When IT tenders become a stumbling block

IT outsourcing is standard. If a company decides to have its IT operated by a service provider, this is not an unusual process. And yet the path to the sourcing partner is often not easy and burst sourcing contracts are not uncommon. But what has gone wrong if the partnership is not a real pleasure? IT tenders are the supreme discipline on the way to finding the right service provider, be it for a single work or an ongoing takeover of services. And this is where things often go wrong. Lack of alignment with one's own IT strategy, manual errors in the tendering process or lack of experience in dealing with providers are among the most common mistakes in current tenders. Tendering companies are responsible for the tendering process and should be well prepared in their own interest.

IT strategy, sourcing strategy and IT tendering belong together

It sounds like something out of the prayer wheel of IT management consultancies and yet it is true: at the beginning of every major change are the fundamental questions. What is our business purpose? What is the strategic and operational importance of our IT for the business? How is our IT infrastructure set up in concrete terms? What do we want to change? What do we want to do ourselves, what do we want to outsource? Only when this reassurance has been provided in the corporate strategy can an IT tender be set up with hand and foot. Companies that are not tendering for the first time know these requirements and can act with the corresponding experience in concrete tenders. Companies that are involved in a major tendering procedure for the first time often painfully learn how important this basic preparatory work is.

 

noventum graphic Procedure model IT sourcing
A well thought outsourcing strategy covers the entire path from analysis to next generation sourcing planning. The IT tender is at the centre.

IT tenders are a broad field. Public tenders, restricted or open tenders, tenders for specific work items (e.g. software) or IT processes (e.g. application management), tenders for a complete IT operation or those for smaller units - the framework conditions are as diverse as the goals. What all tenders have in common is the need for good preparation. The tendering company should have a clear idea of what it wants, from the strategy to the selection of providers with whom to enter into negotiations. The negotiation itself and the contract must be considered separately, as they also harbour pitfalls.

IT tenders - the most common mistakes

Unclear objectives of a sourcing project or tender

The goals of a sourcing project can be very different. It starts with changes in the strategic orientation, e.g. in order to implement the requirements of the specialist departments more quickly and flexibly. The goal can also be to reduce current costs, improve qualities or compensate for an existing shortage of skilled workers.

If the goals to be achieved through the external award of IT services are not clearly defined in the run-up to a tender, problems are pre-programmed. The strategic layout of the future target architecture, the planned service cut and the resulting tender for the IT service go in the wrong direction, and the desired requirements are not met later. On top of that, unclear objectives make it difficult to assess the providers' offers.

Defined goals to be achieved through possible outsourcing change over the term of the tender

If, for example, costs are not decisive in the definition of objectives and the planning of tenders, but are made a decision criterion in the selection of providers, the decision runs counter to all other objectives. Original objectives are disregarded and later lead to a distorted picture of the offer, increase the effort in the evaluation of the offers and jeopardise the fulfilment of a possible business case.

The scope and content are not specifically described by the client

If the scope, the content of the tender and the service provision are not clearly defined, the requested service is not transparent for the provider.

Service sections and required production depths must be recognisable in corresponding requirements documents and service descriptions. It should also be transparent whether the provider has to provide a transition or transformation for taking over the IT operations. Otherwise, potential providers will be overwhelmed to submit a high-quality offer that matches the requirement.

Notes in tender documents that detailed designs are shifted to the transition often ensure that these requirements are no longer taken into account and fall by the wayside.

Imprecise performance requirements lead to imprecise offers. This makes it more difficult for the customer to make a comparison and gives him hardly any opportunity to make a reliable decision.

The scope of the service package is changed on the route

If the scope changes in the ongoing tender process, tender documents for a changed performance expectation must be elaborately revised and adapted to the new requirements. This can take up a lot of time and torpedo the defined schedule. Furthermore, a pre-selection of providers may become obsolete if they are not able to deliver the required scope of services in the end.

