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Building an RFP from the ground up

Materials Management in Health Care

For years, Gundersen Lutheran Medical Center , a 325-bed hospital in La Crosse , Wis. , has been issuing requests for proposal to solicit bids from vendors for big-ticket projects, but now the hospital is rethinking its whole RFP process.

Jan Jarvinen , director of materials management at Gundersen Lutheran, says that as projects become larger and more complicated, the old RFP process was not thoroughgoing enough.

“We have been unhappy with the results,” Jarvinen says. “We realized that the process was not well developed.”

Jarvinen is now heading up a hospital-wide effort to produce a much more detailed and extensive RFP document to select an outsourcing project, which he does not want to reveal because selection is not completed. The document will then serve as a template for future projects at the hospital.

Other hospitals are also revamping their RFPs in order to deal with larger projects, such as outsourcing of services like laundry and housekeeping and purchases of expensive software and diagnostic equipment.

In the meantime, hospitals are also applying their new process to traditional RFPs for supplies like orthopedic implants. Materials managers are expected to lead the effort .

Put in charge of his hospital's revamp, Jarvinen cast about for aid and direction. He had to go outside the hospital industry, turning to Brandon Hall , a Sunnyvale, Calif.-based consultant who specializes in technology for learning systems.

Hall sells an e-book, How to Develop Your Request for Proposal. It includes an RFP template for choosing an outsourcing firm to develop learning management systems, which corporations buy to teach employees new competencies.

Although Hall's topic seems far removed from what hospitals do, Jarvinen says the RFP process is basically the same, and the template provides a variety of key steps in the process that he had not thought of. Of course, Hall's template had to be adapted to the needs of Gundersen Lutheran, a process that Jarvinen estimates will take 200 to 300 man-hours before it is completed in March.

Hall‘s template contains sections on the business opportunity, background information on the buyer, specific instructions for writing and submitting the proposal, an explanation of how the opportunity will be awarded, the proposed contract duration, the scope of the services that will be needed, and a request for client references and additional information.

What an RFP can do

“Organizations use RFPs to protect themselves from bad deals, but there's a much more important reason to develop an RFP process,” Hall says. “It lets potential vendors know up front that your foremost concern is the level of customer service you receive.”

Hall says a properly executed RFP helps you find the right match with the right terms and conditions, while a poorly executed one can at the least waste your time, and at worst lock you into an unhappy vendor relationship. The trick, he says, is to be patient and careful and follow some time-tested advice.

“ A good RFP that asks pointed questions and dwells on specifics should give you all the information you need to create a shortlist of vendors,” Hall says. “ The better your original RFP, the more you'll be able to use it later in the process to create case scenarios that you can have your potential vendors demonstrate for you.”

On the other hand, he says, “a bad RFP doesn't take into account your actual business requirements and specific technology needs. It will lead to a string of unhelpful proposals landing on your desk. Your bad RFP will give you back the kind of information that you could have learned from a one-hour sales pitch,” he adds.

Lou Madas , director of materials management at Sunbury Community Hospital , a 106-bed facility in Sunbury , Penn. , says some hospitals shy away from RFPs, but in doing so they are passing up real advantages.

Madas, who has used RFPs for years, says that by submitting a project for bid, based on well thought-out criteria, a hospital can promote competition among vendors, which in turn can reduce prices and provide more generous terms for the hospital.

“If you don't use an RFP and simply pick a vendor, the vendor is not going to offer you any special deal because he knows he has the contract locked up,” Madas says. “The process also helps to outline the terms and conditions of a formal working agreement.”

Brian Conklin , director of materials management at Mercy Medical Center , a 476-bed hospital in Canton , Ohio , says part of the reason why RFPs are more necessary now is because contracts are more complicated.

For example, he says, vendors now put provisions into contract that raise rates if the technology is new. Unless these provisions are discovered in a thoroughgoing RFP process, “I don't think people give much thought to that,” Conklin says.

Mercy is now carrying out an RFP for outsourcing its housekeeping services. But Conklin has also used RFPs for orthopedic implants and pacemakers and implantable cardiac defibrillators.

Planning for an RFP

Before you start drafting an RFP, Hall advises that you need to do a great deal of planning.

“You need to do enough research to be able to communicate the project's scope and the service levels needed,” he says. “Your research should help you determine the level of quality you are seeking, the project's size, the time it will take and the estimated cost.”

Hall advises that from the beginning, your planning should include doctors, nurses and other staff who will use the product or service.

Madas says it is important to get physicians involved in the RFP process early, especially for physician-preference items.

