How Is Procurement Accomplished for Outsourced Systems?

At a high level, the procurement process is straightforward. Most procurements, particularly government procurements, follow these steps:

1.	A Request for Proposal (RFP, sometimes also called a Request for Solution [RFS]) is released to potential bidders.
2.	On occasion, proposal meetings or conferences are held, often at the client's location. Bidders attend to get an overview of the RFP, ask questions, and "scope out" the competition by observing who else is in attendance.
3.	Each bidder typically forms a proposal team to examine and prepare responses to the RFP.
4.	If the bidders have questions about the RFP, they submit them to the client. Whether oral or written, copies of the questions, together with the answers, are circulated to all bidders to ensure a level playing field. Depending on the complexity of the RFP, more than one iteration of questions and answers may occur.
5.	For larger projects, the bidders give oral presentations to the client.
6.	The written proposals are submitted.
7.	The client submits questions to the bidders (if there are any). These are strictly confidential between the client and each bidder.
8.	The bidders submit their answers to the questions.
9.	The client requests a Best and Final Offer (BAFO), which the bidder submits.
10.	The client makes a decision and notifies all the bidders.

This process has several variations. If there are many bidders, the selection process may occur in phases. This is known as a "down select" or prequalification process, in which the pool of bidders is narrowed down to a select few. There are other examples, but they do not directly affect this discussion.

The Ten Steps in the Procurement Process

Let's take a closer look at each of the ten steps just described.

Step 1: An RFP Is Released

Most contractors have marketing departments and track key developments with their customers. This means, in many cases, that contractors are aware that an RFP will be forthcoming, although they are unaware of its specific contents. When the RFP is obtained, the contractor decides whether to respond to it. (This decision often already has been made by the time the RFP becomes available.) The contractor then forms a proposal team and examines the RFP in detail. In most cases, the written response has a specific page limit, and if oral presentations occur, a time limit is given for them.

The information supplied in an RFP varies widely. Most commonly, high-level descriptions of the tasks to be performed are given. A vision statement may be included, explaining why the customer needs the system and why any current systems in place are inadequate to solve the problem at hand. An SOW may be given, which directly describes the tasks the contractor is to perform. On occasion, if any prior analysis work has been done, the high-level requirements are provided. Sometimes, a glossary is provided that explains the key terms in the problem domain.

Step 2: Proposal Meetings and Conferences

If you are considering responding to an RFP, these meetings are "must-attend" events. In addition to meeting the customer (and possibly some of the key project stakeholders), you can observe who will be competing with you on the bid. You'll also see how much interest there is in the proposal, judging from the number of attendees. The client typically gives a presentation summarizing the contents of the RFP, and perhaps some background on the client's business and organization. This is usually followed by a question-and-answer session.

Step 3: Forming a Proposal Team

The criterion for choosing the members of the proposal team varies from company to company. Large companies often have dedicated proposal teams and marketing departments. Small companies may have to pull people from billable projects to respond to an RFP. The bidder may have someone familiar with the specific problem domain or customer. Also, anyone with certain skills that are deemed critical for a given proposal will be asked to participate to some degree on the proposal team.

A quick schedule is drawn up, and tasks are assigned to each member of the proposal team. This is important, because with most proposal efforts, time is of the essence. It is common for the proposal team to work late into the night on proposals. All-nighters are not unheard of as the proposal due date approaches.

Step 4: Questions from the Bidders

The bidder, while preparing a proposal, may have questions about certain aspects of the RFP. In most cases, questions cannot be asked directly of the project stakeholders. They must be submitted in writing through the contracts office. The contracts office then obtains the answers to the questions from the project stakeholders. This controls the flow of information between the prospective bidder and the project stakeholders. If bidders were permitted to speak to stakeholders directly, one prospective bidder might obtain information the other bidders might not have. This opens the door to potential "award protest" litigation as other bidders may claim the information gave the winner an unfair advantage. The questions collected from the bidders are then consolidated, along with the answers, and are distributed to all the bidders. When these questions and answers are provided, the identity of the contractor asking the question is omitted. (But in some cases, it's possible to guess who asked the question if the pool of bidders is small.) This ensures that all bidders receive the same information from the client to prepare their bids, thus guaranteeing fairness in the process.

Step 5: Oral Presentations

Oral presentations are common, especially on medium to large procurements. Oral presentations generally occur after a down select process. The contractors remaining after the down select have their own private presentation session with the project stakeholders. Other bidders cannot be present. The contractor generally has a fixed amount of time in which to give an overview of its corporate capabilities, its assessment of the RFP, how it will respond to the RFP, and the proposed costs. An overview of the skills of key personnel is given. A question-and-answer session usually follows, and the presentation is concluded. Most oral presentations are one to two hours long.

Step 6: Written Proposal Submitted

The written proposal is submitted at the conclusion of the oral presentations or shortly thereafter. A strict page limit is usually imposed on the proposal (because on large procurements, the outsourcing organization may have many proposals to read and evaluate). At this point, the majority of the work by the bidder for the proposal is completed, and the bidder waits to hear from the outsourcing organization.

Step 7: Questions and Answers

When a bidder receives questions from the outsourcing organization, it's generally considered a good sign. If the bidder has been eliminated from consideration, there would be no questions. The contractor scrutinizes the questions to try to gain an understanding of the outsourcing organization's motivation. The contractor typically has several business days to respond.

Step 8: Answers Submitted

The contractor submits its answers to the questions. Note that the questions and answers may go through a couple of iterations.