No longlist built? (Insufficient selection of suppliers)

A suitable number of bidders is to be provided for the tender, who are to submit a bid. If the number of bidders is too small from the outset, it will not be possible to narrow down the market in the further course of the tender on the basis of defined evaluation criteria, as there may be too few bidders with whom to enter into concrete price negotiations.

Different lots are awarded to different providers

In the first step, it can be advantageous to select the best service provider for different lots, chosen on the basis of qualitative and quantitative criteria. In the course of the operating period, which is often fixed for 48 or 60 months, the client is in the role of provider control and is in exchange with the service providers on a wide variety of topics. If one has to define and live interfaces, processes, procedures, committees and roles and responsibilities with each provider that delivers services, the day-to-day business is very complex. Flexibility and efficiency in service delivery are often better achieved with only one provider.

The contracting authority's requirements and the Request for Proposal are not directly described in a contract structure

If the description of the service in the tender is kept informal, it can happen that providers, for their part, present a contract structure with their offer, into which the project is later to be cast. Once such a draft contract from the provider is on the table, this puts the client as the contracting authority in a defensive negotiating position, since the requirements are negotiated from the provider's point of view.

If the customer puts the request for proposal into a contract structure from the outset, he negotiates his requirements. This puts them in a much better negotiating position, they are in the driver's seat.

Not all participating service providers have the same framework conditions

In general, all service providers have the same starting conditions, have the same RfP documents at their disposal and work with the same information and framework conditions. This means, among other things, that all service providers receive identical service descriptions and contract documents and that any questions from the bidders that arise downstream are also communicated transparently to all competitors.

A serious tendering procedure pays off in that all providers have the opportunity to submit a well-founded and tailored offer that describes the service provision on the basis of identical requirements. Last but not least, this fair procedure facilitates the subsequent evaluation of the offers and thus makes the work easier.

Sometimes tenders are "tailored to the body" of a service provider because that is what is politically desired. "Political" can also mean "technical", e.g. if a service provider is already set in many places and one would like to see him continue as a "general contractor". The reverse truth applies here (intransparency helps to achieve the political goal).

No concrete service levels are defined or the defined service levels do not fit the customer's requirements and are not described with corresponding conditions regarding fulfilment

If a service provider provides services for its customer after a contract has been awarded, these services must be defined in such a way that the customer can clearly see which service quality it receives at which times for which services. Especially for business-critical IT services, it is important to create clear framework conditions,

- at what times IT systems with different characteristics are made available to the customer ready for use,

- which employees are available at which working hours to deal with service requests and fault reports,

- how quickly and in what form the service provider is available for certain services,

- what the consequences are for the provider if it does not fulfil promised characteristics and service qualities in the contractually agreed form.

Externally purchased IT services can only be delivered in a stable, operationally reliable quality and in the desired form if the framework conditions for the provider are clear and transparent. Contractual obligations should be regulated by a penalty (payment of a defined sum), which also fits the corresponding service levels.

Believing that tendering and outsourcing IT services always saves money

Clients manage their IT operations with a corresponding IT budget, which is often % based on the company's turnover. Many clients assume that outsourcing their IT operations automatically means a reduction in costs. Why else would one outsource IT operations? In fact, this is only the case if the previous IT service quality, maturity level and cost structure of the in-house operation are not too low. If, for example, you want to change your IT service quality, become more reliable or more flexible with a tender, then these adjustments can be seen in the cost structure of the external company.

The tender is structured in such a way that it cannot be profitable for the provider

Concrete service descriptions, pointed service levels and a sensibly built contract structure are good tools to be prepared for a future stable and secure third-party operation.

However, a tender or the operation that a service provider offers for a customer must also be worthwhile for him: - from a financial point of view, as a potential reference or for building up dedicated services that he can also market elsewhere.

In this respect, every tender must be implemented with a sense of proportion to ensure that potential providers do not drop out during the tender. This would also weaken the client's negotiating position vis-à-vis the remaining providers.

Forgotten the legal assessment? In the end, the in-house lawyer speaks as an expert

The legal examination of tender contracts may reveal one or two requests for changes (ping-pong). It is the last instance. If you do not plan for this step, you will have to "do it again".