3 assignments in 1 Due ASAP

Case Study 2
Question 2

Responses will vary between yes and no.

Yes. Since very few proposals were received. Asia General Contractors’ proposal fits within budget and timelines and the have the experience to be evaluated at par with the other contractors.

No, the proposal was submitted late and should not be accepted. It is not fair to the others that submitted on time and could have used the additional time to further develop their proposals.

Should the team consider the proposal from Asia General Contractors? Why or why not?

2. Should the team consider the proposal from Asia General Contractors? Why or why not?

• Student responses will be split between yes and no. For each response, be sure to examine the supporting rationale for response.
• Possible responses and explanations:
• Yes. Since very few proposals were received. Asia General Contractors’ proposal fits within budget and timelines and the have the experience to be evaluated at par with the other contractors.
• No, the proposal was submitted late and should not be accepted. It is not fair to the others that submitted on time and could have used the additional time to further develop their proposals.

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(Premium)

Teaching Strategies

• The two vignettes reinforce the process and procedures that are not formally described in many RFPs or proposal process descriptions. Complex projects and more simple projects require the proposer to listen to the vision of the company then incorporate what was learned into the proposal. The first displays the success of developing a project proposal. The second includes failures when developing a project proposal.
• The vignettes also reinforce the necessity to listen to the customer's need and reflect the understanding of the need, problem, or opportunity within each of the three sections of the proposal.

Optional Supplemental Activities

• Have the students read the case studies in class and answer the questions in groups of three or four. Next, select five participants to act out the group activity. This is an excellent way to stimulate class discussion and interest. This is a good case study to do right before you conduct the lecture on this chapter and then repeat after you lecture on the chapter. The difference in responses “before” and “after” will reinforce the importance of the topics covered.
• Try to bring real-world examples into each discussion section. Always ask the students if they can think of any examples that apply. This will help keep the class interaction high.
• Ask your students if they have ever seen or written a proposal. Ask your students what is more important—developing a quality proposal or doing a quality job. Let them debate this chicken and the egg issue.

Optional Supplemental Activities

• Have students review RFPs found on the web and outline a possible response. Within the outline, have the students identify the project scope. Teams could be assigned to describe the technical, management, and cost sections of the proposal.
• Have students evaluate proposal writing software they find on the Web for its ability to complete the technical, management, and cost sections of the proposal. Students can rate the ease of use of the software and the learning curve necessary to learn to use the software.

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Chapter Concepts

• This chapter covers the development of proposals by interested contractors in response to a customer’s request for proposal. When the customer decides which contractor to engage to perform the project, the customer and the contractor sign an agreement (contract).
• For some projects, there is neither a request for proposal nor an actual formal proposal. Rather, after the need is identified, the project moves right into the planning and performing phases of the project life cycle. Examples include a project that one or two individuals do by themselves, such as remodeling a basement into a family room, or a project carried out by a volunteer group, such as organizing a fundraising event.
• Based upon the information from this chapter, students will become familiar with:
• Building relationships with customers and partners
• Proposal marketing strategies
• Decision making to develop a proposal
• Creating winning proposals
• The proposal preparation process
• Elements that may be included in a proposal
• Pricing considerations
• Customer evaluation of proposals
• Types of contracts between the customer and the contractor
• Measuring the success of proposal efforts

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Learning Outcomes

After studying this chapter, students should know how to:

• Develop relationships with customers and partners
• Decide whether to prepare a proposal in response to a customer’s RFP
• Create a credible proposal
• Determine a fair and reasonable price for a proposal
• Discuss how customers evaluate proposals
• Explain types of contracts and various terms and conditions
• Measure the success of proposal efforts

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Project Management Knowledge Areas from PMBOK® Guide

Concepts in this chapter support the following Project Management Knowledge Areas of the PMI Guide to the Project Management Body of Knowledge (PMBOK® Guide):

Project Procurement Management

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Vignette A: Design-Build Proposal Requirements for a Zero Carbon Building

The use of a firm-fixed-price, design-build framework contract enabled the National Renewable Energy Laboratory (NREL) and the U.S. Department of Energy (DOE) to seek detailed offers to its request for proposals to design and build a national showcase for the aesthetically pleasing high-performance Research Support Facilities (RSF) building in Colorado, USA. The bids were to include a competitive first-cost for the construction and projections for the life cycle costs with the goal of being a zero carbon building and of obtaining a rating as Platinum on the Leadership in Energy and Environmental Design (LEED™) as defined by the US Green Buildings Council LEED™ rating system.

• Specific ENERGY STAR standards were included in the RFP as well as function and size requirements.
• Two-phase proposal process was implemented.
• Phase 1 – Design phase with one-to-one meetings with proposed scope. The evaluation assessed the conceptual approach, the preliminary design costs, and the cost proposal.
• Phase II – Only the successful offerer selected from Phase I participated. The offerer was to develop a firm fixed price proposal including the actual scope of work and deliverable definitions.
• The design proposal included specific aspects of the project and was quite complex. Key proposal elements were required to communicate the scope of the work to be delivered, how it will be managed and completed, and the costs for the work in a specific time frame.