Step 9: Best and Final Offer (BAFO)

The contractor may ask one or more of the bidders to submit a Best and Final Offer (BAFO). If a bidder is asked by the outsourcing organization to submit a BAFO, it knows it is on the short list to potentially win the bid. The contractor examines the bid's history, particularly the questions and answers, and any marketing intelligence that may have been gathered. It then uses this information to change its bid to make it more attractive. Usually, this means cutting the price through either reduced amounts of labor, a different mix of staffing levels resulting in a lower price, or possibly a change in assumptions that limits the contractor's risk so that it is more comfortable submitting a more aggressive price. All these assumptions during the bidding (and BAFO) process are documented and are submitted with the bid documents. The assumptions become part of the contract if the bid is awarded to that contractor.

Step 10: Contract Award

The contractor that produced the winning proposal is notified, and then the other bidders are notified. A debriefing is usually scheduled for those that did not win the work.

Advantages of the Procurement Process

I have described the process commonly used in government procurements. Commercial procurements are similar, but they have fewer steps. At first glance, nothing seems wrong with this procurement process. In fact, it has a number of advantages. Let's discuss these first before we identify the challenges:

• Competition ensures that the bids will focus only on what is requested, to be produced in a way that is the most cost-competitive. This ensures that the outsourcing organization is obtaining a good value.

• Great care is taken to ensure fairness in the process. All bidders obtain the same information from the outsourcing organization.

• The RFP typically requests a specific capability within a specified amount of time. This means that the outsourcing organization knows in advance what capabilities it will have in the future and how much money must be committed in its budget to obtain the capability. This helps the organization plan its future budgets.

These are key advantages for the outsourcing organization. Yet from a software development perspective, the procurement process causes a number of problems. Why? Let's take a look.

What's Wrong with This Procurement Process?

The problem with this procurement process is that it assumes that the item being procured is a simple commodity. In other words, given a general description of the system, a vendor should be able to determine the cost to make such a system, add a percentage of profit, and produce the bid. Of course, the software industry is far from the level of maturity seen in other industries. Given the same requirements, bids for an identical system from different contractors have large variations that can't be explained solely by one contractor's being more proficient than another. Specifically, consider the following issues:

• A limited number of inputs describe precisely what needs to be done. Most RFPs do not supply the detailed requirements needed to truly determine the size of a software system. Many RFPs ask for a single bid for the cost of an entire project, from requirements elicitation through delivery of the final product. How can you determine a realistic bid before you know what the project's requirements are? You can't. Worse still, the RFPs for these projects sometimes request Firm Fixed Price (FFP) proposals! This is a recipe for disaster before the project has even started. Most bidders respond to this situation in one of two ways:

  1. They bid a high price to cover the worst-case situation. Most bidders don't do this because doing so wouldn't make them competitive with other bidders that are willing to accept a higher level of risk.

  2. They load the proposal with so many assumptions and stipulations that the proposal becomes meaningless early in the project's lifetime. Although this protects the bidder legally, it is ultimately harmful to the relationship between the client and contractor. This is also risky, because if there are too many assumptions or the proposal is not specific enough, the bidder risks being eliminated due to being considered nonconforming or unresponsive to the client's needs.

  Ways to handle this situation are covered later in this chapter.

• When the outsourcing organization attempts to produce a detailed set of requirements, they are often poorly done and incomplete. Unless the outsourcing organization has the proper expertise, the requirements do not follow the best practices for requirements that are clear, concise, unambiguous, and testable. Furthermore, many stakeholders are not even sure what they want (although they usually recognize a good solution when they see it). This makes it even more difficult to properly articulate the requirements.

• The bidders have a limited amount of time to properly analyze the inputs. Even if accurate, detailed requirements are supplied, there is insufficient time to read and thoroughly understand them. The primary goal during the proposal process is to produce a winning bid that compares favorably with the other bids. Many proposals are analyzed and produced within a few weeks. As stated before, most proposal teams work very long hours, with little time to contemplate the long-term effect of many of the decisions made in the bid.

• Questions and answers about the RFP take place in a competitively charged environment. When a bidder has a question about the RFP, it knows that any question it asks will be shown to the other bidders. Therefore, any question that hints at a bidder's approach to the problem or its difficulty in understanding the RFP is not submitted. This means that important questions go unanswered, or the bidder makes assumptions about the RFP that may be inappropriate.

• Questions that do get submitted are not allowed to go directly to the stakeholders. They first go through a contracts department. Questions and answers are in written form only. Often, the question is misunderstood or the answer is insufficient. There is no opportunity to interact with the stakeholders during the question-and-answer process.

• The BAFO phase is often counterproductive. A detrimental psychological process seems to occur during this phase with bidders. A bidder works many hours to painstakingly produce what it believes is a viable, workable plan backed up with as many facts as possible. When BAFO occurs, the bidder knows it is one step away from winning the bid. This pressure often leads a bidder to ignore the work previously produced, slashing estimates to get the cost lower to win the bid. This results in a proposal cost based on wishful thinking and luck rather than facts. An estimate that is prepared through a careful analysis of the facts is a nonnegotiable figure. The only way an estimate can be changed honestly is to change the assumptions made as a condition of the estimateor possibly, one of the inputs to the estimate is changed. Of course, during the proposal process, the bidder does not have control over the inputs. Occasionally, errors occur when an estimate is produced. But many contractors simply look at their budget and schedule figures, slice a percentage off those figures to meet the competitive pressure, and hope for the best.

• At many companies, especially medium to large companies, the members of the team who produced the proposal are not the same as the members assigned to the team after the project is won. Often, the team running the project is shocked to learn of the assumptions, budget, and schedule set forth by their teammates in the proposal. Of course, by that time, there is no choice but to live with the situation.

Given these difficulties, it's no wonder so many projects are behind schedule and over budget. And we have not even begun to consider the usual technical challenges that come into play on projects. Clearly, a better way is needed.