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You should be able to use a variety of procurement options. Once you have the ability to use different approaches in different situations, you will be able to make decisions about the particular approach that will serve you best in a particular situation. Again, this all sounds obvious. It is clear that, if you have a variety of tools at your disposal, you can use the right tool for the right job. Unfortunately, many organizations understand only one approach. As a result, they have to apply this approach, whether or not it is the best tool for the job. Usually, the single approach that is understood in an organization is the Request for Proposals (RFP). Often, even the single approach is not fully understood, so that even the solitary tool that an organization possesses can be misapplied, sometimes doing more damage than good.

The Tender Process

The tender process is particularly good if you are acquiring services that can be specified by reference to standard practice. The tender process allows you to set an exact specification, which must form part of the subsequent contract. It allows you to set quality and performance measures, which can also be incorporated in the contract. It therefore produces tenders from potential providers in which all the products and services are identical, and which are differentiated mainly by price.

The weaknesses of the tender process in some circumstances are produced by those same factors which make the tender process strong in other circumstances.

• It is restrictive, in not allowing innovative proposals to be put forward by the tenderers.
• It imposes rules about quality and performance which may not be truly relevant to the objectives to be achieved.
• It assumes that all products and services are identical, and does not easily accommodate a "bang-for-buck" situation, in which higher prices are matched with higher performance or wider functionality.

The Proposal Process

The proposal process allows customers to state their requirements and for providers to state their solutions to those requirements. The proposal process allows proposals to be judged on a range of evaluation criteria, beyond price alone. The proposal process allows a variety of solutions to be put forward, and for the customer to be able to distinguish between them.

Some disadvantages of the proposal process are:

• It is adversarial: first one party puts its case, then the other.
• It promotes a compromise between the two parties, rather than a consensus.
• It can require complex evaluation calculations, which may be disputed on the grounds that they were not truly equitable.

The proposal process can be difficult to manage when a customer knows what it wants to achieve but has no prescribed way to achieve it. Outsourcing is a particular example of where difficulties can arise if the proposal process is not used carefully.

One of the first lessons that customers may learn when they approach outsourcers to perform particular functions for them is that the outsourcers know more about how to perform those functions effectively than they do. This, of course, would seem to be axiomatic. Most customers are approaching outsourcers because they want the functions done more effectively. It must therefore follow that they already think that the outsourcers can perform the functions more effectively. For some reason, this is rarely explicitly stated. But what it boils down to is: the outsourcer knows more about it than you do, and the outsourcer knows how to do it better. Given that the outsourcer does know more about managing a vehicle fleet or maintaining power lines or running a computer installation than you do, why should you bother to go to the trouble of telling the outsourcer, in detail, what you expect it to do for you?

Many customers do put a lot of effort into drawing up a detailed set of functional specifications. These specifications describe what they do now, and are included in the RFP. The outsourcers (who may know how to do it better) then have to respond to the customer's way of doing things (which can be less effective than the outsourcer's).

Outsourcers often have an uphill struggle to convince customers that the reason that they have not answered a question in the RFP is because the question is wrong. In working for both customers and outsourcers I have seen many responses to RFP questions that did not actually answer the question. Instead they answered the question that the customer should have asked.

The Agreement Process

The agreement process works differently from the tender and proposal processes. The customer short-lists between two and four potential providers and has each of them work with its own staff in separate teams. You may be able to place only one member of your own staff on each team if you have four teams. In some instances, especially if you have only two teams, you may be able to put two or three of your own staff on each team. Each team should then develop a joint understanding of what needs to be done and how the provider can do it.

This approach offers a number of advantages.

1. You do not have to spend time developing documentation that may not be relevant to a service provider. The teams will focus on what is necessary for them to reach a joint understanding.
2. Good ideas can be passed between the teams. It is difficult to manage the team approach if you place any of your own people on more than one team, as they may accidentally pass confidential information from one team to another. With separation of the teams, however, you can have an agreement with each service provider that would enable you to pass ideas and approaches between teams, provided that they were not the intellectual property of an individual provider. Agreement to do this has to be a condition of a service provider participating.
3. The solutions fit both you and the provider. With an Invitation to Tender or Request for Proposals, the communication between you and the provider is necessarily one of request and response. There is an air of negotiation about such processes right from their inception. With the joint understanding approach, any preconceptions and prejudices can be swept away, the request and response format can be ignored, and the teams can settle down to developing mutually acceptable approaches.
4. Competition is prolonged. This happens in two ways. First, the decision on the preferred supplier is made following the agreement stage, rather than before it, as is the case with the classic methods. Second, there is a reasonable assurance that, should problems develop with the preferred supplier, there is at least one other provider who can replace them.

Together, the customer and each potential provider reach an understanding of the customer's needs and the provider's services, and how they will fit together. The two parties work together to develop a mutually satisfactory solution. The customer will gain an appreciation of what it is like to work with each of the providers. Each provider will have insights into the management and culture of the customer. The customer can make decisions based on outcomes, instead of on individual tasks and intermediate outputs.

This approach does have some problems:

• The customer may have to spend considerable amounts of time with each of the potential providers.
• For large projects, the customer may have to pay the potential providers for their work in developing their solutions.
• The customer may having difficulty in accepting that the process is subjective.

This last weakness is worthy of further discussion. Many people view the agreement process as flawed because it is subjective. To some people whose normal method of purchasing is through the tender process, the agreement process may look undisciplined. There is no clear and detailed statement of requirements from the customer, no point-by-point response from each provider, and no set of evaluation criteria. If that is how you feel, let me say that you do not have to use the agreement process at all. If you choose to use it, you do not have to use it in every purchasing situation: a lot of time and effort could be wasted by each provider on developing a specification that could have been given to them by the customer in the first place. Where the outcomes are more important than the tasks and the outputs, and where the basis of the relationship between the two parties is agreed mutual benefit, then the subjectivity of the agreement process may be very valuable.

In general, you should choose the tender process when you are dealing with an established, proven outsourcing market with a reasonable number of competitors. You may want to use the agreement process when you are dealing with a small, inexperienced, eager outsourcing market, and especially if the functions that you intend to outsource are critical differentiators. The proposal process may be useful when you want a small outsourcing market without any major players to provide critical commodities.