On Successful RFPs and Circuit Breakers

This morning, I read an article that appears in the June issue of Plan Sponsor magazine. What attracted me to it was a blurb in the email blast "NewsDash" that magically appears in my inbox every weekday morning (actually, I highly recommend NewsDash for benefits professionals).

What I found strange about the article is that it is largely a compendium of quotes from a few defined contribution recordkeeper search consultants. But, it never quite brings them together to inform the plan sponsor on what makes for a successful RFP. Instead, it is somewhat akin to listening to a roundtable discussion, but only hearing about 1 comment in 20 and that without any context.

Since this article left me somewhat cold (and that on a day when our heat index is supposed to exceed 105), I decided to think about this myself. I've been involved in RFPs (not necessarily defined contribution or even benefits) in what I view are all of the possible contexts:

• A bidder
• A search consultant
• A proposal evaluator
• An end user (the client)

Ultimately, in my opinion, the client is looking for the best value, however they define value. Some place a very high value on the relationship with the provider. Some consider it most important for participants to have a great user experience. Others focus on employee education. Still others think that price is the winner.

Each of those may be a reasonable position to take. But, it is also important to understand that there are more than just the issues of value. 

A typical proposal scoring process assigns a weighting or point value to a number of categories. Finally, the bidder with the highest weighted score is usually the winner. 

I'd like to make some changes to this. In doing so, I am going to steal some terminology from other areas.

We all know that having a relationship manager who doesn't care about you makes the relationship untenable. It's a turn-off and it should kill the deal with that particular provider. Similarly, if you are going to be the point person (on the client side) for the relationship and you just really dislike the relationship manager, that relationship won't work either.

I refer to this and other similar deal killers as circuit breakers. That is, if the breaker is turned off, the circuit doesn't connect and the deal cannot happen.

The client should establish circuit breakers. You might also think of them as minimum standards. Here are a few to consider (with a DC recordkeeping bias):

• Unacceptable relationship manager (if you really like the potential vendor other than that, you might be able to force a relationship manager of your choosing)
• Fees above a certain pre-set level
• Poor participant experience
• No projection tool on the vendor website
• Requirement to use a particular percentage of proprietary funds

I think this is fairly clear, but suppose it's not. Consider that Vendor A has the best scoring proposal. That is, Vendor A, using the pre-determined scoring mechanism gets a score of 185 out of a possible 200. Neither of the other two potential vendors scores above 160. But, you have heard from a friend at another company that the assigned relationship manager does not usually return phone calls in the same week that they are received. You view this as unacceptable. If Vendor A will not give you a different relationship manager, then they have triggered a circuit breaker and they are out of the running.

Triggering a circuit breaker outweighs a great score. Think about it. It makes sense.

The RFP Process -- Full Disclosure or Not?

Some people send out lots of requests for proposals whether it's in their business life or in their personal life. Others respond to a lot of them. Recently, I was in that first category for a change, but far more often, I am one of the people responding to a request for proposal (RFP).

My most recent endeavor in requesting a proposal was in my personal life. My wife and I needed to engage a painting contractor for our home. We sought bids from several firms.

In each case, we told the salesperson or proprietor what type of paint we planned to use. In this case, it was a particularly high end paint that is designed to last, even in the hot and humid Atlanta weather where torrential summer thunderstorms are the norm. A keen observer should have learned something from that. We also told each potential bidder which contractors we were talking to. In my opinion, the smartest contractors took the opportunity to compare and contrast their own services with those of their competitors. Obviously, they slanted the analysis in their own favor, but we learned things about each potential vendor in the process that we would not have learned had we not been honest and open on our side.

I also get my fair share of RFPs that I have to respond to. Usually, I will ask for a lot of information. I want to know who I am bidding against.

Why?

Here are a few reasons:

• The group of potential consultants from whom the prospect has chosen to request a proposal tells me something about the company's mindset. It may even tell me that I don't want to bid because it's clear that I have no shot at winning, but have simply received the RFP as a courtesy.
• Ultimately, if I win the bid, I want my client to be happy with the services they receive. For this to happen, it's helpful if I can compare what I have to offer to what my competitors likely have to offer. Of course, I am going to try to use this to my advantage, but my competitors can and should as well. But, from the client's standpoint, this should help them to make a better and more informed choice of consultants.
• I may even make a statement to the prospect to the effect that if they are looking for what I am going to refer to here as style #1, they would be best off with Consultant X, but if style #2 is a better fit for them, then we would have a very good relationship with each other.

The client wins as well. The eventual successful bidder knows things about their client up front. They don't have to burn time and money on the learning process. Because of that and because consultants will be able to make more educated selling decisions, something else important happens that is of benefit to the client.

What's that?

If the consultants who are bidding think they understand the process and really go after the opportunities that they think are the right ones, they will price them more aggressively. That's right; consultants want the work where they know they are the right fit and they will bid more aggressively.

So, with full disclosure, the consultants (or other vendors) win and the clients win. Everybody wins. Isn't that the best result?