Oct. 2 2006 03:10 PM

The conventional process adopted by customers shopping for business process, application service provider and information technology outsourcing services generally involves an RFP process. This includes a series of phases starting with the preparation of an RFP, evaluation of the several responses to the RFP submitted by the service provider candidates, due diligence by the service provider candidates, evaluation of the service provider candidates best and final proposals, a service provider candidates down-selection process and a contracting/negotiation phase. This series of phases starts with the preparation of an RFP definitively describing the as is state (the how) and the requirements for the as is state (the what) of the functions to be outsourced. It also describes the requirements (the what) for the to be state for these functions (if a migration to a new or modified solution is desired), the service level requirements and the customers financial base case for these functions.


The RFP process then requires that service provider candidates respond with a description of the what and how of the services, the service levels and other general performance levels for the services and the pricing of the services they will provide. The will also need a statement of their transition plan to move the services from the customer to the service provider. Most customers view the RFP process as imposing a rather rigid, formal, arms-length, time-consuming set of procedures and activities that repeatedly generate new versions of the same documents to refine the service provider candidates proposals to a point that the customer is in a position to down-select to one or possibly two service provider candidates and embark upon the contracting/negotiation phase either with a single service provider candidate or multiple service provider candidates.


The Difficulty with RFP

Many customers believe that this RFP process is too expensive, too long, too inflexible, too document intensive and continues to include service provider candidates well into the process that can be determined very early in the process to be inappropriate for the engagement. In short, the RFP process is not as efficient, effective and relevant to the customers goal of achieving an outsourcing services arrangement with an appropriate services provider on market competitive or better commercial and financial risk allocation terms as the customers desire.


Beyond this reaction against the classic RFP model by customers, a number of industry process experts are also concluding that the time and effort expended in the usual RFP process does not result in improved outcomes. Specifically, they are advising customers to abandon the RFP process and pursue a process of intensive collaboration with two service provider candidates on a competitive, parallel basis.


An Alternate Collaborative Approach

The threshold assumption for this alternate collaborative approach is that a customer seeking to outsource one or more significant functions has the experience and access to professionals and others in its industry space to select two service provider candidates that are appropriate for the customers proposed outsourcing engagement. The customer criteria for the service provider candidates generally include specific industry experience with the same or similar functions as the customer is seeking to outsource, financial stability and strength, an appropriate technical solution, cultural chemistry, customer satisfaction, market competitive pricing, commitments to appropriate performance quality and commercial and financial risk allocation terms that provide the customer parity with the service provider during the entire term of the engagement in the areas of governance of the relationship, changes and modifications to the services and adjustment to market pricing during the term. Each of these criteria is capable of calibration and evaluation to a greater or lesser, but certainly adequate, extent for credible service provider candidates before embarking on an RFP, RFI or negotiation process.


The second assumption for the alternate collaborative approach is that the customer has the resources, discipline and skill sets to work on a relatively concurrent project basis with each of two service provider candidates. The customer acting alone or assisted by an experienced consulting organization will work with the two service provider candidates to identify, define and document a solution for the customer functions to be outsourced that is customized to the customer and each service provider candidate. That is, the customer will work with each service provider candidate separately to craft a solution that may be in many respects unique to the customer and the customers relationship with that service provider candidate. Accordingly, it will be quite different from the solution crafted by the customer with the other service provider, although both solutions address the same customer functions to be outsourced.


Many customers with experience putting together outsourcing arrangements and industry process experts believe that this alternate collaborative approach permits the customer to leverage the service supplier candidates expertise very early in the outsourcing process; fosters creativity by eliminating the rigid RFP process; short-cuts the time and expense to define, document and close a customized, relevant solution arrangement; reduces the charges for the solution; and accelerates getting to the go-live date. Moreover, the collaborative and solution-oriented nature of this approach and the focus by the customer and each service provider on defining a customized solution together improves the governance, transition, change manage and service delivery aspects of the customer and supplier relationship and performance. Conversely, the more rigid, arms-length classic RFP model process increases the degree of difficulty developing a set of tested, close, practical working relationships.


Scott Hobby is the lead partner in the Outsourcing and Systems Integration Practice Group of Hunton & Williams LLP. He may be contacted at 404-888-4263 or shobby@hunton.com.