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Vignette B: Strategic Thinking and Planning Helps to Manage Change

ICF International delivers technology solutions and professional services to organizations globally. About 20 years ago, staff for ICF International worked with U.S. Federal agencies to develop a cybersecurity service for the U.S. federal government. In order to meet the cybersecurity needs of the government and the agencies, a strategic plan was developed to gain macro insights about cyber threats from frontline employees and clients as well as third-party research. ICF International recognized the wisdom of the frontline workers and incorporated that knowledge into the proposal and project.

• To determine the strategy for projects, a senior vice president asked, “Where is my market going, and what influences will be felt in the near and long terms? How might technology play a different or larger role in the future? What will my clients expect in the future? How can I innovate to change the value equation?”
• Other companies were not paying attention to the changes in the contracting methods and fell victim to risks.

Proposal developers should ask questions, listen to the response, then incorporate what they learned into the proposal.

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Why is the following statement true? Customers or clients and partner organizations prefer to work with people they know and trust.

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Customers (clients) and partner organizations prefer to work with people they know and trust.

Some possible explanations for the statement are:

• Organizations know what to expect.
• Organizations know they will get a good product.
• They know how each party communicates and communications may be easier than with a stranger.
• Past knowledge of the organization helps the customer perform the same work for less money because they have gone through the learning curve already.

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Building Relationships with Customers and Partners

Generally speaking, customers (clients) and partner organizations prefer to work with people they know and trust.

• Relationships establish the foundation for successful funding and contract opportunities.
• Relationship building requires being proactive and engaged.
• It requires face-to-face contacts; it cannot be done as effectively through e-mail or phone conversations.
• Relationship building requires being a good listener and a good learner. When you are with clients, ask questions and listen. Make the client feel good. Empathize with their issues, whether they are business or personal.
• Contacts with potential clients should be frequent and regular– not just when there is a current opportunity for funding or just before they will be issuing a RFP. During contacts, do not focus on discussing potential contract opportunities.
• After meeting with a client, always express your appreciation and thank them for making the time to meet with you.
• Establishing and building trust is key to developing effective and successful relationships with clients and partners. One way to foster this is to be reliable and responsive.
• Ethical behavior in dealing with clients and partners is also imperative for building trust.
• The first impression you make on a client is pivotal to developing a continuing and fruitful relationship.
• Clients want to work with people who can solve problems, not with those who merely identify them.
• Build credibility based on good performance.
• Always put the client first. Clients want to be confident that any projects they undertake with the contractor will be successful, will involve a good working relationship with the contractor, and will help the clients achieve their business goals.
• It is advisable not to rely on a good relationship with just one individual in a client or partner organization, but rather to build relationships with several key people in a client or partner organization, since key individuals may leave the organization while others become more influential.

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Building effective and successful relationships takes time and work; it does not happen overnight.

Share stories or have student share stories of successful relationships.

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Pre-RFP/Proposal Marketing

• Contractors whose business depends on creating winning proposals in response to business or government RFPs should not wait until formal RFP solicitations are announced by customers before starting to develop proposals.
• Contractors need to develop relationships with potential customers long before the customers prepare RFPs.
• Contractors should maintain frequent contacts with past and current customers and initiate contacts with potential new customers.
• A contractor who is familiar with a customer’s needs and requirements can prepare a better proposal in response to the customer’s RFP.
• These pre-RFP or pre-proposal efforts by a contractor are considered marketing or business development and are performed at no cost to the customer.
• In some cases, the contractor may prepare an unsolicited proposal and present it to the customer.
• If the customer is confident that the unsolicited proposal will solve the problem at a reasonable cost, the customer may simply negotiate a contract with the contractor to implement the proposal, thus eliminating the preparation of an RFP and the subsequent competitive proposal process.
• Whether the goal is winning a competitive RFP or obtaining a noncompetitive contract from a customer, a contractor’s pre-RFP/proposal efforts are crucial to establishing the foundation for eventually winning a contract from the customer to perform the project.

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Contractors whose business depends on creating winning proposals in response to business or government RFPs should not wait until formal RFP solicitations are announced by customers before starting to develop proposals.

Why is it that contractors should not wait?

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Contractors need to develop relationships with potential customers long before the customers prepare requests for proposal.

• Contractors should maintain frequent contacts with past and current customers and initiate contacts with potential new customers.
• A contractor who is familiar with a customer’s needs and requirements can prepare a better proposal more quickly in response to the customer’s RFP.

Some of the reasons why contractors should not wait to develop proposals, and should rather anticipate a client’s needs are:

• Proposal development times are often very short, so it pays to already have some of the legwork finished.
• Contractors can develop a better proposal in response to the RFP if he or she already has a relationship with the client.
• A relationship can help the contractor prepare for the bidders’ meeting.
• It can increase the percentage of proposals being funded.
• Proposal development takes effort, and therefore it is good to be in a constant state of preparedness.

