CHAPTER 3 PROPOSED SOLUTION

LEARNING OBJECTIVES This chapter focuses on Develop a Proposed Solution, the second phase of the project life cycle. This chapter starts when the RFP becomes available at the conclusion of the needs identification phase and ends when an agreement is reached with the person, organization, or contractor selected to implement the proposed solution.

In this chapter you will become familiar with: proposal marketing strategies and the bid/no-bid decision; the development of winning proposals; the proposal preparation process and the elements that may be included in a proposal; pricing considerations; the evaluation of proposals; types of contracts between the customer and the contractor.

The second phase of the project life cycle may be completely bypassed for certain endeavors. Examples would include a project that one or two individuals do by themselves, such as building a swing set, or a project carried out by a volunteer group, such as organizing a charity event. In such situations, there is neither a request for proposal nor an actual proposal; rather, after the need is identified, the project moves right into the planning and implementation phase of the pr. life cycle.

Pre-RFP/PROPOSAL MARKETING Contractors whose business depends on creating winning proposals in response to business or government RFP should not wait until formal solicitation are announced by customers before starting to develop proposals. Rather, such contractors need to develop relationship with potential customers long before the customers prepare RFP.

Contractors should maintain frequent contacts with past customers and current customers and initiate contacts with potential new customers. A contractor who is familiar with customers needs, requirements, and expectations can prepare a more clearly focused proposal in response to the customers RFP. These pre-RFP or pre-proposal efforts by a contractor are considered marketing or business development and are performed without any cost to the customer.

During this pre-RFP/proposal activity, the contractor should learn as much as possible about the customers needs, problems, and decision-making process. The contractor should ask the customer for information, data, and documentation about the identified need or problem. The contractor may develop some pre- proposal concepts or approaches and present them to or review them with the customer.

The contractor may invite the customer to visit another of the contractors customers who had a similar need or problem for which the contractor proposed and implemented a successful solution. Whether the goal is winning a competitive RFP or obtaining a noncompetitive contract from a customer, a contractors pre- RFP/proposal efforts are critical to establishing the foundation for eventually winning a contract from the customer to perform the project.

BID/NO-BID DECISION Evaluating whether or not to go forward with the preparation of a proposal is sometimes referred to as the bid/no-bid decision. Some factors that a contractor might consider in making a bid/no-bid decision are the following:

1.Competition.Which other contractors might also submit a proposal in response to the RFP? 2.Risk.Is there a risk that the project will be unsuccessful– technically or financially? 3.Mission. Is the proposed project consistent with the contractors business mission? 4.Extension of capabilities. Would the proposed project provide the contractor with an opportunity to extend and enhance its capabilities?

5.Reputation. Has the contractor successfully completed projects for the same customer in the past, or were there problems that left the customer dissatisfied? 6.Customer funds. Does the customer really have funds available to go forward with the project? 7.Proposal resources. Are appropriate resources available to prepare a quality proposal? To prepare a quality proposal, a contractor must have the appropriate people – that is, resources – to work on it.

8.Project resources. Are appropriate resources available to perform the project if the contractor is selected as the winner? The proposal selection process is competitive – the customer will select one winner from among competing proposals. Fig. is an example of a Bid/no-bid Checklist, which a contractor might use in deciding whether or not to submit a proposal in response to a request for proposal.

The checklist in Fig. Illustrates the consensus of key individuals from a training consulting firm. It summarizes their deliberations over whether or not to bid on an RFP from ACE Manufacturing, Inc. to conduct a substantial supervisory training program for employees at seven plant locations nationwide. Do you think they should submit a proposal to Ace?

DEVELOPING A WINNING PROPOSAL The proposal process is a competitive process. Each contractor must keep in mind that its proposal will be competing with other contractors proposals to be selected by the customer as the winner. The customer will select the one that it expects will provide the best value.

A proposal is a selling document; it is not a technical report. In the proposal the contractor must convince the customer that the contractor: - understands what the customer is looking for; - can carry out the proposed project; - will provide the greatest value to the customer; - Is the best contractor to solve the problem;

- will capitalize on its successful experience with previous related projects; - will do the work professionally; - will achieve the the intended results - will compete the project within budget and on schedule; - will satisfy the customer.

Proposals should be written in a simple,concise manner; they should not be wordy or redundant. They should use terminology with which the customer is familiar. Proposals must be specific in addressing the customers requirements as laid out in the RFP. Finally, proposals must be realistic, in terms of the proposed scope, cost, and schedule, in the eyes of the customer.

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 skill. In some situations the contractor may designate a proposal manager who coordinates the effort of the proposal team.

The schedule should include the dates by which various individuals will have drafts of their assigned portions of the proposal, dates for conducting reviews with appropriate people on the proposal team, and the date on which the proposal will be finalized. Proposals in response to RFP for very large technical projects can be multi volume documents that include engineering drawings and hundreds of pages of text.

Customers do not pay contractors to prepare proposals. Contractors absorb such costs as normal marketing costs of doing business, in anticipation of winning contracts and making profits on them. A proposal should contain sufficient detail to convince the customer that the contractor will provide the best value to the customer.

PROPOSAL CONTENTS Proposals are often organized into three sections: technical, management, and cost. The amount of detail the the contractor includes will depend on the complexity of the project and the contents of the RFP.

