Special report 2009: Tender process requires careful preparation

A benefits tender process calls for careful planning and a clear focus on the criteria for choosing a supplier that best suits an employer’s needs, says Debbie Lovewell

Making any large purchase can be a daunting experience, especially in these recession-hit times. Few of us would spend a lot of money without first researching the market to ensure we were getting the best possible deal from a supplier that could provide exactly what we wanted.

When it comes to buying perks, a benefits tender enables employers to shop around by inviting providers to submit bids on how they can best meet their needs. But to ensure the process runs as smoothly as possible and achieves their aims, employers should take a number of measures into consideration.

The first step of any tender process is for an employer to decide exactly what it wants to achieve. This should include all the stakeholders who will be involved in the process or who will be responsible for dealing with the successful supplier. If the tender is to replace an existing perk, employers should speak to this group about what works well at the moment and what they would like to change. Andrew Cox, senior consultant in Lane Clark and Peacock’s employee benefits practice, says: “Do some stakeholder analysis about what is going well with the current provider, what could be better and what the issues are. Talk to stakeholders about what they would like to see, and the [desired] attributes and features of the new provider.”

Options for tendering

Employers also have several options for how they want to set about tendering for benefits. Some may prefer to do it alone, while others may enlist the services of a procurement consultancy, which can help them understand the market, for example in terms of what providers can offer, what their strategic developments are, who their key people are, and what their finances look like.

But Malcolm Reynolds, commercial director at JLT Benefits Solutions, warns: “There are people in the market that do not do that. They work on historic information, so are not bringing their knowledge up to date and are very subjective in their approach.”

However employers choose to conduct a tender, they can use the results of their initial analysis to compile key decision criteria on which to base the tender. “It could be things such as the quality of service, how benefits are presented, the chemistry and relationships – whether people can get on and work with the provider on a day-to-day basis,” says Cox.

Clear objectives needed

This information will then form the basis of the organisation’s invitation to tender document, which should set out exactly what it requires. If the employer is using a procurement consultant, they may have a standard set of questions they submit to a long list of preferred suppliers.

If employers are putting the tender document together themselves, clarity and detail are vital. A focused document will help to ensure providers submit a response that is tailored to the organisation’s needs. Jason Rayner, commercial manager at Jelf Employee Benefits, says: “Remember, this is your [organisation’s] benefits package, so you decide how you want to work. Do not ask providers what they can do for you, tell them what you want.”

Employers should also try to avoid going too far the other way and asking for too much detail at this stage, says Martha How, head of reward at Hewitt Associates. “You do not want to issue a 77-page long tender document asking all sorts of detail that is of no particular relevance. The problem is, it sometimes takes days to put together a response and providers are focusing on answering all these questions and not on what is really important, which is the nature of the services.”

How long to respond?

Employers must also consider how long they intend to give providers to respond to an invitation to tender. Typically, employers allow between two and six weeks, but this can vary. “The more employers want to achieve, the longer it will take to respond,” says Rayner. “However, do not give [providers] too long to respond. Employers do not want a provider trying to add something new and untested to its proposition so it can meet their requirements. Somewhere between one and two weeks will give an honest assessment of a provider’s capabilities.”

Providers’ ability to respond to an invitation to tender could be one of the criteria on which they are judged.

How much contact employers should have with potential respondents before they submit their bid is the subject of some debate in the benefits industry. For example, some procurement consultants do not permit providers to speak to the employer issuing the tender before the bid submission deadline, but other consultants and employers are happy with such contact.

Provider-employer dialogue

If providers are able to speak to employers about their needs, they may be able to tailor their bids better and provide the most relevant information to meet requirements. “Even if it is only half an hour on the telephone, that will increase the quality of the response from the tenderer and the value that the organisation requesting the tender receives,” says How.

Once employers have obtained responses from a list of providers, they should carefully evaluate these against their original key decision criteria to come up with a shortlist that appears the best match. Providers will naturally have focused on showcasing their strengths, so employers should look for areas where information may be missing, lacking in detail or giving some cause for concern. “Do not be afraid to call the company and ask for more detail or clarity,” says Jelf’s Rayner.

This evaluation should result in a shortlist of three or four providers that can then be invited to take part in a selection panel, or ‘beauty parade’. This should involve representatives from all departments in the organisation that will have some dealings with the benefit and chosen provider. This is likely to include HR, procurement, finance and, depending on the benefit that is up for tender, payroll or pension trustees.

Mark Carman, marketing and communications director at benefits provider Motivano, says: “The presentation stage is an opportunity to meet the individuals who will be providing the service and also a chance to delve deeper into the responses included within the tender.”