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Decision to Develop a Proposal

• The development and preparation of a proposal can be costly and time-consuming.
• Contractors interested in submitting a proposal must be realistic about the probability of being selected as the winning contractor.
• Evaluating whether or not to go forward with the preparation of a proposal is sometimes referred to as the bid/no-bid decision.
• Contractors need to be realistic about their ability to prepare proposals and about the probability of winning the contract because submitting a lot of non-winning proposals in response to RFPs can hurt a contractor’s reputation.
• Sometimes the hardest thing for a contractor to do is to decide to no-bid an RFP.

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Bid or No-Bid?

Some factors that a contractor might consider in making a bid/no-bid decision are:

• Competition—which other contractors might also submit a proposal?
• Risk—is there a risk that the project will be unsuccessful (either technically or financially)?
• Mission—is the proposed project consistent with the contractor’s business mission?
• Extension of capabilities—would the proposed project provide the contractor with an opportunity to extend and enhance its capabilities?
• Reputation—what is the contractor’s reputation with the customer?
• Customer funds—does the customer really have funds available to go forward with the project?
• Proposal resources—are appropriate resources available to prepare a quality proposal?
• Project resources—are appropriate resources available to perform the project if the contractor is selected as the winner?
• If a contractor is not sure that it has the resources to perform the project, it needs a plan for securing the necessary resources to successfully perform the project.

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This figure shows an example of a Bid/No-Bid Checklist.

Ask the students if they should submit a proposal to Ace? (Their answer should be = YES.)

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• Looking at the Bid/No-Bid checklist on the previous slide, the proposal should be developed.
• This project is low risk and is rated highly in five categories.
• The contractor’s reputation and experience could outweigh the lack of familiarity with the client.

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Creating a Winning Proposal

• The proposal process can be highly competitive and a proposal is a selling document - not a technical report.
• In the proposal, the contractor must convince the customer that the contractor is the best one to solve the problem.
• The contractor should highlight the unique factors of its proposal that differentiate it from competing contractors.
• The proposal should always emphasize the benefits to the customer.
• Proposals should be written in a simple, concise manner.
• Proposals must be specific in addressing the customer’s requirements as laid out in the RFP.
• Proposals must be realistic, in terms of the proposed scope, cost, and schedule, in the eyes of the customer.

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Proposal Preparation

• The preparation of a proposal can be a straightforward task performed by one person, or it can be a resource-intensive effort requiring a team of organizations and individuals with various expertise and skills.
• In large scale efforts, the contractor may designate a proposal manager who coordinates the efforts.
• The proposal schedule must allow adequate time for writing, review, and approval by the management of the contractor’s organization.
• Proposals in response to RFPs can be as brief as a few pages or as long as hundreds of pages, including text and drawings.
• Customers do not pay contractors to prepare proposals. Contractors absorb the costs of proposal development as part of normal marketing costs.

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Proposal Contents

Proposals are often organized into three sections:

• Technical
• Management
• Cost
• The amount of detail the contractor includes will depend on the complexity of the project and the requirements stipulated by the RFP.

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Technical Section

The objective of this section is to convince the customer that the contractor understands the problem or need and can provide the least risky and most beneficial solution. The technical section should contain the following elements:

• Understanding of the need—the contractor must show the customer that they thoroughly understand the problem to be solved.
• Proposed approach or solution—the proposal should describe the approach or methodology that would be used in developing the solution.
• Benefits to the customer—the contractor should state how the proposed solution or approach would benefit the customer and achieve the project’s success criteria or expected outcomes, including cost savings; reduced processing time; reduced inventory; better customer service; reduced errors; improved safety conditions; more timely information; reduced maintenance, etc.

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Management Section

The objective of the management section is to convince the customer that the contractor can do the proposed work and achieve the intended results. The management section should contain the following elements:

• Description of major tasks—the contractor should define the major tasks that will be performed in carrying out the project.
• Deliverables—the contractor should include a list of all deliverables that will be provided during the project (such as reports, drawings, manuals, and equipment).
• Project schedule—the contractor should provide a schedule for performing the major tasks required to complete the project.
• The task schedule can be given in any one of several formats: a list of tasks with their estimated start and completion dates, a Gantt chart, or a network diagram.
• Project organization—the contractor should describe how the work and resources will be organized to perform the project.
• An organization chart, resumes of the key people, and a responsibility matrix are often helpful.
• Related experience—the contractor should provide a list of similar projects it has completed and the dollar value of those contracts.
• Equipment and facilities—the contractor may want to provide a list of the equipment and special facilities it has in order to convince the customer that it possesses the necessary resources.

