Are RFPs bad for business? Part one

Communications and Marketing Associate

“You must spend money to make money” – Plautus

By the title alone, it may seem like I have a vendetta against the Request for Proposal (RFP) process, but that’s not true. I'm just realistic.

Even though I enjoy the process of putting together a proposal, I also find them to be an exasperating and costly endeavour for firms. 

It’s great to be able to highlight your firm’s qualifications, projects and people, showcasing your unique swagger for a new audience. However, if the value of price overrides the value of qualifications, the bulk of your proposal becomes a moot point. 

I understand why this happens—who doesn’t want the biggest bang for their buck? However, low-price over quality does not facilitate innovative and meaningful design.

Choosing the right consultant or firm for a project should rely more on their ability to complete the project successfully than how much they charge to do so. For example, it’s not uncommon for a firm to underbid to win a project (which is frowned upon, but not forbidden). Can they complete the project on time and within their proposed budget? Maybe they can, but maybe not, and that can increase the price substantially.

Yet, this is the reality when entities place more value on price than qualifications in the evaluation criteria. And this can be frustrating for firms of all sizes, but for smaller firms or sole proprietors, it can also be financially demoralizing.

Not all firms have the ability to lower the price of their services, and it becomes much harder to bid competitively when you have to outsource services or lower the price of your services to acquire that necessary cash flow.

“All costs and expenses related to the preparation, completion and submission of responses to this Request for Proposals are the sole responsibility of the respondent.” - every RFP ever written (courtesy of Beyond Referrals)

Firms put a lot of work into RFPs such as reviewing the documents, organizing the process, delegating tasks, and writing, editing and putting together the document. One of the largest expenditures related to submitting a proposal is putting together the price. It’s not a cheap endeavour to try and be the cheapest vendor.

Companies, agencies, institutions and government won’t reimburse buyers for their time or the expenses related to creating a proposal—which is fine. However, according to one typical example illustrated by Cal Harrison at Beyond Referrals, if you have 38 buyers who each spend $20,000 writing a proposal, and then multiply those numbers together, that’s $760,000 spent just to bid on one RFP. That’s a considerable amount of money—not to mention a huge drain on the economy because firms will go after several RFPs a year, equating to millions of dollars in lost revenue. (To see Cal's RFP video go here). 

Furthermore, sometimes the fees attached to the project don’t justify the means of submitting it in the first place. So, even if the potential client awards the contract to you, it doesn’t mean you’re going to recoup the costs associated with the preparation, completion and submission of the proposal.

RFPs became standardized decades ago to create a fairer system for agencies and firms to procure work. However, we often pave the road to hell with good intentions, and over time, the process became ineffective and costly for vendors and buyers because the importance of price overtook the importance of qualifications. What we have learned over the years is that the RFP works really when procuring commodities like shovels and tires but not so well when hiring expertise. 

In theory, choosing a proposal based on the lowest price makes sense—you’re saving money. A low bid is a low cost, but it isn’t necessarily cost-effective long term because nowhere is there a reward for innovation and reduced operating costs of a space or building. Cheap design typically yields buildings and spaces that are more expensive to operate. 

However, better processes are emerging in the bidding and tendering world such as Request for Qualifications (RFQs) and Qualifications Based Selection (QBS).

RFQs separate qualifications and price by judging proposals first on qualifications and limiting submissions to a few top firms who achieved enough points to move forward. Price is finally entered into the equation at the end instead of being a determining factor from the beginning.

QBS excludes price as an evaluation criterion altogether when hiring a professional services firm for a project, improving the ethicality, transparency, sustainability and quality of a selection process. Already required by law in the United States when hiring architects and engineers for federal and state projects, QBS gives consultants the opportunity to prove why they are the best choice for a project, instead of bidding the lowest in order to win.

Progress has been made in this area—the City of Calgary uses QBS in parts of their bidding and tendering process, while the Government of Canada has also decided to pilot QBS this year.

As stated earlier, awarding a project based on a price doesn’t necessarily guarantee that the price will not increase. However, awarding a contract based on qualifications ensures a high level of expertise in the process. It might be more expensive at first, but in the long term, it will decrease the need for changeovers or the need to fix issues in the future because what was laid out in the budget matches the project’s overall needs.

Furthermore, as the realities of climate change become more and more prevalent, we must recognize the need for resilient and sustainable technologies in our work. While the initial costs for these tools may be high at the beginning, it will also protect cost increases later on because our buildings and design work will better withstand erratic (and sometimes violent) weather.

Moreover, the people or communities who use these spaces and places will be protected as well. Therefore, I believe it’s time we value innovative design higher than low prices in our projects—do you agree?

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