IT Outsourcing: Think Twice Before You Issue a Single RFP

CIO — All the big outsourcing players from IBM and HP to Infosys and Wipro can offer their customers soup-to-nuts IT services these days. Even though these providers serve as one-stop-shops for IT organizations' needs, IT leaders should think twice before approaching them with a single RFP for both application development and maintenance (ADM) and infrastructure services, advises Steve Martin, a partner with outsourcing consultancy Pace Harmon. There are benefits to issuing a single RFP for all the services an IT organization wishes to outsource, but issuing separate RFPs for each service may in some cases be more advantageous.

[ For more on RFPs, see Truth and Tips on the Flawed Request for Proposal Process ]

The Advantages of a Single RFP

All-encompassing RFP arrangements offer some benefits, such as price concessions from vendors for bundling infrastructure and ADM services, the potential for end-to-end service levels and management, and a "single throat to choke." But true end-to-end service management "rarely happens in practice," Martin says. "And customers are increasingly reluctant to put all of their eggs in one basket." (See The Demise of the Outsourcing Mega Deal.)

Other than an increased ability to secure end-to-end service levels, few operational synergies that truly benefit the customer result from having the same provider for infrastructure and ADM services, he adds.

The Drawbacks of a Single RFP

The list of potential disadvantages associated with issuing a single RFP is long, says Martin. It could preclude best-of-breed providers that specialize principally in either applications work or infrastructure support from bidding. Moreover, synching up ADM and infrastructure outsourcing efforts can be difficult to impossible if there are existing contracts expiring at different times. And, perhaps most importantly, the single-sourced deals that result have lost their appeal for many outsourcing customers.

"Single sourcing diminishes a customer's leverage over the vendor, and over time, can create vendor complacency," says Martin. (See How to Keep Your Outsourcing Provider Hungry for Your Application Development Business.)

Once an IT organization opts for the one-RFP approach, there's often no turning back. Trying to subsequently get out of one portion of the resulting contract can get ugly. "Attempting to disentangle from one side of the deal due to poor performance or some other reason often leads to contention," says Martin, because the financial structure of the deal hinges on the ongoing provisioning of the entire set of services.

Other Considerations

Putting together separate RFPs for application and infrastructure services is actually easier than bundling the two, Martin notes. "While components of the RFP are similar for both sets of services—company background, minimum bidder qualifications, proposal instructions, the heart of the RFP—the SLAs, statements of work, pricing structures, and business terms and conditions are completely different," he says. "Bundling services through a single RFP can actually end up creating more incremental work."

And regardless of whether an IT organization issues a single RFP or separate ones, the proposals will ultimately have to be evaluated by completely different stakeholder groups. "Even when the procurement process starts on a parallel path for the two sets of services, it inevitably ends up separating into two tracks," Martin says.

Still, some companies, even after issuing isolated RFPs, could ultimately decide to go with the same vendor for both services. Then the dual RFP process can prove detrimental because the customer will have to manage separate contracts, or at least distinctly different contract components for [each] set of services, says Martin. So if you're leaning toward a single-provider for your ADM and infrastructure management needs, you might want to stick with a single RFP.