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Things to Watch Out For in Outsourcing RFP Responses

by: Sarah Joson

Thursday, March 22, 2012 | Outsourcing News |

RFP for IT Outsourcing

When business owners decide to outsource a part of their IT operation, they go through a tedious process of preparing a request for proposal (RFP) to send out to known vendors. The request typically includes the details of the project such as requirements, estimated budget allotments, security clauses, and even a set timeline for meetings and negotiations.  

Since vendors nowadays are actively looking for prospective clients to make a sale and the outsourcing industry becoming more saturated, it will only be a matter of days before business owners receive overly enthusiastic responses.

The client’s decision should never be clouded by superficial contract details or even personal excitement that can ruin a theoretically efficient and money-making (saving) IT outsourcing operation. At ITWorld.com, Stephanie Overby enumerates nine things that customers should watch out for when going through RFP replies.         

Discount rates that are too good to be true
According to Mark Ruckman, one of Sanda Partners’ outsourcing consultants, the vendor who’s pitching the lowest rate is probably pulling your leg or knows nothing about the business. This is because service providers usually know the going rate and what their competitors are charging the customers.  

Shared financial rewards
Randall Parks, co-chair of the global technology, outsourcing and privacy practice group at Hunton & Williams, pointed out that gain sharing practices are used to cover up the bigger agenda of vendors which is to make clients believe that they have to purchase the price-reduced offerings so that they wouldn’t have to spend more or go over budget.

Esteban Herrera, COO of outsourcing analyst firm HfS Research, said gain sharing contracts are unclear most of the time, affecting the relationship between the parties. Steve Martin, partner at outsourcing consultancy Pace Harmon, chimes in, saying that it is the vendor’s duty to help a client save.

Credits and Demerits
Vendors often sneak in clauses in Service Level Agreements (SLAs), stating that if the vendor does something wrong, they will be given demerits, which could mean that the client can get a discount from their billing. When the vendor does something right or over performs, they will be given credits. Betty Breukelman, partner at outsourcing consultancy firm Everest Group, said this type of clause in contracts can create an imbalance, especially if the tasks can be easily executed.

They always agree with you and your demands.
Think twice when the vendor nods at everything you say, because this could mean that the service provider doesn’t care about your project or worse, doesn’t know what you are saying. They should at least clarify your requirements or ask for more information before starting the operation.

Cost of transition
In some cases, IT service providers will ask the client to shoulder additional costs brought about by the transition, and yes, it usually costs a pretty penny. The director of KPMG Shared Services and Outsourcing Advisory, Marc Stark, stated that it is a common problem faced by business owners.

Changes in the contract are endless.
Having flexible SLAs can be useful, but if customers listen and fulfil every whim that their vendors throw at them then changes in the contract will never end. It will create a win-lose environment. It’s a “win” for the providers because they are entitled to get rewards and “lose” for the clients because they can’t do anything about it since it is already set in stone. Another scenario is when customers purchase add-ons that they don’t really need - the vendor wins yet again.

The slowpoke
Even if you have set your eyes on a vendor, but they lag behind the others in terms of presenting ideas to you, Ruckman said this could indicate the type of treatment you’ll get in case you sign them on to be your IT outsourcing partner.

 “Equal” rights in billing
Some vendors will tell customers that they have equal rights in billing. However, this can only mean one thing - you are subjected to pay before the due is past because in the contract, it would appear that the time they gave is sufficient, because it is the same number of days they can work on making an invoice. The thing is, customers need to audit the invoice before paying it, making sure that the billing details are correct by backtracking through the work submitted by the service providers. Martin of Pace Harmon said customers should be given more time because backtracking is far harder than creating an invoice. Besides, what if the allotted time given by the vendor to the clients to review the invoice expires? How can the clients contest unscrupulous charges?

Quality vs. Rate
Ross Tisnovsky, a senior VP at Everest Group, said clients might become fixated on the rate of the candidate, thinking that expensive ones are highly skilled. Customers need to review the level of skills their operation needs and parallel it with what the vendor can offer.

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