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Cost Section

• The objective of the cost section of the contractor proposal is to convince the customer that the contractor’s costs for the proposed project are realistic and reasonable. The cost section usually consists of tabulations of the contractor’s estimated costs for such elements as the following:
• Labor—the estimated costs for the various classifications of people who are expected to work on the project
• It might include the estimated hours and hourly rate for each person or classification.
• Materials—the cost of materials the contractor needs to purchase for the project
• Equipment— the cost of equipment that must be purchased to complete the project
• Facilities—sometimes the contractor will have to rent special facilities or specialty space for the project team.
• Subcontractors and consultants—when contractors do not have the expertise or resources to do certain project tasks, they may outsource some of the work to subcontractors or other consultants.
• Travel—such as airfare, lodging, and meals if trips are required during the project
• Documentation—some customers want the contractor to show separately the costs associated with the project documentation deliverables.
• This would be the cost of printing manuals, drawings, reports, or the cost of DVDs.
• Overhead—contractors will add a percentage to costs of the above items to cover the indirect costs of doing business (such as insurance, depreciation, accounting, general management, marketing, and human resources).
• Escalation—for large projects that are expected to take several years to complete, the contractor needs to include the costs of escalation in wage rates and materials costs over the length of the project.
• Reserve—the reserve (also referred to as contingency reserve or management reserve) is an amount thecontractor may want to include to cover unexpected items that have been overlooked.
• Fee or profit— all the above items are costs. The contractor must add an amount for its fee or profit.
• The total cost plus the contractor’s fee is the contractor’s price for the proposed project.
• Cost estimates should be reasonable and realistic. If possible, it is good practice to have the person who will be responsible for the major work tasks estimate the associated costs.

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Why is it beneficial to have a person who would be responsible for the major work tasks to help write the project proposal?

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Possible responses:

• The person can estimate the project organization, schedule, and costs more accurately.
• The experience will be reflected in the language used to describe the solution.
• The person can list related experiences that show expertise.
• The person can describe what makes the contractor unique and demonstrate the benefits of the solution.

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Pricing Considerations

When contractors prepare a proposal, they are generally competing with other contractors. There are three main factors that contractors should consider when setting a price for a proposal: competition, prices compared to competitors, and other factors like risk and the customer’s budget.

• Contractors need to be careful not to overprice the proposed project, or else the customer may select a lower-priced contractor.
• They must be equally careful not to underprice the proposed project; otherwise, the contractor may lose money.
• The contractor must consider the following items when determining the price for the proposed project:
• Reliability of the cost estimates—the level of confidence that the total cost for the proposed project is complete and accurate
• Risk - if the proposed project involves an endeavor that has not been undertaken before, it may be necessary to include a large amount of contingency funds.
• Value of the project to the contractor—there may be situations in which the contractor is willing to live with a low price.
• For example, in order to get a contract so it will not have lay off workers.
• Customer’s budget—a proposal should not exceed what the customer has available.
• Competition—if many contractors are expected to submit, it may be necessary to submit a price that includes only a small profit to increase the chances of winning the contract.

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Simplified Project Proposal

• Sometimes a proposal is complex for a large multi-million dollar project. These proposals will be lengthy, with many defined sections, charts, figures and tables.
• At other times, the proposal may not need to be complex. A simplified or basic proposal may be appropriate and sufficient.
• All proposals should include the following elements as a minimum:
• Statement of the customer's need— should clearly describe the contractor's understanding of the customer's need or problem and reference any information or data to support the need
• Assumptions– state any assumptions that may affect the contractor’s scope, schedule, or price
• Project scope— describe the contractor’s approach to addressing the customer’s need or solving the problem, define specifically what work tasks the contractor proposes to do, and outline how the contractor expects the customer to be involved throughout the project
• Deliverables— list all the tangible products or items it will provide to the customer during the performance of the project
• Resources— types of expertise and skills that the contractor will utilize on the project, including any key subcontractors, consultants, or suppliers
• Schedule— list of key milestones with their target dates or cycle time from the start of the project in sufficient detail to demonstrate a well-thought-out plan
• Price— indicate the bottom-line price to perform the project. Emphasize the value provided and not on how low, or “cheap,” the price is.
• Risks—identify potential concern about any risks that have a high likelihood of occurrence or a high degree of potential impact. Try to demonstrate that the contractor has experience with these risks and outline a realistic approach to dealing with them in the project.
• Expected benefits— pull together information from the preceding sections and make a case to justify the “value” of the proposal in terms of expected quantitative benefits, such as return on investment, payback, cost savings, an increase in productivity, reduced processing times, faster time-to-market, and so on.
• The focus of the proposal should be on quality of the content—clear, concise, and convincing—rather than quantity or number of pages.
• Many simplified project proposals range from 4 to 8 pages, and they are usually less than 20 pages.
• It is appropriate to attach appendices for items such as resumes of key people who will be assigned to the project, back-up details for cost estimates, or a list of past related projects and associated references.

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Proposal Submission and Follow-up

Proposals should be:

• Submitted on time
• Late or incomplete proposals are often not accepted
• Formatted properly
• In the manner specified
• Possibly deliver two sets by different delivery methods
• Depending on the dollar value of the proposal, some contractors have been known to hand-deliver the proposal or send two sets of proposals by different express mail services.

Contractors must continue to be proactive even after the proposal is submitted.

