The world of procurement may seem to be entirely straightforward. An agency needs goods or services and works with a procurement department to buy the highest quality for the lowest cost. Simple purchases – like laptops – can be obtained by simply putting out a request for bids, with clear cut explanations of what’s being acquired, and then the lowest bidder typically will get the deal.

But for more complex purchases, state and local governments turn to requests for proposals (RFPs) which can include hundreds of pages of details which vendors attempt to understand and then offer up a compelling response in hopes that they’ll wind up sealing the deal. “I would say over 50% of procurements are done through RFPS in big governments especially,” says David Gragan a long-time procurement director for a number of entities.  “We do more proposals now than we have historically done. Years ago, maybe 90% of our transactions were put out to bid and the rest were proposals.”

They’re a critical part of the procurement process. “Yet,” according to a white paper from the NIGP Business Council, “both government agencies and suppliers often underestimate the full cost financial and operational – of engaging in the sourcing process.”

As the paper explains, “As stewards of public funds and missions, procurement professionals must balance risk, equity and efficiency.” At the same time vendors have to consider the potential opportunities offered by a contract and consider whether they’re worth the cost to propose – ranging from $6,000 to $30,000 (or more) per RFP.

To give credit where credit is due, the title of this article was borrowed from the NIGP paper, which refers to the “Hidden Costs of RFPs”

Terry McKee, Director of Procurement at Knoxville's Community Development Corporation, explains that “From the government side there are costs because putting together an RFP is time-consuming, both on the front end to get it together, get it published, and then particularly on the back end because it's a lot of work for staff to evaluate versus a traditional invitation for bid, which is much quicker to evaluate.”

As Marcheta Gillespie, Executive Director of NIGP Consulting, adds, “You're going to have conversations; you're going to have demonstrations; you're going to have negotiations. There's going to be more steps in the evaluation process. You typically are leveraging a committee, so that means now there's more individuals involved in how you evaluate RFPs and make recommendations.”

Short-changing this process can be hazardous. As McKee explains, “A lot of our agencies struggle with that.  So, they take what they went out with last year, four years ago or longer. They dust it off and send it back out. They don't do a thorough enough job with their stakeholders to say, is this current? And this is really what you need. So that's a hidden cost because once you go out, if you're wrong and you don't get good responses from the marketplace, you've wasted all that time and energy.”

Another hidden cost can emerge when complex technology procurements extend over several years. Needs and capabilities may evolve before the process is complete, creating additional work and delaying the benefits of modernization.

“Technology can evolve substantially over the course of a lengthy procurement, even when public entities plan carefully at the outset,” says Solomon Kingston, Chief Cooperative Procurement Officer at the National Association of State Procurement Officials. “For example, during a multi-year effort to procure an eProcurement platform, a public entity identified an additional requirement important to the platform’s long-term sustainability. Unfortunately, incorporating that new requirement within the original scope proved challenging under current statutes and procedures, prompting the need for a revised solicitation.”

When RFPs haven’t been put together in a clear way that will help the vendors to respond well, “a lot of the costs are intangible,” says Gragan, “like vendor frustration, which results in them not paying attention to your government anymore. And when you alienate the best suppliers, they don’t want to do business with you and that, by itself, is a huge cost. Your government is then dealing with junior varsity offerors, because you are so bad at doing competitive proposals.”

Procurement protests

Even the best RFP’s are open to protest by vendors who feel that they should have received the contract but didn’t. As Robert Gleason, Director of Purchasing in Broward County, Florida, explains, “Protests are not frivolous, but oftentimes are purposeful in trying to get their client to get the contract. They’re going to look at every little thing we do and if they can find one little thing wrong (and often they’ll have professional lobbyists trained to look for mistakes!), then they’re going to protest it.

“The hidden cost of the protest can be enormous, months or years where we hold everything until we can make it through the court or the board of appeals or whomever the third party is. It happens a few times a year for us and delays the solicitation and any award until we resolve it. For that reason, it’s vital for RFPs to be done well and right, to communicate timely and accurately with all stakeholders, and be accountable at all times, every time.”

The weight of protests on entities can be costly in a number of different ways. According to Jack Pellegrino, a long-time expert in procurement and formerly Director of the Department of Purchasing and Contracting in the County of San Diego, “Protests may not only negatively affect your organizations' reputation for fairness, but you'll also have administrative time and cost by your department and internal or external counsel to respond and resolve that protest."

The vendor side of the equation

The tricky part, for suppliers, of course, is that putting in a proposal is a crapshoot at best. No matter how much time or money a supplier puts into answering every detail in an RFP, there’ no guarantee that the contract will come through.

Many entities create overlong RFPs which require many hours of review to have a good chance of successfully winning the contract. That may be getting a little easier with the advent of artificial intelligence, which can boil down a lengthy RFP and give vendors a checklist of the items that they should include in their proposal. (Sadly, as vendors increasingly use AI, they have the capacity to send out hundreds of proposals, thus putting additional costs on the entities that have to go through them all).

What’s more, it’s considered a good practice for entities to provide the opportunity for pre-bid conferences with vendors who can help an entity to learn more than it already knows about the specific good or service it seeks to acquire. These can often by done by Zoom or some other platform, which doesn’t cost suppliers very much. But in more complicated situations, they may require vendors to come to the actual site for which the procurement is being made – like construction projects on a publicly owned airport. This cost is born directly by the vendors, which aren’t supposed to get any advantage when it comes time to pick the winner of the RFP.

Finally, vendors often have to wait far too long to be reimbursed. Says McKee, a lot of government contracts are supposed to be paid in 60 or 90 days. “But if I'm a really small vendor, a startup vendor, a woman owned vendor, a minority owned vendor, can I wait 60-90 days if all the dots are dotted and the Ts are crossed, and heaven help them if something's not done right, it might be six months. Can they hold that long?”

A growing change to the landscape

One route that a growing number of entities and vendors are taking is cooperative purchasing, which involves signing onto a contract that’s been established by one entity, with others latching on, in order to make the procurement process easier.

Cooperative purchasing has become increasingly common and has spawned yet another approach which has enormous potential. “Cooperative purchasing has long served the public sector well, but the traditional national model concentrates solicitation authority in a small number of large organizations, with costs recovered through fees embedded in each transaction” according to Al Hleileh, co-founder of Civic Marketplace. “While this offers convenience, it can distance procurement professionals from the decisions that shape their contracts and limit the participation of local and small businesses.”

As he says, “We take a different approach. Public entities, from cities to Councils of Governments serve as lead agencies, conduct the competitive process under their own authority, and make the resulting contracts available to peer agencies that choose to use them. This supports lead agencies in reducing the administrative burden of a competitive solicitation, which lowers the hidden cost of an RFP without compromising the integrity of the process.”

This article was supported by and written in partnership with Civic Marketplace.

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