RFPs and How to Ensure They Succeed
by François Masquelier, Head of Corporate Finance and Treasury, RTL Group and Chairman, ATEL
How best to select your suppliers objectively and honestly, observing treasury management principles and best practices. This article describes the basic rules that you are recommended to follow to make your request for proposal 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 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 proposal 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 and so on. 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 made. 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 RFPs, which 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.