Any follow-up needs to be done in a professional manner and in accordance with the RFP guidelines.

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Customer Evaluation of Proposals

Customers evaluate contractors’ proposals in many different ways.

• Some customers first look at the prices and select only the three lowest-priced proposals for further evaluation.
• Some screen out proposals with prices above their budget or those whose technical section does not meet all the requirements.
• Others, especially on large projects, create a proposal review team that uses a scorecard to rate each proposal.
• The figure above depicts a proposal evaluation scorecard. Have the students review the proposal evaluation scorecard and make suggestions of what could be done to raise the scores for the proposal submission.
• The scorecard can be a valuable tool because it helps to have uniform comparison criteria for different proposals.

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What are some of the criteria used by customers to evaluate contractor proposals?

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Some of the criteria that might be used by customers in evaluating contractor proposals include:

• Compliance with the customer's statement of work, or SOW
• The understanding of the customer’s problem or need
• Soundness and practicality of the proposed approach to solving the problem
• Contractor’s experience and success with similar projects
• The experience of key individuals
• Management capability, including the contractor’s ability to plan and control the project
• Realism of the contractor’s schedule
• Price—customers are concerned about the reasonableness, realism, and completeness of the contractor’s costs.
• Did the contractor use sound cost-estimating methodology? Are the labor hours, classifications, and rates appropriate for the type of project? Were any items left out?
• The customer wants to be sure that a contractor isn’t “low-balling” the price to win the contract, only to find added costs later.

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Contracts

Just because the contractor has been selected as the winner does not mean the contractor begins the work right away. Before the project can proceed, a contract must be signed between the customer and the contractor.

• A contract is a vehicle for establishing good customer-contractor communications and arriving at a mutual understanding and clear expectations to ensure project success.
• It is an agreement between the contractor, who consents to provide a product or service (deliverables), and the customer, who agrees to pay the contractor a certain amount in return.
• The contract must clearly spell out the deliverables the contractor is expected to provide.

There are basically two types of contracts: fixed price and cost reimbursement.

• In a fixed-price contract, the customer and the contractor agree on a price for the proposed work.
• The price remains fixed unless the customer and contractor agree on changes.
• This type of contract is low risk for the customer, since the customer will not pay more than the originally agreed-upon price.
• This type of contract is high risk for the contractor because, if the cost of completing the project is more than originally planned, the contractor will make a lower profit than anticipated— or may even lose money.
• Fixed-price contracts are most appropriate for projects that are well defined and entail little risk.
• In a cost-reimbursement contract, the customer agrees to pay the contractor for all actual costs (labor, materials, and so forth), regardless of amount, plus some agreed-upon profit.
• This type of contract is high risk for the customer, since contractor costs can overrun the proposed price.
• In cost-reimbursement contracts, the customer usually requires that, throughout the project, the contractor regularly compare actual expenditures with the proposed budget and reforecast cost-at-completion.
• This type of contract is low risk for the contractor because all costs will be reimbursed by the customer. The contractor cannot lose money on this type of contract.
• Cost-reimbursement contracts are most appropriate for projects that involve a higher degree of risk.

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Contract Terms and Conditions

The following are some of the terms and conditions that are commonly included in project contracts:

• Misrepresentation of costs—states that it is illegal for the contractor to overstate the hours or costs expended on the project
• Notice of cost overruns or schedule delays—outlines the circumstances under which the contractor must notify the customer of any schedule delays
• Approval of subcontractor—indicates when the contractor needs to obtain approval before hiring a subcontractor
• Customer-furnished equipment or information—lists the items that the customer will provide to the contractor throughout the project and the dates by which the customer will make these items available
• Patents—covers ownership of patents that may result from conducting the project
• Disclosure of proprietary information—prohibits one party from disclosing confidential information, technologies, or processes pertaining to the project
• International considerations—specifies accommodations that must be made for customers from other countries
• Termination—states the conditions under which the customer can terminate the contract, such as nonperformance by the contractor
• Terms of payment—addresses the basis on which the customer will make payments to the contractor
• Bonus/penalty payments—some contracts have a bonus provision, wherein the customer will pay the contractor a bonus if the project is completed ahead of schedule or exceeds other customer performance requirements
• On the other hand, some contracts include a penalty provision, wherein the customer can reduce the final payment to the contractor if the project is not completed on schedule or if performance requirements are not met.
• Changes—Covers the procedure for proposing, approving, and implementing changes to the project scope or schedule

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Measuring Proposal Success

• Contractors measure the success of their proposal efforts by the number of times their proposals are selected by customers or by the total dollar value of their proposals that are selected.
• Win ratio: The percentage of the number of proposals a contractor won out of the total number of proposals the contractor submitted to various customers over a particular time period; gives equal weight to all proposals.
• Total dollar value: Total dollar value of proposals that the contractor won as a percentage of the total dollar value of all the proposals the contractor submitted to various customers during a specific time period; gives more weight to proposals with larger dollar amounts.
• Some contractors have a strategy of submitting proposals in response to as many RFPs as they can with the hope that they will eventually win their fair share. Their philosophy is that if they do not submit a proposal then they do not have any chance to win and by submitting more proposals they increase their chances of winning more contracts.
• Other contractors are more selective in submitting proposals; they respond to only those RFPs where they think they have a better-than-average chance of winning the contract. These contractors seriously consider the bid/no-bid decision process in responding to RFPs and submit fewer proposals in an attempt to have a high win ratio.