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

1.Understanding of the problem. This first part of the technical section must show the customer that the contractor thoroughly understands the problem to be solved or the need to be addressed and establish the basis for the solution proposed later in the technical section. 2.Proposed approach or solution. This part of the technical section might contain the following:

A)A description of how the contractor would collect, analyze, and evaluate data and information about the problem; B)Methods that would be used by the contractor to evaluate alternative solutions or further develop the proposed solution to the problem; C)The rationale for the proposed approach or solution.

D)Confirmation that the proposed solution or approach would requirements stated in the customers RFP. A variation from specified requirements is known as an exception. 3.Benefits to the customer. Benefits could be quantitative and/or qualitative and could include cost savings; reduced processing time; better customer service; improved safety conditions

MANAGEMENT SECTION The objective of the management section of the contractor proposal is to convince the customer that the contractor can do the proposal work (the project) and achieve the intended results. The management section should contain the following elements:

1.Description of work tasks. The contractor should define the major tasks that will be performed in carrying out the project and provide a brief description of what each major task includes. 2.Deliverables. The contractor should include a list of all deliverables that will be provided during the project, such as reports, drawings, manuals, and equipment. 3.Project schedule. The contractor should provide a schedule for performing the major tasks the required to complete the project.

4.Project organization. The contractor should describe how the work and resources will be organized to perform the project. 5.Related experience. To help convince the customer that the contractor can do the project, the contractor should provide a list of similar projects it has completed. 6.Equipment and facilities. Some projects require the contractor to use or have access to unique equipment. In these cases, the contractor may want to provide a list of the equipment and special facilities it has, in order to convince the customer that it has the necessary resources.

COST SECTION The objective of the cost section of the contractor proposal is to convince the customer that the contractors price for the proposed project is realistic and reasonable. The cost section usually consists of tabulations of the contractors estimated costs for such elements as the following:

1.Labor. This portion gives the estimated costs for the various classifications of people who are expected to work on the project. 2.Materials. This portion gives the cost of materials the contractor needs to purchase for the project. 3.Subcontractors and consultants. When contractors do not have the expertise or resources to do certain project tasks, they may hire subcontractors or consultants to perform those tasks.

4.Equipment and facilities rental. Sometimes the contractor will have to rent special equipment, tools, or facilities solely for the project. 5.Travel. If travel is required during the project, the costs for travel, lodging and meals need to be included. 6.Documentation. Some customers want the contractor to show separately the costs associated with the project documentation deliverables.

7.Overhead. Contractors will add a percentage to costs in items 1 through 6 to cover their normal overhead – the indirect costs of doing business, such as insurance. 8.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.

9.Contingency. Contingency, or management reserve, is an amount the contractor may want to include to cover the unexpected. 10. Fee or profit. Items 1 through 9 are costs. The contractor must now add an amount for its fee or profit. The total cost plus the profit is the contractors price for the proposed project.

PRICING CONCIDERATION The contractor must consider the following items when determining the price for the proposed project: 1.Reliability of the cost estimates. Ideally the costs should be based on a recent similar project or, in the case of materials cost estimates, on current price lists, catalogs.

2.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, or management reserve, funds. 3.Value of the project to the contractor. There may be situations in which the contractor is willing to live with a tight or low price.

4.Customers budget. A contractor who knows how much money the customer has budgeted for a project should not submit a price that exceeds what the customer has available. 5.Competition. If many contractors are expected to submit proposals in response to a customer RFP, it may be necessary to submit a price that includes only a small profit to increase the chances of winning the contract.

PROPOSAL SUBMISSION AND FOLLOW-UP Contractors must continue to be proactive even after the proposal is submitted. The contractor should call the customer to confirm that the the proposal was received. A contractor must always consider whether and how aggressively other competing contractors are following up with the customer after proposals have been submitted.

CUSTOMER EVALUATION OF PROPOSALS Customers evaluate contractors proposals in many different ways. Some of the criteria that might be used by customers in evaluating contractor proposals include the following: -Compliance with the customers statement of work and requirements in request for proposal.

-Contractors understanding of the customers problem or need; -Contractors experience and success with similar projects; -The experience of key individuals who will be assigned to work on the project; -Realism of the contractors schedule; -Price. Customers may evaluate not only the contractors total price for the project but also the detailed costs in the cost section of the proposal

The customer may also ask each of these contractors to submit a best and final offer (BAFO). This gives the contractor one last chance to reduce its price and possibly win the contract. Once the customer has selected the winning contractor, the contractor is informed that it is the winner, subject to successful negotiation of a contract.

TYPES OF CONTRACTS There are basically two types of contracts: fixed price and cost reimbursement. FIXED-PRICE CONTRACTS. In a fixed-price contract, the customer and the contractor agree on a price for the proposed work.

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.

COST-REIMBURSEMENT CONTRACTS In a cost-reimbursement contract, the customer agrees to pay the contractor for actual costs (labor, materials, and so forth), 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. Cost-reimbursement contracts are most appropriate for projects that involve risk.

CONTRACT PROVISIONS The following are some miscellaneous provisions that may be included in project contracts: 1.Misrepresentation of costs. 2.Notice of cost overruns or schedule delays. 3.Approval of subcontractor. 4.Customer-furnished equipment or information.

5.Patents. 6.Disclosure of proprietary information. 7.International considerations. 8.Termination. 9.Terms of payment. 10.Bonus/penalty payments. 11.Changes.