Years ago, the process by which fleet managers sought new suppliers, or shopped the marketplace to see what may be out there, was an informal one. Suppliers’ representatives made regular visits to potential customers and developed relationships, and, when the time was right, the fleet manager simply said, “Okay, bring me a proposal.”
Once the proposal was sent over, the fleet manager and supplier (with the possible addition of someone in senior management) discussed the proposal in detail, the fleet manager compared it to that of the existing supplier, and, if it looked beneficial, the deal got done.
Today, things have changed — a lot. Most companies now use formal bidding processes when seeking proposals from suppliers, and it isn’t always just the fleet manager who is involved. Requests for proposals (RFPs) are useful tools for obtaining and analyzing supplier programs and the fees associated with them. Well-structured RFPs help fleet managers get what they want and need.
Using an RFP
Fleets send out RFPs for a number of reasons, including:
- It is part of a standard corporate policy where all contracts are re-bid after reaching term.
- The fleet manager is simply interested in seeing what a supplier’s competitors are willing to bid for the business.
- There are serious issues with a current supplier that has become intractable, forcing the fleet manager to seek a replacement.
New products or services are available that the existing supplier cannot provide.
Though there may be subtle differences in what might be included in an RFP for these and other differing purposes, the common goal in all cases is simply for the fleet manager to get what he or she needs.
Before anything else, a simple scope of work should be written. This is particularly true when other disciplines, such as purchasing or strategic sourcing, are involved in the process.
The scope of work is simply a brief outline of what is needed, why, and what the company and supplier responsibilities will be under the contract. Remembering that other parties involved will generally have no knowledge or understanding of fleet management, here are some key items to include:
- A statement of purpose, in which the fleet manager describes the overall goal of the RFP (e.g., regularly scheduled review of contracts coming to term, service issues with existing suppliers, price negotiation, etc.).
- A description of the program(s) for which responding suppliers will be bidding (e.g., master lease agreement, maintenance or accident management).
- Explanation of pricing: Are fees per vehicle, per month? Per occurrence? Built into a lease rate factor?
- A list of supplier and fleet customer responsibilities, such as the availability of reporting, coverage (East Coast/West Coast), provision of inventory lists by the fleet to the supplier, etc.
- An estimated time line for the entire process, from the issuance of the bid to contract negotiations to implementation.
It isn’t a bad idea to at least inform any other stakeholders of what is being done, such as sales, service, legal, risk management, or other departments who in some way touch the fleet department. However, keep it simple, and don’t involve any of them in the actual process unless absolutely necessary.
It is also fair to notify existing suppliers of your intention to bid the business, particularly if the reason is anything other than a standard process.
Determining What You Really Want
Next, a fleet manager is smart to sit down and put their own goals down in writing, in much more specific detail than the scope of work contains. Again, unless it is a standard re-bid, write down the details of problems that have remained unsolved, with an outline of communications and requests made that haven’t been addressed.
If the goal is to simply “shop the market” (and there is nothing wrong with doing so), write out all fees the existing programs charge, and estimate your goals in reducing them. Fleet management programs and services run a wide and extensive gamut, from leasing to maintenance to accident management to registration renewal. If there are any changes in how current suppliers run these programs, note them all, and outline a solution.
As with most any other activity, thorough preparation is a critical starting point in writing an RFP that achieves these goals.
Assembling the Document Itself
Once the prep work is completed, the next step is to draft the RFP itself. Most corporate RFPs contain a fair amount of boilerplate language; however, even though it’s standard, read through it all to make certain that it is compatible with the scope of work.
The next section of the bid document should provide bidders with background on the company, as well as detail on the fleet, such as what the mission is, what kinds of vehicles are currently used, why they are used (space, drive train, etc.), and anything else pertinent to the suppliers’ responses. The more they know about your company and your fleet, the better able they’ll be to provide a response that addresses your needs. This is particularly important if the fleet includes trucks or vans with custom upfits; bidders should have technical resources and staff that are expert in upfits.
The scope of work can suffice, in some instances, as a description of what exactly the responding suppliers are bidding for. This is particularly true when the RFP’s purpose is to seek pricing for existing programs. But, for the most part, greater detail is required, especially if the RFP will invite bids on programs not currently being used. Here are some ideas as to how to describe what is required for a range of typical fleet programs:
- Most maintenance management programs are generally structured the same way: The supplier provides drivers with materials that enable them to purchase preventive maintenance on an agreed-to schedule. The supplier has certified technicians to negotiate work beyond work pre-authorized, and provides both standard and exception reporting capabilities. However, the RFP can serve as a type of “wish list,” where (within reason) the fleet manager can request specific features or processes from bidders that a more general bid might lack.
- Much like maintenance management, accident management programs are similar in their overall application: accident reporting, replacement of rental vehicles, management and negotiation of repairs, and subrogation recovery. Here, a fleet manager might also want a more customized program, and the RFP is a way to get it.
- Fleet fuel card programs usually offer a great deal of flexibility. Card controls, for example, allow a fleet manager to set cards up to match precisely how he or she wants the cards to be used, or not used, as well as when and where. The RFP should be very specific in what card controls the fleet manager is looking for, so that there are no surprises when the business is awarded.