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Critical Success Factors

• Customers and partner organizations prefer to work with people they know and trust. Relationships establish the foundation for successful funding and contract opportunities.
• Establishing and building trust is key to developing effective and successful relationships with clients and partners.
• The first impression one makes on a client is pivotal to developing a continuing and fruitful relationship.
• Pre-RFP/proposal efforts are crucial to establishing the foundation for eventually winning a contract from the customer.
• Do not wait until formal RFP solicitations are announced by customers before starting to develop proposals. Rather, develop relationships with potential customers long before they prepare their RFPs.
• Working closely with a potential customer puts a contractor in a better position to be selected as the winning contractor. Learn as much as possible about the customer’s needs, problems, and decision-making process during pre-RFP/proposal marketing.

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Critical Success Factors (continued)

• Becoming familiar with the customer’s needs, requirements, and expectations will help in preparing a more clearly focused proposal.
• Be realistic about the ability to prepare a quality proposal and about the probability of winning the contract. It is not enough just to prepare a proposal; rather, the proposal must be of sufficient quality to have a chance of winning.
• A proposal is a selling document, not a technical report. It should be written in a simple, concise manner and should use terminology with which the customer is familiar.
• In a proposal, it is important to highlight the unique factors that differentiate it from competitors’ proposals.
• Proposals must be realistic. Proposals that promise too much or are overly optimistic may be unbelievable to customers and may raise doubt about whether the contractor understands what needs to be done or how to do it.
• When bidding on a fixed-price project, the contractor must develop accurate and complete cost estimates and include sufficient contingency costs.

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Summary

• Interested contractors develop proposals in response to a customer’s RFP.
• Relationships establish the foundation for successful funding and contract opportunities. Relationship building requires being proactive and engaged.
• Contractors should develop relationships with potential customers long before customers prepare an RFP.
• Because the development and preparation of a proposal take time and money, contractors interested in submitting a proposal in response to an RFP must be realistic about the probability of being selected as the winning contractor.
• It is important to remember that the proposal process is competitive and that the proposal is a selling document that should be written in a simple, concise manner. In the proposal, the contractor must highlight the unique factors that differentiate it from competing contractors.
• Proposals are often organized into three sections: technical, management, and cost.
• Customers evaluate contractors’ proposals in many different ways.
• Once the customer has selected the winning contractor, the contractor is informed that it is the winner, subject to successful negotiation of a contract: fixed-price and cost reimbursement are the two types of contracts.
• Contractors measure the success of their proposal efforts by the number of times their proposals are selected by customers and/or by the total dollar value of their proposals that are selected.

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1. Describe why building relationships with customers and partners is important. How is this accomplished?

• It is important to build relationships with customers and partners, since customers generally prefer to work with people they know and can trust.
• Relationships establish the foundation for successful funding and contract opportunities.
• Relationship building requires being proactive and engaged.
• Relationship building, in many ways, is a contact sport. It requires getting out of the office and engaging with customers and potential customers in face-to-face interactions. It cannot be done as effectively through e-mail or phone conversations.

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2. Describe what is meant by pre-RFP/proposal marketing. Why should contractors do it?

• Pre-RFP/proposal marketing is an opportunity for a client to help customers identify areas in which the customers might benefit from the implementation of projects that address needs, problems, or opportunities.
• Contractors should not wait until formal RFP solicitations are announced by customers before starting to develop proposals. Rather, such contractors need to develop relationships with potential customers long before the customers prepare requests for proposal.
• Contractors should maintain frequent contacts with past customers and current customers and initiate contacts with potential new customers. Working closely with a potential customer puts a contractor in a better position to be selected eventually as the winning contractor when the customer does issue an RFP.

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3. Discuss why contractors must make bid/no-bid decisions and the factors involved in making these decisions. Give an example of when a contractor should bid and when a contractor should not bid.

• Most companies have limited resources and preparing a proposal can be a time consuming and costly process. Therefore companies must make bid/no-bid decisions.
• Some factors to be considered are the competition, risk involved, mission of the company, opportunity to extend capabilities, a contractor’s reputation with the customer, available customer funds, proposal resources, and project resources.
• Answers will vary from student to student. Responses should contain a description of risks for the factors outweighing the benefits of winning the project.

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4. Define proposal, and describe the purpose of a proposal. In addition, list the three major sections of a proposal and the purpose and elements of each.

