Many companies outsource (subcontract) a majority of their work to stay competitive in today’s global environment. As a result, a serious risk arises associated with obtaining accurate and audible proposals from subcontractors for inclusion into the proposal to their customer.
Typically, a request for proposal (RFP) requires a response time within 60 or 90 days. This is a very short time to generate a subcontractor statement of work (SOW) and Specification, send out a RFP to candidate suppliers, perform a best value assessment and down-select, and negotiate price and schedule to ensure the subcontractors proposal is accurate and audible to support your proposal. Additionally, it places a short turn-around time on the supplier for a response resulting in insufficient time for a thorough proposal.
THIN SOW AND SPECIFICATION
One approach used to handle this risk has been to generate a thin SOW and Specification, send out a request for information (RFI) to candidate subcontractors, request a rough order of magnitude (ROM), select the highest proposal, and go with it in your proposal. Additional estimated cost and schedule margins can be added to the proposal to mitigate the soft proposal from the candidate subcontractors.
This approach introduces a significant risk to the subcontractor proposed cost and schedule, and the proposed project cost and schedule to your customer. If the approach described above is taken, then there is a lot of pressure placed on the project to finalize the subcontractor SOW and Specification, request a updated subcontractor proposal with sufficient response time for the subcontractor to perform a complete and audible proposal, conduct a best value assessment for the candidate subcontractors, down-select to one subcontractor, fact find and negotiate, and place the subcontract award.
This process can take 4-5 months or longer which will impact your proposed schedule assuming it showed an earlier subcontract award date to meet the customers required schedule. Additionally, the thin SOW and Specifications would have to be completed, reviewed and released to configuration management prior to submitting it with the RFP to the subcontractor for an updated proposal. This SOW and Specification update most likely will specify additional scope and new requirements above that stated in the thin versions resulting in cost and schedule growth for the subcontractor.
STORY OF SUBCONTRACTOR RISK!
An example of this approach is as follows: My Company was under contract to deliver radar system shelters for integration and test on the 21st century surface combatant ship. Each shelter contained a plug-and-play tested subassembly of the system. Once installed and integrated, it comprised the radar system for the ship. The proposed approach included subcontracting the design, fabrication, integration and test to one subcontractor. There were 16 unique shelter configurations included in the RFP that went out to candidate subcontractors with a thin SOW and Specification. The winning subcontractor quoted a ROM of $8M. Their bid was included into my company’s proposal to their customer. Once our contract was awarded, we requested from the subcontractor an updated quote to the final SOW and Specification.
The subcontractor quoted $12M presenting us with a $4M problem. My company decided to re-configure the 16 shelters into 4 basic types which the subcontractor confirmed would bring their cost down to $8M. The re-configuration resulted in a very significant re-design of my company’s shelter documentation including a high number of change notices to documents already released to configuration control.
The changes delayed release of the subcontractor interface document and other documents by approximately 6 months. As a result, the award to the subcontractor was delayed for approximately 6 months which, in conjunction to the changes required on our documentation, lead to an overall schedule delay to our contract of 1 year and cost growth of approximately $1M.
A BETTER APPROACH: PRE-RFP SOW AND SPECIFICATION
A better approach to deal with this risk problem is to use company funds and perform the efforts required to finalize and release the subcontractor SOW and Specification, provide sufficient response time for the candidate suppliers to prepare and submit a valid audible proposal, conduct a best value assessment to down-select to one subcontractor, fact find and negotiate final price and schedule with the subcontractor, and include it in your proposal to your customer. Once the prime contract is awarded, the subcontract award can be made quickly, typically within a month.
EXAMPLE OF HOW MANAGE SUBCONTRACTOR RISK
An example of this approach is as follows: We were awarded a foreign military sale (FMS) for a tactical missile defense system. One of the major components was the Launcher. Approximately 6 months prior to the anticipated RFP receipt from our customer, my company authorized bid and proposal funds to generate a final released (to configuration management) SOW and Specification for the Launcher and conduct a quote cycle and down select to one subcontractor.
The draft SOW and Specification were generated, peer reviewed and finalized. An RFI was created including the draft SOW and Specification and sent to the candidate subcontractors requesting a ROM, schedule and comments to the SOW and Specification. Once the RFIs were received a best value assessment was conducted including an onsite fact finding visits.
A down select to one subcontractor was made. We worked with the subcontractor to incorporate their comments into the SOW and Specification and released the final version to configuration control. The subcontractor was requested to submit a final firm fixed price proposal and integrated master schedule (IMS) to our final released documents. Their response was included into our proposal in response to the RFP we received from our customer. The subcontractor was placed under contract within 30 days of us receiving the contract award. The subcontractor in turn got their major subs and vendors under contract within 30 days of their award. The subcontractor performed very well on their contract and we were able to meet our contract requirements due to the pre-RFP effort.
SUMMARY
I have implemented both approaches discussed above on a number of proposals. The latter approach worked very well. The thin SOW and Specification approach did not work well in the majority of cases.
Bio:
John earned a BS in Mechanical Engineering and MS in Engineering Management from Northeastern University. He has a total of 44 years’ experience, 30 years with DOD Companies. He is a member of PMI (project Management Institute). John has managed numerous firm fixed price and cost plus large high technical development programs worth in excessive of $100M. He has extensive subcontract management experience domestically and foreign. John has held a number of positions over his career including: Director of Programs; Director of Operations; Program Manager; Project Engineer; Engineering Manager; and Design Engineer. His technical design areas of experience include: radar; mobile tactical communication systems; cryogenics; electronic packaging; material handling; antennas; x-ray technology; underwater vehicles; welding; structural analysis; and thermal analysis. He has experience in the following areas: design; manufacturing; test; integration; selloff; subcontract management; contracts; risk and opportunity management; and quality control. John is a certified six sigma specialist, certified level 2 EVM (earned value management) specialist; certified CAM (cost control manager).