RFPs: How to Construct an Effective Document

Greg Schratwieser
July 16, 2012 | COMMENTS

Over the past 30 years I have been involved in both responding to RFPs (requests for proposals) as a vendor and assisting hundreds of financial institutions in constructing RFPs as a consultant. No single article can completely address all the RFP strategies that you may need to differentiate between core processing or ancillary system vendors (check processing, online banking, mobile banking, CRM, lending systems, Lockbox, etc.).  These paragraphs will hopefully provide some creative ideas and strategic insights into tactics that other banks and credit unions use to produce the best outcome during technology evaluations and decisions.

Building and responding to RFPs can strike fear into the hearts of both buyers and sellers.  Buyers typically do not like writing RFPs and sellers do not like responding to them.  However, RFPs are a very necessary part of the evaluation process. If you are going to invest significant dollars into core processing or ancillary system software solutions, or if you plan to sign a lengthy outsourcing agreement, here are some tips to make the RFP process a little easier for both buyer and seller.

To RFP or Not to RFP?

Unless there is very little time before a software renewal or if it is a low dollar purchase, our recommendation to bank or credit union clients is to always issue an RFP. Because of the extensive research involved with distributing and managing a RFP, some companies forgo the formal RFP course of action. Conversely, some financial institutions download lengthy RFPs from the web or obtain biased RFPs from the vendors. Making the RFP process excessively long hurts both the issuing organization and the vendors.   

It is always important to obtain the critical elements of your vendor comparison in writing. At a time when software salespeople remained with their respective companies for 20 + years, you could do business on a handshake or rely heavily on the relationship established with an account manager. Those days are obviously gone. With all of the vendor restructuring and/or downsizing, you are lucky to have the same sales representative or account manager for an entire year. Therefore, you must secure major negotiation points in writing via the RFP and formal contractual terms.

The benefits that you receive from taking the extra time to draft a thorough RFP are as follows:

• Relevant and legally binding proposal responses
• Superior pricing
• Stronger service commitments
• Easier software capability comparison
• Understanding relevant new features and functions

RFP Length

An effective RFP often has two conflicting keys to success: thorough vs. brief. Naturally, you want to ask the appropriate number of questions. However, a balance must be struck because the RFP length is often the biggest stumbling block in the evaluation cycle. 

Many buyers and industry consultants issue RFPs that are needlessly detailed and cumbersome. By the time some RFPs are written, signed off by internal evaluation groups and responded to by the vendors, the target solutions have drastically changed. Thus, the proposal becomes irrelevant and the buyer is stuck in a quagmire of issuing further questionnaires or clarifications. This process is commonly known as “paralysis through analysis.”

Salespeople can also contribute to elongating the vendor evaluation by responding to the RFP with Gutenberg Bible-sized proposals. Do salespeople really believe that some one will painstakingly examine these proposals? To curb the salesperson’s tendency towards loquacious responses, stipulate that the close-ended questions must be given one word answers: yes, no, or fill in the blank.

Additionally, if the RFP is too long, many viable vendors will simply not have the resources to reply to the document. Some vendors, including the one that might provide the best solution for your bank and credit union, may view the RFP as an unwarranted fishing expedition and they may withdraw from bidding on the RFP. 

RFPs downloaded from the web tend to have an enormous number of irrelevant open-ended questions, which may require weeks or months for the vendor to craft a proper response and impose an extra burden on the evaluation committee. Given the prospect of a long RFP with significant effort to submit a response, the sellers will frequently withdraw and not respond to the RFP. If the RFP is too onerous, the buyer will usually limit the number of bidders and possibly eliminate the best solution for their organization.

Beware the Vendor-Prepared RFP

Most financial software vendors are fairly reputable. However, they will always attempt to portray their solutions in the most positive light. If a salesperson provides you with a sample RFP, make sure that all of your relevant questions are included in the RFP that is ultimately issued. To receive the most objective response, it is important that you proof read the RFP supplied by the salesperson for vendor buzz words or acronyms.

As a former core processing vendor, the first questions that we asked ourselves when receiving an RFP were as follows:

• “Should we answer the RFP?”
• “Is the RFP written for a specific vendor?”

If you obtain subjective questions from a vendor, other technology suppliers will see the document as biased towards the vendor that supplied the RFP and not bid on the project.

If we ever believed that an RFP was drafted or heavily influenced by a competing sales organization, we usually did not submit a proposal response to the RFP in question.

Decision Criteria and Operations Survey

Vendors must have a clear understanding of the project’s mission statement, decision criteria, existing volumes, forecasted growth, exception workload, etc. The more the vendor understands your current and future processing requirements, the more they will able to fine-tune their proposals and pricing. There should be no gray areas here for the vendors. If the vendors are forced to incorporate any guesswork in preparing their proposals, a number of negative results will most likely occur.

In a vendor’s mind, an unprofitable proposal is the worst bid that they can submit. When vendors do not understand your operation, they may over configure their proposals in order to guarantee a profitable bid or conversely, they could under configure. Both scenarios spell trouble for your company.

If the vendor over configures the proposal, the bank and credit union may acquire expensive software modules that they will never use. If the vendor under configures, unanticipated software modules may need to be purchased. When dollars are wasted or additional surprise expenses are required, organizations naturally become very agitated with the vendor. If an organization improperly documents their requirements, they may be at fault for the resulting negative vendor relationship through the sin of omission. 

Deadlines and Points of Contact

Some sales organizations are notorious for not following instructions and asking for extensions to submit the proposal, deliver their sales pitch, arrange a site visit, etc. You can help insure that the vendors know your deadlines by clearly stating them on the first page of the RFP cover letter to include the following dates:

• RFP issue date
• Proposal due date
• Proposal presentation dates
• Site visit dates
• Decision/contract award date
• Requested conversion or implementation date

It is wise to only have one or two points of contact persons from your institution during the RFP proceedings. This tactic will avoid confusion for both buyer and seller and keep confidential information inside your company. 

Confidentiality Statement and Expulsion

At the risk of stating the obvious, most financial institutions realize that a confidentially clause must be included in the request for proposal. However, many companies do not recognize that they should also incorporate parameters for expulsion from the evaluation process. Salespeople should have limited access to your personnel.

When salespeople are allowed to run freely within your organization, at best they may waste your staff’s time. A salesperson’s best weapons are questions. If they have access to executives and operational staff members, your people may unknowingly compromise your ability to properly negotiate the final contract. If a salesperson knows that they are the leading contender in the vendor evaluation process, they will stop negotiating.

RFP Contents

The inventory of specific questions is too numerous to list within this article. We have constructed brief documents consisting of 300 questions to “top-10 bank” RFPs which have included 1,500 questions. Generally speaking, the proposal should include the following areas:

• Executive overview
• Detailed/close-ended questions
• Corporate background
• Software capabilities
• Standard and optional reports
• Hardware requirements
• Support structure 
• Training
• Reference list (similar-sized clients, contact names, e-mail addresses and phone numbers)
• Copy of standard contracts
• Detailed pricing

Greg Schratwieser is president and founder of ICI consulting (www.ici-consulting.com). Contact him at 800-729-8237 or greg@ici-consulting.com. Reprinted with permission.