- There are also administrative services to cover most all fleet departmental needs. These include registration renewal and parking ticket and violation payment, right up to a so-called “fleet desk,” where the supplier provides toll-free access to drivers for policy and procedure inquiries, order placement, and other communication needs. A fleet that does these jobs internally may consider outsourcing them, while, of course, retaining management oversight, or asking bidders to include them in their response for consideration.
The overall purpose of the RFP document goes beyond merely asking, “How much will this product cost?” It presents a fleet manager with the opportunity to review and choose suppliers who can provide precisely what he or she is looking for to maximize fleet management efficiency. It can also offer an opportunity to consider programs not yet used, or of which a fleet manager may not be aware.
Working on a Leasing RFP
The most common lease type used in the fleet industry (at least in the mid- to large fleet market) is the open-end terminal rate adjustment clause (TRAC) lease. The master lease agreement is often the centerpiece of any fleet supplier agreement. From the service side, fleet RFPs will usually include a proposal for leasing; it will include the following basics:
- Capitalized cost. The majority of vehicle orders will be factory orders; however, pricing for emergency orders (from dealer inventory) should also be included. Be very specific in asking for cap schedules for factory orders from the “Big 3,” import vehicles, and purchases from dealer stock. For the latter, some fleet managers like to have the option to search for vehicles, which enables them to negotiate pricing. Cap cost schedules should be specific and detailed.
- Amortization options. Most FMCs will work with customers to determine amortization rates; however, ensure this is the case, and that different schedules can be set for different vehicles.
- Administrative fees. The lease rate factor includes an administrative fee, which covers the costs a lessor incurs in providing the lease (billing, reporting, etc.). These fees are almost always negotiable.
- Funding. While most lease payments consist of depreciation reserve (amortization), the most flexible item in a rate factor is the cost of funds. FMCs offer both fixed and floating rates, and a market basket of funding choices, including treasury issues, commercial paper, and LIBOR. Prior to issuing the RFP, the fleet manager should discuss funding options with the corporate treasurer, who may well have a strong preference for funding sources. Use that preference in the RFP when funding is quoted. Some FMCs offer the option of fixed floating-rate funding at a point during the lease term.
The more flexibility a supplier offers in its response, the better able the fleet manager will be to maximize the effectiveness of the RFP.
Requiring an SLA
If any existing agreement(s) have service level agreements (SLAs) in them, make sure the RFP requires one from all respondents. If none exists, get one with all responses. An SLA is a very useful tool for both the supplier and customer in setting service requirements, tracking mechanisms, and establishing consequences for performance below set standards.
SLA agreements should be both realistic and specific. Standards should be set individually for all programs, including leasing and services. Respondents should be notified that any representations they make in their proposals (and subsequent presentations, if provided) for savings or effectiveness of their programs will become part of the SLA.
Responses should include some regular review schedule, where service levels in the agreement are reviewed to date, and, if the supplier is not performing up to standards, they present a plan as to how to get back to levels required.
That being said, don’t set unrealistic standards for performance. While fleet managers would love to reduce fleet costs every year by 20 percent, it is not reasonable to require a supplier to do so. An SLA should include not only performance goals for fleet costs, but client service standards as well — for example, telephone answering goals (i.e., number of rings, total dropped calls, hold times), number of face-to-face visits by field service representatives, and number of account reviews each year.
The purpose of an SLA is to not only quantify levels of performance, but also help the fleet and supplier to develop a working relationship, where they can work together to maximize the effectiveness of programs.
Developing a Time Line
An RFP should include a time line for the bidding process; there should be periods of time when bidders can submit questions (and the company must provide answers), when and in what form responses are due, when (and if) a “best and final” response is due, notification of finalists (if a supplier isn’t chosen from all respondents), visits to respondents’ operations, presentations, and, finally, the choice of and notification of the award.
It is fair to notify all respondents when the award is given, and it is useful for the fleet manager to allow for a discussion with non-winners as to where they fell short, and what they might have done to fare better in the process.
One of the more common requests in any RFP process is an extension of one or more of the deadlines. Unless circumstances don’t allow it, be flexible with such requests.
Allowing a one-week extension may keep a respondent in the running a fleet manager believes is a serious contender; disqualifying a bidder for missing a deadline (or being unable to meet it) doesn’t accomplish anything.
When scheduling site visits and respondents’ presentations, again, be specific as to what you’re looking for. Don’t accept the standard tour of operations that many suppliers conduct. Ask to sit in on phone calls in the maintenance call center. Request telephone system reports in a presentation. The goal is to get as much information specific to the RFP as possible.
Awarding the Business
After all is said and done, the time will come to award the business. While it is customary to notify the winner in writing (hard copy, e-mail, or both), it isn’t a bad idea to arrange to do so in person, as it can be a good way to begin an important relationship. However it is done, notify the winner promptly, according to the time line set in the RFP.
The most time consuming step in the entire RFP process is usually contract negotiations. The winner will draw up the documents and send them to the fleet manager, who then sends them to the corporate legal department, where they are “red lined” with the inevitable changes, sent back to the supplier, and so forth. If your legal team allows, once the company has red lined the contract, arrange a conference call with the supplier, where most all wording at issue can be hashed out.
Again, notify all other bidders of the award, and allow for some discussion with them as to why they weren’t chosen. They will appreciate your candor.