The request for proposal (RFP) process has been the bread and butter of purchasing \n\norganizations for decades. IT organizations aren't strangers to the process, typically sourcing a \n\nsignificant amount of IT spend through RFPs. \n MORE ON Vendor Management\n \n Price Doesn't Matter\n \n Effective Tips to Measure ROI\n \n ABC: An Introduction to Vendor Management\n \n ABC: An Introduction to Service-Level Agreements\n \n SLAs: A CIO's Guide to Success\n Overall, the process is a good one. Customers document their requirements and needs, vendors are \n\nqualified and solicited, and customers compare and contrast vendors to ultimately select the finalist. \n\nThe process is relatively straightforward, too. An RFP is issued, proposals are evaluated, a vendor is \n\nselected and a contract is negotiated. There's also a sense of safety in using the RFP process in \n\nthat, because it's a competitive process, the customer can assume that he or she is getting a "good \n\ndeal" more often than not. Unfortunately, what customers don't know is that the RFP process widely \n\nused today is fundamentally flawed, and those customers are leaving sizeable concessions on the table \n\nby using the process. In the RFP process, there are two interrelated events: vendor selection and negotiation. \n\nVendor selection implies a formalized competitive bid by which vendors are objectively evaluated and \n\nselected based on pre-defined criteria. Negotiation is the process by which two parties have an \n\nexchange to reach an agreement. While the events are interrelated, they are sequentially distinct in \n\nthe RFP process. In other words, a vendor is selected and then a price and a contract are negotiated. \n\nThat is an extremely flawed sequence of events\u2014negotiations are severely compromised when a \n\nvendor is notified that it has been selected prior to beginning negotiations. In that case, the \n\ncustomer loses nearly all leverage because the vendor has been selected. This is the \n\n"selection\/negotiation" or "begging" RFP model, and is a model very commonly used by customers and \n\npurchasing organizations. Under this model, at the point of selection, the finalist vendor correctly assumes that the \n\nother vendors have been eliminated and possibly notified as well. In other words, the vendor's \n\ncompetition has been eliminated by the customer and not by the vendor. If the vendor's sales \n\nrepresentatives are shrewd, they will drag out the negotiations, seeking to lengthen the time from the \n\npoint of the finalist selection to the start of actual negotiations. In doing so, the vendor causes \n\nthe customer to make a time investment, and selecting another vendor is that much more difficult. \n\nAfter a while, the customer has a vested interest in bringing the deal to a close and, if the vendor is \n\nopportunistic, the customer will leave concessions and value on the table. (For more on negotiation, \n\nread Price Doesn't Matter.Simply changing and overlapping the sequence of the vendor selection and negotiation events \n\nyields dramatically different results while keeping the rest of the RFP process intact. This change of \n\nevent sequence, or the negotiation\/selection RFP model, implies that the negotiation process begins \n\nparallel to the vendor selection process but prior to actual vendor selection. The purpose is to \n\nprolong the customer's leverage during the vendor selection process and "pre-negotiate" the price and \n\ncontract before leverage is materially eroded. Negotiations under this model begin in earnest when a \n\n"short list" of vendors has been determined. After the customer has selected two or more finalist \n\nvendors, the remaining vendors are notified. The customer then parses the best attributes of all of \n\nthe finalist vendors' offers, includes any additional concessions desired, and communicates the \n\nparameters of the cobbled deal to the vendors. The vendors are subsequently instructed to provide \n\n"best and final offers," or BAFOs. A request for BAFOs implies to the remaining vendors that they have competition and that \n\nthere may be a better deal than theirs on the table. Because a vendor is being "kept in the game" and \n\nhasn't yet been eliminated, that vendor may feel that its bid is close and it will only have to make a \n\nfew more concessions to seal the deal. If the BAFOs are not as competitive as desired, the customer \n\ncan, without revealing confidential information of the finalist vendors, communicate to each where \n\ntheir proposal falls short and guide them to be more competitive. Where a vendor is unable or \n\nunwilling to provide a BAFO, the customer can elect to eliminate that vendor at that time or wait until \n\nno better proposals are received. The negotiation\/selection RFP model also requires that a contract \n\ntemplate accompany the RFP and that vendors are required to respond as a part of their proposals, with \n\nany contractual concerns or issues. In providing guidance to vendors formulating their BAFOs, the \n\ncustomer can also explain to a finalist vendor why its responses to the contract template were \n\nunacceptable and how modify them. The negotiations\/selection RFP model not only precludes the typical negotiation ploys and \n\ntactics gamesmanship, it dramatically reduces the time and resources typically wasted in the \n\nnegotiation phase of the selection\/negotiation RFP model. When a deal is agreed upon, and only then, \n\nthe contract award and finalist vendor are announced. Final negotiations should be more administrative \n\nin nature, such as each party doing a final review of the associated contract in preparation for \n\nsignature. It is important to conclude final negotiations immediately after the contract award is \n\nannounced. The reason for this is that if the vendor balks at any of their prior concessions or \n\nsuddenly has memory loss, the customer will still have the opportunity to go back to an alternative \n\nfinalist assuming that not too much time has passed. (And read Effective Tips to Measure ROI to make sure you get the \n\nmost from your vendor.Stephen Guth is \n\nthe executive director of the National Rural Electric Cooperative Association's Vendor Management \n\nOffice. He is a Certified Commercial Contract Manager (CCCM), Certified Purchasing Manager (CPM) and a \n\nCertified Technology Procurement Executive (CTPE). He is the author of The Contract Negotiation Handbook: An Indispensable Guide \n\nfor Contract Professionals and The Vendor \n\nManagement Office: Unleashing the Power of Strategic Sourcing.