How to Respond to a Request for Information (RFI)
An effective market sounding exercise provides an opportunity for a structured dialogue between the private and public sectors at the early stages of the procurement process. This not only tests the viability of the project’s details, but it also generates feedback on how aspects of the project should be defined to ensure private sector participation and foster competition.
For buyers, it makes perfect sense, although the timing of the market sounding is a determining factor in its effectiveness. If it’s too early, then the project description will be too broad to provide any effective description of the buyer’s intentions in terms of size, capacity and project scope.
Who Should Complete the RFI?
Buyers need dialogue with experienced providers of infrastructure and services. Expert opinions from market participants enable buyers to establish the competitiveness of the market, conditions within which the competitions should run, technical aspects of the project, and the allocation of risks.
It’s not always that straightforward though. Experienced providers might not exist in particular countries, especially if the project is a first in its sector. A good practice in this case is to search, as far as possible, for international providers that can offer international expertise in a particular type of project. New entrants should also be heard, especially to search for ways to eliminate unintended barriers to a competitive procurement.
Besides the prime targets (industry players that are positive prospective bidders), a second group of companies are lenders (especially commercial banks) which can offer finance for the project. They might provide relevant insights about the drivers for commercial feasibility as well as the general market conditions for a specific sector. It is good practice to keep an updated list of potential providers and their stated or historic interest by sector and project size.
Conducting the Market Sounding
It is good practice to produce a formal document (project information) as the first step for sounding the market. This document should describe the project details that have been defined up until that moment and clearly point to the still uncertain aspects of the initiative. A very transparent approach should be considered, and the project obstacles identified should be clearly stated. Hiding weak spots only amplifies the problems for later stages when legal issues might arise due to the proximity to the Procurement Phase.
Once the memorandum is prepared and issued, a request is issued for commentary.
Following on from this document, suppliers are typically invited to participate in a meeting. These meetings can be one-on-one or can involve several companies. The buyers will expect that these meetings produce the richness of information that they can use as a guideline to preparing subsequent documentation.
What Should Buyers be Asking?
There is no precise good practice as to the aspects of the project that should be tested through engagement with the private sector. It depends on the type of project and sector. The relevant rule is to test all significantly uncertain aspects of the project. Good practice is to include all points in the project information memorandum, emphasising the aspects to which the buyer is seeking feedback.
Some common points are as follows:
- The scope of the project, in terms of infrastructure design and the preliminary output specification.
- The main technical risks identified that might affect the ability of potential bidders to deliver the infrastructure and the services.
- Expected Capex and operational expenditures (Opex).
- The payment mechanism and other revenue schemes envisaged.
- The general aspects or risk allocation already defined.
- Financial assumptions such as the debt conditions and cost, and the tax and accounting assumptions.
- Proposed timetable for the period from procurement to the commencement of services; and
- Proposed contract structure, including risk allocation.
The Project Evaluation Team
The project team should ensure that there is no confusion about the role of market sounding. The companies invited should understand that they are not bidding or providing any formal expression of interest. Furthermore, the participation in the process, whichever approach is chosen by the buyer, should not offer any advantage in the subsequent procurement process, and it must not provide the participants with any information that disrupts a level playing field for future bidders. This should be equally communicated to the companies participating, as well as those not participating in the market sounding process.
The second relevant strategic issue is the need for buyers to filter the private sector’s recommendations for biases. It is only natural to assume that the comments and feedback provided meet the interest of the private companies issuing them.
The team responsible for the sounding must have expertise, be knowledgeable about the project, and be respected by the market they are trying to sound. This is why buyers commonly use external advisers, experienced in the project’s industry, to help conduct effective market sounding.
Transparency and Governance
When considering the need to sound the market, the project team needs to bear in mind that the proximity of the project team to potential bidders might give rise to suspicions of corrupt behaviour.
Extreme care is generally taken in order to guarantee the highest level of transparency during the market sounding exercise. This means the use of some or all of the following initiatives:
- Documenting all meetings.
- Providing access for the public to all documents shared or produced, including a specific web page where interested parties may offer their comments and suggestions (provided that they are previously identified as professionals or participants in the industry).
- Leaving a clear audit trail of all the feedback provided by the private sector.
- Inviting audit institutions to participate in the process, including in the meetings with the private sector; and
- Recording the meetings with individual companies on video, for the exclusive use of audit institutions.
In some cases, where corruption is a relevant issue in the infrastructure market, good practice may be to avoid conducting any meetings with individual companies, and to only conduct the market sounding exercise using the other approaches mentioned above.
Pointers for Responding
Questions are often vague and open ended. There is little point in providing extensive information as there is no context within which to evaluate it.
- Focus on establishing a value proposition so that they can conduct the procurement process.
- To accomplish what you’re looking to demonstrate by way of stories from your existing deployment of responses to the buyer’s queries – use the queries as starting points and don’t be overly concerned about ‘hitting the mark’. It’s more important the the buyer is convinced that they should move forward with the exercise than that you are the right people for the job.
- Don’t articulate any solutions that you employ which might be viewed as a competitive advantage. The danger is that your advantages will end up being evaluated as minimum requirements.
- Rather than talking about the solutions, you should speak to the challenges that the buyer needs to resolve.
- Finally, your content needs to be concise, understandable and impactful. Try running your text through http://gunning-fog-index.com. As a tip, after you’ve written your draft, delete the first paragraph of each answer – it’ll make the overall answer much more understandable!
Key points to respond to a RFI
- Who should complete the RFI?
- Conducting the market sounding
- What should buyers be asking?
- The project evaluation team
- Transparency and governance
Tony Corrigan is Founder and CEO of Orbidal. He is a leading advocate of ‘smart’ strategies for businesses involved in competitive selling.