Use Your RFP Process to Reduce Third-Party Risk

Creating a well-written Request for Proposal (“RFP”) takes a lot of time and effort. And while it can be tempting to rush through the RFP writing process, don’t do it.

A good RFP (and associated evaluation process) will not only help you identify the right vendor and solution, it will also allow you to flush out potential third-party risks and remediation issues before you enter into a contract. Your RFP will:

• Ensure clarity around requirements of what you need, and expectations between you and the vendor
• Improve the accuracy and completeness of proposals and statements of work
• Tease-out issues and potential risks early on in the process
• Make it easier for you to evaluate vendors and solutions by ensuring you have the relevant information you need and make an apples-to-apples evaluation

In most cases, you’re doing RFPs when you have more complex, costly and/or mission-critical services or solutions you need to buy. The biggest risk you have with these types of procurements is that the third-party vendor doesn’t deliver. A poorly written RFP dramatically increases this risk. Some of the reasons why can include, among other things:

• incomplete or inaccurate technical or functional requirements,
• unreasonable delivery timelines,
• unclear roles and responsibilities,
• and vague or inconsistent evaluation factors.

Get one of these wrong in your RFP and you’re likely to have a problem. Get all of them wrong and you’re at high risk for a major vendor failure.

Some people think that the longer the RFP the better. That’s a bad approach. It’s not about the quantity, but the quality. I actually recommend shorter RFPs that are substantive yet concise, and easy for the vendor to understand. Regardless of the size of your RFP, there are eight sections it should contain.

1. Executive overview – frames the purpose and objectives for the procurement.
2. Company background – provides the vendor with context about your organization.
3. Functional, technical and business requirements – details everything that the vendor and/or solution needs to do.
4. Pricing information – defines all components and your preferred pricing structure (i.e. fixed fee, cost reimbursable, etc).
5. Deliverables and timelines – outlines what you expect to be produced and by when.
6. Responsibilities of both parties – clarifies the role your team will play and what you expect of the vendor.
7. Evaluation process and key factors – establishes how you’ll evaluate proposals and what factors are most important to you.
8. Guidelines for proposal submission – makes it easier for you to compare apples-to-apples.

One other piece of advice: share your standard terms and conditions up front along with your RFP. Doing so:

• allows you to communicate your risk mitigating terms and conditions early on so you can identify any potential deal breakers before you get too far down the road;
• gives you leverage in the contract negotiation process; and
• peeds up the contracting process when/if you get there.

Stop sleeping on your RFP. It is a critical tool for reducing risk with your third parties before you enter that contract and it’s too late.