Judging criteria

Before embarking on a beauty parade or site visit, employers should ensure they have identified exactly what they will judge each provider against. This will make sure they judge each against the same criteria, which will make the ultimate decision much easier. This can be done by producing a one- or two-page evaluation sheet focusing on the areas they want to consider. “When they are seeing each [provider], they can make notes against a number of features, such as could they work with this provider, do they get on with them, what are their first impressions, what was the quality of their presentation like, and how keen are they?” says Lane Clark and Peacock’s Cox. “All the interpersonal things they do not get in an invitation to tender.”

During a selection panel, employers should ask to meet the people who will be working with their organisation if they win the bid, rather than just the provider’s sales team. To get the most from this process, they should keep control of the meeting’s agenda to avoid over-running, but allow time for any questions that may have to be answered. “Make sure you have interrogated each submission and have a list of things you need to clarify,” says Rayner.

Personality factors

Once the beauty parades have been completed, employers should have all the information they need to make a decision. “It is better to make decisions while the information is still fresh,” says Rayner. “Do not forget to consider the personality factors. Employers will be working closely with the person they choose and it helps if they get on.”

When weighing up the merits of different providers, employers should ensure they compare like for like when it comes to product terms and the services each supplier can offer, particularly around benefits such as car schemes or private medical insurance (PMI). “With PMI, it is a bit about comparing line by line,” says How. “What are the excluding conditions? Is the cover for in-patients only, or for in-patients and out-patients? I have seen PMI looking like it is a great price and then realised it covers out-patients only. I think a detailed comparison of terms is something that should be done.”

Fee or commission?

Similar analysis should also be done around the cost of the benefits being procured. The best price may not necessarily be the best deal for an organisation. For example, employers should determine whether a quote is based on a fixed fee or commission payments.

Consultants or advisers that work on a commission basis will typically quote much lower fees to an employer and then reclaim payment via commission from the benefit providers. “It looks like it is cheaper, but when the actual benefit is broked, you often find the commission people place the benefit with the [provider] that pays them the best commission,” says How. “So the ultimate cost of the benefit could be more if employers go down the commission route.”

Once employers have made a decision, they should take care to let the unsuccessful candidates down gently to avoid burning bridges if they want to go back to them in the future. Taking the time to provide feedback on why they were not selected may generate some goodwill.

Although the process might seem complex, taking the time to get a tender right will ultimately ensure employers buy benefits that are a perfect fit with their organisation and its objectives.

Top tips to complete a benefits tender

  1. Explain the business context. What is the employer trying to get out of it?
  2. Make a very clear pricing grid and explain what should be shown in each price.
  3. Understand the difference between commission and fees, as well as annual fees and those that are one-off.
  4. Make sure those conducting the tender understand the jargon around benefits.
  5. Give bidders the chance to talk to the project sponsors or managers, even if it is by telephone before submitting their bid. This helps ensure no-one’s time is wasted.

Possible issues to include in an invitation to tender document

  • What are you, as an employer, looking to achieve? Are you looking for cheap benefits to tick a box or are you building a package that has to achieve results? For example, assessing or addressing competitive advantage, better retention of staff, higher-quality recruits, cost savings or efficiencies, an overarching review of the entire package or simply an opinion on one element.
  • What do you want from a provider? Do you want to deal direct and take ownership in-house or are you looking for an adviser who can guide you in the right direction?
  • Consider how you want your partners to work. Are you looking for lots of different partners to work together, one provider that can offer a range of support, or one adviser that can take responsibility for pulling together the right providers from across the benefits market?
  • How many clients has the provider lost in the past year and why?

Case study: BDO calculates a better fit for income group protection

Accountancy firm BDO has just completed a tender process for its group income protection scheme, having decided to take advantage of a competitive market when the scheme came up for its rate review.

Jane Richards, HR reward manager at BDO, says the company also wanted a provider that could support its work around absence management. She adds it is vital employers know exactly what they are looking for during a tender.

“Think what it is specifically you are trying to achieve. Do not be afraid of making a [tender document] very detailed. Most tenders have huge amounts of money at stake, so they are worth getting right. Always look for a tender that is answering your request. What you want to see is: has it addressed your needs?”

BDO’s initial group income protection tender went out to five or six providers, before two were invited to take part in a beauty parade. “If employers know what they want, it is usually between two [providers],” says Richards.

As a result of the tender, BDO switched providers to Unum and its new scheme went live on 1 December.

Whatever provider they select, employers must ensure they can build a good working relationship with it, says Richards. “Essentially, [employers] are looking for a cultural fit. That is really important.”

Read more articles from Special report 2009: Benefits procurement