• A proposal is a selling document and its purpose is to convince the customer that you understand what the customer wants and that you are the best one for the job.
• Proposals are often organized into three sections: technical, management, and cost.
• The objective of the technical section is to convince the customer that the contractor understands the need or problem and can provide the least risky and most beneficial solution.
• The objective of the management section is to convince the customer that the contractor can do the proposed work (the project) and achieve the intended results.
• The objective of the cost section aims to persuade the customer that the contractor’s price for the proposed project is realistic and reasonable.
• The technical section typically contains a statement of the problem that is intended to show that the contractor understands the issues at play; the proposed solution; and the benefits to the customer.
• The management section typically includes a description of the work tasks; deliverables; project schedule; project organization; related experience; and equipment and facilities.
• The cost section typically includes a discussion of labor; materials; subcontractors and consultants; equipment and facilities rented; travel; documentation; overhead; escalation; contingency; and a fee or profit.

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5. What factors must be considered when a contractor develops the proposal price? Why is this not an easy task?

• Contractors should consider a number of different factors, including: reliability of cost estimates; risk; value of the project to the contractor; customer’s budget; and the competition.
• The proposal process can be highly competitive.
• Contractors must make sure they do not bid too high or they might lose the bid.
• Contractors must make sure they do not bid too low or they might lose money even if they win the contract.

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6. Should a contractor try to contact a customer after a proposal has been submitted? Why or why not?

Contractors must continue to be proactive even after the proposal is submitted.

• The contractor should call the customer to confirm that the proposal was received.
• After several days, the contractor should contact the customer again and ask whether the customer has any questions or needs clarification of anything in the proposal.
• Such follow-up needs to be carried out in a professional manner in order to make a favorable impression on the customer.
• However, follow-ups are not necessary in all industries. Some industrial and government customers usually do not respond to attempted follow-up communications from contractors so that no contractor gains an unfair advantage in influencing the proposal evaluation process. This is one of the reasons why it pays to do some good pre-proposal marketing, so you know your customers better and know what is acceptable.

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7. How do customers evaluate proposals? What factors might they consider?

Customers evaluate contractors’ proposals in many different ways.

• Some customers first look at the prices of the various proposals and select only the lowest-priced proposals for further evaluation.
• Other customers initially screen out those proposals with prices above their budget or those whose technical section does not meet all the requirements stated in the RFP.
• Others, especially on large projects, create a proposal review team that uses a scorecard to determine whether each proposal meets all requirements in the RFP and to rate the proposal against predefined evaluation criteria, such as price, schedule, capabilities, and experience.

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8. Should the lowest-priced proposal always be selected as the winner? Why or why not? Give examples.

• No. The lowest-priced proposal should not always be selected as the winner.
• There are many other factors to consider, such as the reputation of the contractor, their experience, materials used, etc.
• An example would be selecting the right company to build an addition to your house. One contractor might come highly recommended, use top quality materials, and be able to fit the project into your schedule. Another company might be much lower in price, but it has a questionable reputation, uses cheap materials, and does not provide a schedule.

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9. Describe two different types of contracts, when each should be used, and the risks associated with each.

Fixed-price contract

• In a fixed-price contract, the customer and the contractor agree on a price for the proposed work.
• The price remains fixed unless the customer and contractor agree on changes.
• This type of contract provides low risk for the customer, since the customer will not pay more than the fixed price, regardless of how much the project actually costs the contractor.
• A fixed-price contract is high risk for the contractor, because if the cost of completing the project is more than originally planned, the contractor will make a lower profit than anticipated, or even lose money.
• Fixed-price contracts are most appropriate for projects that are well-defined and entail little risk.

Cost-reimbursement contract

• In a cost-reimbursement contract, the customer agrees to pay the contractor for all actual costs regardless of amount, plus some agreed-upon profit.
• This type of contract provides high risk for the customer, since contractor costs can overrun the proposed price.
• This type of contract is low risk for the contractor, because all costs will be reimbursed by the customer. The contractor cannot lose money on this type of contract.
• Cost-reimbursement contracts are most appropriate for projects that involve higher levels of risk.

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10. Give examples of some miscellaneous provisions that might be found in a contract.

There are many different provisions that one might find in a contract.

• Some examples are that any patents developed from the project will be owned by the customer; that payments will be made at the end of the project; and that there will be bonus or penalty payments related to schedule performance.
• Other considerations include misrepresentation of costs, approval of subcontractors, customer furnished equipment or information, disclosure of information, international considerations, termination, and handling of changes.

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11. Describe two methods for measuring the effectiveness of your proposal efforts.

• The win ratio is the percentage of the number of proposals a contractor won out of the total number of proposals the contractor submitted to various customers over a particular time period. This approach gives equal weight to all proposals, regardless of the size of the project.
• An alternative method of determining the win ratio is to base it on the total dollar value of proposals that the contractor won as a percentage of the total dollar value of all the proposals the contractor submitted to various customers during a specific time period. This approach gives more weight to proposals with larger dollar amounts.

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12. Develop a complete proposal in response to the RFP you created for question 13 at the end of Chapter 2.

