(From the diary of Tyler Gitou, the Deal Whisperer)
“Mr. Gitou, you’re never going to guess who just called,” said Verdi.
Tyler Gitou smiled at Verdi. “You know, Verdi, I can’t ever figure out whether that phrase means I am supposed to guess, or I shouldn’t bother to guess because of the forecasted futility.”
“What?” asked Verdi, looking perplexed.
“Nevermind,” said Tyler. “Who called?”
“That was Sam Gamigan, the head of procurement for National Distributors. I’ve been trying to break into that account for three years.”
“I remember. What did he want?”
“He said they are putting all of the logistics operations up for bid again,” said Verdi. “Sam says they are unhappy with the services from Calax Systems managing their hardware and software so they want a new business partner.”
“Wow,” Tyler said. “That’s a surprise. And a big deal too. Didn’t Calax win that RFP two years ago for about $50 million over five years?”
“Yes,” Verdi said. “We came in second for that bid and now’s our chance to come back and win the work!”
“Hang on, Verdi. Before you start calculating your commission for the deal, let me ask a few questions.”
“Sure,” said Verdi, taking a seat in Tyler’s office.
“First of all, why did Sam say they are putting it up for bid?” Tyler asked.
“I told you. He said they’re unhappy with Calax,” Verdi said.
“What specifically are they unhappy about? Did you ask?”
“I did,” Verdi replied. “And he said he couldn’t get specific.”
“OK. Who is running the bid process?” Tyler asked.
“Sam is. I made some calls to Margaret Fringe, the head of operations, and she knew nothing about it.”
“Gotcha. And lastly, if Calax is in year two of a five-year deal, don’t you think there is a hefty early termination fee for National Distributors if they want to get out of the deal early?”
Verdi thought a moment. “There must be. We had a big fee in our bid because we had to back-load the deal to provide savings up front.”
“That’s what I recalled.” Tyler said. “My advice to you, Verdi? Don’t do it.”
“What? Don’t do what?”
“Don’t bid on the work. Sam is not offering you a legitimate opportunity to win this work. He is offering you and the other service providers a chance to submit competitive pricing so he can re-negotiate the deal with Calax.”
“No,” Verdi said. “Why would he do that? Do you know how much time and money that is going to take? He wouldn’t run an RFP process just to get pricing.”
“Why wouldn’t he? As a good businessman, he knows that if he can get a ten percent reduction in the last three years of the deal he can save the company up to $3 million. You just said Margaret doesn’t know about this and she’s the head of operations. If someone was unhappy with the service, wouldn’t it be her? And he hasn’t hired an advisor to run the bid, has he?”
“No he hasn’t,” Verdi said. “And he doesn’t have a big department to handle responses from five service providers.”
“So it will cost him almost nothing to modify the old RFP, reissue it to five bidders and get back the pricing to use against Calax. We’ve not heard about any problems with Calax’s performance and he’s making vague statements that they are unhappy. There is no way they are going to pay Calax a termination fee to go through the contracting process and transition all that software to a new vendor. Sam is playing a game with you.”
“But Mr. Gitou, it’s a really big deal! Almost $50 million!” Verdi pleaded.
“No it’s not. It’s an opportunity to waste resources submitting a bid for something we will never win. This is a commitment issue, Verdi. Sam has no intention of unseating Calax and he’s giving you all the signals of that. A rushed bid. No involvement by the stake-holders. And an incumbent who is so entrenched that changing to a new provider would completely disrupt the business. Calax is in there for the next three years.”
“But if I don’t bid, he won’t hire us.”
Tyler laughed. “He’s not hiring if you do bid! Verdi listen to yourself. Here’s my suggestion. How much would it cost us to respond to this RFP?”
“Probably about $30,000.”
“OK,” Tyler said. “Call Sam back. Tell him you’re sending over our standard rate card as our response. Also, tell him our company is making a donation for what a full response would have cost us to the Canine Rescue Shelter. I know National Distributor is a big sponsor. If he’s as smart as I think he is, he’ll respect you for seeing through his charade and turning it into an opportunity to help others.”
“You don’t think he’ll be mad we didn’t play his game?”
“I don’t care, Verdi,” Tyler said. “I’ll be mad if we do play his game. I’m a shareholder in this company and I don’t want to see our money wasted on what is obviously a pricing negotiation with an incumbent. Trust me, Verdi. Don’t do it.”
