is the right approach, or whether an alternate approach would actually generate a better result. I believe that there is still a place for a traditional RFP, but the circumstances have to be right and it should not be considered as the “default” approach. Our recent experience shows that a single supplier approach can be beneficial to both the customer and the supplier.

Mike Hill – Head of Commercial Services – Itica Consulting – November 2009

mike.hill@itica.co.uk

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