• Answers will vary from student to student.
• Responses should match the RFP completed for Chapter 2 and include the appropriate factors to clearly describe what is being proposed.
• The technical, management, and cost sections do not have to be labeled. The information for each section should be included.

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Internet Exercises

• The Web Exercises can be a very valuable part of this course. You should assign these exercises to your students as homework or complete them with them in a computer lab.
• The Web exercises in this chapter involve evaluating proposals and investigating the software that can help an organization develop a proposal. Evaluation of a proposal and its revision reinforce the skills necessary for writing proposals and winning bids. Have the students find a demo copy on the Web of software that can help develop a proposal and evaluate its ease of use and similarities to other software they have used.

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Internet Exercises

Have students search the Web for different kinds of proposals.

• Many proposals are available on the Web that address needs, problems, and opportunities.
• Some proposals will be very short and others many pages long.
• Use the guidelines to evaluate a proposal for its strengths, weaknesses, and missing aspects.
• Revisions to the proposal should clarify the information and provide enough detail for the evaluators to determine if the need is being addressed and the project can be successful.

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Case Study #1: Medical Information Systems

This case study involves a small consulting firm of three people, who specialize in designing and installing computer-based information systems for physicians. These systems usually include patient records, prescriptions, billings, and medical insurance processing. The cost of most of these projects ranges from $10,000 to $40,000, but now they have an opportunity to compete with larger firms for a much larger project. There is disagreement about whether or not they should proceed based on their current workload.

Group Activity

• Break the course participants into teams of three or four to discuss the case and decide whether the consulting firm should submit a proposal. Each team must provide reasons for its decision. Have each team should choose a spokesperson to present its decision and reasons for that decision to the entire class.
• In presenting their decisions, make sure the groups provide lists of pros and cons.

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1. Why didn’t this team receive the RFP at the same time the larger consulting firms did?

The purchasing manager was not familiar with their firm.

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2. Why is this team being considered as a candidate to submit a proposal?

This team is being considered because Paul had done a project for Dr. Houser when she had a private practice and she told him about it.

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3. Develop a bid/no bid checklist to help determine if they should submit a proposal.

• Student answers will vary.
• Responses should contain the information presented in the structure provided in the chapter
• Students should develop appropriate scores.

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4. What should Maggie, Paul, and Steve do? In explaining your answer, address the concerns of each of the three team members.

• Maggie is concerned because they are already overloaded and have some big deadlines that are approaching. If they miss these deadlines, they could lose future business. Steve is concerned because if they submit a proposal and win, they do not have enough people to work on the project. Paul sees this as an opportunity to grow the firm and take on bigger challenges.
• If any of them can find the time (and maybe Maggie cannot), they should make a serious attempt to put together a quality proposal.
• They should also contact the purchasing manager, based on Dr. Houser’s comments, and see if they can get some additional information.
• In their proposal, they should stress their previous success with Dr. Houser.
• If they win the contract, this is a great opportunity to grow the firm.

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Case Study #2: New Manufacturing Facility in China

This case study involves an organization's progress in building a new manufacturing facility in China. The firm’s president selects a four-member team to develop an RFP and solicit proposals from contractors. After the RFP is announced, only four proposals were received, falling short of the number expected. The team schedules a meeting to discuss the proposals and finalize a contractor.

Group Activity

Divide the course participants into teams of three or four to discuss this case and decide which contractor should be selected to design and build the new manufacturing facility in China. Each team must provide reasons for its decision. Have each team select a spokesperson to present its decision and reasons for that decision to the entire class.

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1. Is there anything the team should have done when they received only three proposals by June 30?

• Since very few proposals were received, the team should have reviewed their RFP and included the budget cost.
• They should have asked each of the contractors to give an oral presentation of their proposals.

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2. Should the team consider the proposal from Asia General Contractors? Why or why not?

• Student responses will be split between yes and no. For each response, be sure to examine the supporting rationale for response.
• Possible responses and explanations:
• Yes. Since very few proposals were received. Asia General Contractors’ proposal fits within budget and timelines and the have the experience to be evaluated at par with the other contractors.
• No, the proposal was submitted late and should not be accepted. It is not fair to the others that submitted on time and could have used the additional time to further develop their proposals.

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3. After sharing their individual comments at the start of the July 15 meeting, how should the team proceed with the rest of the meeting and any follow-up?

• The team should evaluate and decide upon a contractor based upon their evaluation criteria – taking into consideration budget, timeliness, experience, and ethical standards of the contractors.
• They should schedule meetings with each of the shortlisted contractors to address any questions.
• Most importantly the team should provide the budget details and ask contractors above their budget to return with a best and final offer.

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4. How could the selection process have been improved? Is there anything the Board, I.M. Uno, Alysha, or the team could have done differently?

• The RFP should have included funding information.
• They could have been strategic with the placement of the proposal bid – which may have increased the number of responses.
• The evaluation criteria should also be streamlined to ascertain credibility and capability of the contractors.
• Students may also respond that they should have had more pre-RFP meetings and been familiar with the companies and the number of companies that potentially would have bid on the project.

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