RFPs: The Costs of Being Unclear

The nature of IT demands clarity, and thats particularly important in requests for proposals.

Unfortunately, in todays hurried world, few people take the time to make specifications clear. But fuzzy requirements create misunderstandings. They cost time, money, effort and sometimes political capital. Although it usually takes longer to make a document crystal-clear, the additional time and effort are good investments.

RFPs are expensive to produce and review, but clarity will save you money. Without it, youll find yourself going back to each bidder with new or different specifications an expensive and time-consuming exercise. Moreover, RFPs that are unclear generally result in poorly defined service requirements and produce suboptimal results. They increase costs unnecessarily and contribute to disasters down the road. Save money by being clear the first time.

Case in point: In 1999, the Mars Climate Orbital Mission spacecraft was lost as a result of unclear specifications. NASAs investigation of the mishap found that the root cause of the failure was that Mission Controls software used English units of measure, while the spacecraft software used the metric system. Over the course of the nine-month mission, the spacecrafts course had been periodically adjusted by thrusters. By the time the spacecraft reached Mars, it was approximately 170 kilometers closer to the surface than planned. Unfortunately, the difference wasnt noticed until after the spacecraft was lost.

RFPs that are unclear typically cause one or more of the following problems:

Low bids. Unclear requirements may cause some bidders to submit low-priced minimal bids. These providers accept very low margins on the initial requirements but plan to make profits on the inevitable change orders.

High bids. In contrast, unclear specifications cause some bidders (often good ones) to bid extremely high to cover their risk. When part of the RFP is unclear, these providers usually assume that the actual project will require the most expensive options and bid accordingly. If the client later uses less-complex services, has lower volumes or needs less-rigorous service levels, these bidders pocket the difference.

No bids. Fuzzy RFPs force bidders to make numerous assumptions, which increase their risk. This raises concerns about their ability to make a profit, particularly with fixed-price bids. When this happens, even strong suppliers frequently decide not to bid. The result of less competition is that you may incur higher costs or be forced to select a second-class supplier.

Incompatible bids. Not all bidders will make the same assumptions when presented with an unclear RFP. As a result, the final bids may not provide apples-to-apples comparisons.

Requirements mismatch. Fuzzy specifications may result in a supplier bidding on what it thinks you specified, not what you actually intended or needed. Unless the bidder realizes that there is a disconnect between the RFP and the intended requirements, it will bid based on its interpretation of your requirements. When the disconnect is discovered, it may be too late to change the bidders proposal and still meet your submission deadlines. Even worse, the realization may come after the contract is signed, adversely affecting not only the suppliers ability to deliver, but also your project deadlines.

Inability to deliver. Large, complex RFPs may require more services than a particular supplier can deliver. Some suppliers will bid on the RFP anyway, hoping these holes in their delivery capability will go unnoticed. They assume that if they win the contract, they will figure out how to deliver those pieces later. Unclear RFPs make it harder for your due diligence team to ask questions that will uncover the suppliers delivery problems. If the bidders weaknesses arent discovered during due diligence, you may not learn about them until its too late and far more expensive to fix. Clear RFPs help weed out those suppliers that knowingly promise more than they are capable of delivering.

Rigid contract compliance. When projects and supplier relationships go south, you can get into letter of the law situations and even litigation. In these cases, clarity in the RFP and other project documents can give you important leverage.

The cost of being unclear is higher than most companies can afford. Take extra time upfront to clarify RFP requirements. It will save you and everyone else involved time, money and frustration down the road. And it may save your spacecraft, too.

Bart Perkins is managing partner at Louisville, Ky.-based Leverage partners Inc., which helps organizations invest well in IT. Contact him at BartPerkins@LeveragePartners.com.

Copyright © 2007 IDG Communications, Inc.

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