Major deals struck without competitive bidding raise eyebrows, whether they take place at a public company or a government agency. But "sole sourcing," as it is called in the enterprise, can often be the best way to go, especially for multi-year deals well upwards of $10 million.
I spoke with a couple of experts in this area.
Peter Iannone, COO Americas at EquaTerra, a consultancy that advises companies on how to improve their processes, often by helping them evaluate competing bids from large outsource service providers, is upbeat about sole sourcing. And why not, when about a third of EquaTerra's business comes from companies that ask it to evaluate a sole-source deal for market competitiveness.
Philip Fersht, research director of BPO, offshoring, and IT services at AMR Research, provided good balance to Iannone's enthusiasm.
Sole-sourcing's benefits
One of the major benefits of sole-sourcing a project is time to completion. The faster you can get your transaction/negotiations done, the quicker you will get to the benefits.
"A big outsourcing deal can take eight months," Iannone says, "while sole-sourcing can be 30 percent faster and cheaper because you're not tying up staff."
Vendors obviously like the idea as well, Iannone says, and they may be more flexible on price.
Why? Think about it. IBM, again as an example only, is probably saving anywhere from $2 million to $3 million on a bid. On a typical large bid, Big Blue will probably pull together a tech team, a design team, a negotiations team, and a pricing team -- 30 to 40 people -- and fly them in, get the RFP, and evaluate it for the design of a new datacenter. That can take four to five months of dedicated time. And then, when all is complete, the bidder can still be left holding the bag. Either they don't win the bid, or I imagine even more aggravating, the company gets acquired by another organization that has no interest in doing the deal.
In addition, if you go to IBM on a major deal, for example, to outsource your datacenters, and say, "Look, I won't put this out to bid, but I want your best design people and I want some value add," you have a great deal of leverage.
Value add might be tapping into the IBM expertise on RFID technology, something that wasn't planned for in the original proposal.
Fersht warns that such demands work best when you already have a working relationship with the service provider in question. Much of the success of such propositions hinges on trust and familiarity.