“In many case, the crucial initial negotiations for a product are done between physicians and the vendor sales rep before materials management even knows about it,” he says. “The rep spends a lot of time in the department and has pretty much gotten a guarantee that his equipment will be chosen. So by the time it gets down to me, I have very little leverage any more.”

“If we have close relations with the department, we can ask these doctors to hold off,” Madas says. “That means a lot in terms of leverage with the vendor.”

To prepare for the outsourcing RFP at Gundersen Lutheran, Jarvinen set up a multidisciplinary task force drawing from nursing, OR, materials management, financial and legal. The task force met with staff to ask about their problems with the service, which is currently in-house, and how it could be improved.

Hall agrees with this approach. “It's important to involve team members in identifying potential problems,” he says. “Don't leave this activity up to contingency planners alone. No single person can provide the knowledge and insight provided by a team.”

If you need to gather more information before drafting, Hall suggests sending vendors a request for information, which is less extensive than an RFP. The buyer can then base his RFP on what he learned in the RFI process. Hall says another way that the buyer can prepare for an RFP is simply to hold preliminary discussions with vendors.

What should go into an RFP

The next step is to draft an RFP, which Hall says should only take a several weeks if you already have a good template.

“You shouldn't have to start from scratch, as the Internet provides a starting point for just about everyone for just about everything,” Hall says, alluding to Web sites like his own that offer RFP templates.

The good templates tend to be very detailed, because vendors need a great deal of information to determine whether they can do the project. “ Vendors will want summaries, conclusions, recommendations, analyses, supporting facts, proposed costs and contract terms,” Hall says.

Jarvinen says Halls' template has aided his RFP process substantially. Madas, on the other hand, says he is still looking for a good template. Although he has done so many RFPs that “it's kind of like doing it in your sleep,” he adds that “each time it's very time-consuming work.”

Hall and others stress that the language in an RFP should be crystal clear to avoid any misinterpretation. They say most vendors do not intend to misrepresent themselves, but when vague guidelines leave room for interpretation, vendors will always interpret them to mean they can do the project.

Hall adds that you need to be absolutely truthful about that the project entails. “ Do not bury the negative side of the opportunity and do not overstate the positive side,” he says.

Calonge & Associates, a San Antonio, Texas-based marketing consultant that also provides an RFP template, advises that you should also not use intimidating language, because it can sour the relationship. Instead, you can hold vendors responsible for certain duties in the agreements section of the proposal.

Madas says you should include as many specific requirements as possible in your RFP, because now is the time to do so. Once you have chosen a vendor and there is no longer any competition, your advantage disappears.

“Before they know they have the contract in hand, you can negotiate,” Madas says.

For example, he says that if your equipment comes with a year-long basic warranty and you don't want to defer payment for a follow-up five-year warranty until the initial warranty lapses, you should put that in the RFP.

Hall, Madas and others say a good template should include the following:

• Provide i nformation about your organization, including, if possible, an estimate of market penetration . This gives vendors an idea of how big a customer you are likely to be.
• Include a timetable of deadlines. Include deadlines such as when responses to RFP are due, when the successful bidder will be notified and when the project starts.
• You may want to allude to a price. Although you may not want to be pinned down with an exact price, you might want to say, “We want to reduce costs by 20%.” Giving an idea of your target price allows vendors who won't meet the price to drop out of the process early, he says.
• List your stipulations for the vendor. For a housekeeping contract, for example, you might say the hospital should be “aesthetically clean” and “a safe environment for employees, patients and visitors.”
• Ask for references. To make get an unbiased reading, also for a list of all of the vender's current accounts in addition to the references. Then you can contact a customer who is not named as a reference.
• Ask about financial changes. For example, is the vendor planning to merge with another company? This could affect your relationship.
• Ask vendors to respond to different scenarios. If you want to outsource laundry services, for example, three scenarios might be staffing the hospital's laundry, using the vendor's off-premises laundry and taking deliveries at the hospital dock, or taking laundry deliveries on each hospital floor.

Sorting through RFP responses

Hall recommends sending RFPs to no more than 15 vendors, then inviting back three to five finalists. Finalists are chosen by closely examining the responses and undertaking a strict due diligence process to check the accuracy of their claims.

Hall advises to invite end-users, such as floor nurses, to ask questions at a meeting with the finalists. If it's a product like IT software, vendors should be asked to demonstrate it.

The next step is for each vendor to write up their formal proposal – how much it will cost and other stipulations for the contract. A vendor is then chosen and the final plan is sent to administration for approval.

“RFPs are a lot of work, but they're worth it,” Hall says.

”It's certainly tempting to take shortcuts,” he adds. “Conversations over lunch might give you some ideas on where to start, but it's unwise to risk thousands or even millions of dollars on the basis of a few personal stories.”

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