When your company approaches rebidding season for its travel management contract, it may be wise to understand the true costs of dedicating your internal resources to a lengthy RFP (Request for Proposal) process. It may have ‘always’ been done this way, but many organizations are now ditching the RFP in favor of a more agile procurement method. Instead of locking in talent from all tiers of your organization on non-billable work, many companies can find cost savings and time efficiency in a more streamlined rebidding process.
Here are 4 Reasons to Abandon the RFP:
1. We don’t know our budget
The delicate dance of committing to real budget numbers is tricky for both sides of the deal. As the hiring company, you know your budget number, but are hoping that the vendor can come in under that. As a vendor, there are many variables and price ranges, so there’s no ‘typical’ project. Why not be up-front about your spending plans from the beginning? Approaching a vendor with candor and transparency creates a valuable partnership.
If you're simply looking for lower prices from a Travel Management Company (TMC) and you’re happy with your provider, ask them to reduce their costs. But make sure to do a benchmarking exercise to ensure that you’re not already receiving appropriate prices for the services you need. The fact is - even if you convince your provider to drop their prices, the impact on your total T&E is very small. TMC services typically run from 1% to 3% of your total program cost.
2. Your staff has better things to do
Putting together the requirements for an RFP is distracting your staff from doing more-profitable work. Tasks like reviewing estimates, proofreading their sections and internal meetings amount to a significant amount of work time away for their core tasks. And this disruption of productivity comes at a price. An RFP process can cost a company tens of thousands of dollars in only a few months. Estimates put the cost of writing a RFP from $20,000 to $35,000 depending on the size and experience level of the internal team. Hiring an outside RFP consultant can be fraught with risk as well. The knowledge transfer required to develop a useful RFP by using a 3rd party still requires a significant commitment of time and effort from internal resources.
The costs associated with issuing, managing and awarding, plus risks around implementation don’t add up. You’ll spend more going to bid than you'll generate in savings. Do the math and see for yourself:
3. Your vendor needs to stick to its mission
Presumably, your company hired a lean team to manage aspects of your business that you don’t care to manage. And the reason you chose that company was that it manages itself well. But consider the effort it takes to recompete for its established business. Proposals require input from Sales, Finance, Executives, and more. The cost in non-billable hours spent on crafting a responsive solution with fully estimated budgets and timelines can be $20,000 or more depending on the time and number of employees involved.
4. The RFP punishes your established vendor
When your RFP team gets it right the first time, your company may be better served by simply renegotiating an existing contract. Clearly, the cost of the last RFP lifecycle should deter you from considering another round. As this 2016 study by Ernst & Young found, “Sourcing or renegotiation should be done selectively, looking for the highest impact opportunities.” Your vendor has already gone through the change management process of introducing their processes and technology solutions to your staff. It's easier and cheaper to resolve cost or service issues than to take on risks associated with changing providers. Chances are, your established vendor has a better sense of timelines and pricing based on their experience working with your organization. But that experience many not result in submitting the lowest-priced bid. Reviewing proposals should balance the incumbent’s financial offer with the possibility that a low-cost bidder may intend to solve pricing issues after they are selected.
Conducting an RFP process can sometimes be unavoidable due to corporate governance requirements. If that's the case, then read our Guide to Creating a Managed Travel RFP. Some of the reasons you should issue an RFP include:
- Your travelers and managers aren’t happy with the services
- You’ve had a material change of program scope whether it's geographic or an additional category
- The current provider isn’t making continual program improvements or bringing you innovative solutions
Ready to speak with a corporate travel expert about how you can better manage your business travel? Get in touch with us to schedule a free consultation that can help lower costs and improve employee productivity.