Procurement and Bid Management Outsourcing

During my career, I have been in several roles as a senior manager where I had to play the role of Bid Manager and Procurement guy. I often managed deals in the tens of millions of dollars and negotiated contracts on behalf of the insurance company that had significant legal impact. I know a lot of busy CIO's and other senior executives are thrust into this position. Some willingly and others kicking and screaming. Some of you are fortunate enough to have procurement offices in their company. While some of you, well... are on your own!

This article will focus on the outsourcing of procurement and bid management for insurance companies that do not have formal procurement offices. I want to discuss why outsourcing this function can be a viable option.

Typically, the CIO or a subordinate will act as a procurement and bid management liaison. They will work with the software, hardware or services vendor(s) and the insurance company's internal legal person to come up with pricing and contract terms. This is a very viable model for general services procurement. However, there are times that an outsourcing services and software procurement is a good option.

I think that when an insurance company is looking for a new core system (billing, policy, rating and claims) and searching for a digital / InsureTech solution that will have significant financial and trans-formative impact on the company... this is the time to consider calling in an experienced individual who can help guide you through the process and act in your company's best interest. Also, the effort can be extremely time consuming, frustrating and is fraught with all kinds of landmines that could blow up on you after the deal is done.

There are multiple stages in the life-cycle of a large deal. In this article, I am only going to focus on software. Let's walk through some of important stages:

1. Determining business transformation need for new software technology driven by IT and Business (will require significant brainstorming)

2. Develop a business case for Executive Management

3. High level cost and time requirements to implement (this will be higher than you think and will required significant internal resource investment)

4. High level Return on Investment analysis (this is just a placeholder... trust me, it will change)

5. Discussing viable companies with Analysts and via research (careful, most Analysts are paid by the software and services vendors)

6. Developing and initiating a Request for Information (RFI) to viable software vendors (should be high level at this point)

7. Analyze data from RFI received from software vendors (good time to clarify with vendors any questions you might have) - important to verify any claims they make

8. Narrow down software vendors based on internal requirements and budget (preferably to 3 or 4) - you can also do another round if you started with a large number of vendors

9. Begin process of determining Systems Integrator(s) (SI) for software implementation (will be driven by response of software vendor responses)

10. Send RFI to SI's

11. Analyze response from RFI's received from SI's

12. Narrow down SI's (be careful here... if you use an internal IT services vendor, they will most likely attempt to circumvent any RFI to another SI)

13. Reference checks (many references are coached by the vendors so take this with a grain of salt)

14. Visit viable vendors development centers, corporate headquarters and talk to the Project Management and Leads (most likely, the vendors will show you their best people who most likely won't be on your team... but this is okay for now). Lots of questions to ask these vendors here but I will discuss this in another article.

15. Do a cultural fit assessment. How well does your team gel with the vendor teams?

16. Develop and initiate a Request for Proposal to the SI and software vendor. They might want to do a joint proposal. This RFP must be very well thought out and there is a process for it. I will discuss this in more detail in another article. One important aspect here is to be sure you have several open meetings with the vendors to be sure they understand the requirements and to be sure their responses can be measured in a fair "apples to apples" comparison.

17. Develop a thorough and non-biased scoring model for the RFP responses. This is important so any audit that your company performs on the project shows that it was a fair selection process.

18. Collate RFP responses received from vendors. Attempt to match responses from each vendor in an "apples to apples" comparison matrix. This is more difficult to do than it sounds. Vendors want to be as vague as they can and avoid commitment at this stage.

19. Have open sessions with the vendors to go over any misunderstandings on their answers.

20. Score the responses. There is subjectivity in this process so be careful not to let you or your team's bias drive the end result!

21. At this point, you should be adding up the scores for the SI and software vendor and you can then determine who "won". At this stage, you typically take the top two scoring vendors for the final round. Depending on the number of vendors you started with... this could be three vendors for the final round. The scoring should be fairly close for the top two. If this is not the case, you must access why that is and get it resolved.

22. Let the winners and losers of this round know they won or lost. Don't leave the losers hanging. This would be bad form and disrespectful of the time and effort they put in. Also, you don't want to burn your bridges... you might need to call on them in the future.

23. This is where the negotiation part begins. Time to negotiate contract terms, pricing, timeline, resource names and locations, etc. This is very long process but has to be done right. Working with two vendors will give you leverage via competition. If you have a liaison who knows the senior executives of the SI and software vendor, this will be very helpful.

So, this is a very high level overview of the process of procurement. There are a lot of steps in between that aren't mentioned here. As I stated earlier, this process can be outsourced to a vendor who can effectively do this job and leverage their expertise to make sure you get the very best result.