Does your company use RFPs (Requests for Proposal) in finding vendors for information technology products? RFPs are an essential part of the technology acquisition process. Some companies provide their RFP - and the vendor's response to it - to their attorney tasked to legally document the deal only after the vendor is informally awarded the project. The company attorney may not even be a part of the RFP process. This practice is unwise. To be effective, your company's IT business team should work closely with your attorney to create a comprehensive RFP designed to obtain detailed information - not only about the prospective vendor's solution, but also about the vendor itself.
In my experience, every RFP should contain the following two questions for the vendor:
1.Have any of your customers or former customers terminated a contract before the engagement was completed? If yes, please explain and specify the contact names and phone numbers of these customers.
2. Please provide detailed information if you have been assessed any damages in excess of USD $50,000, including liquidated damages, under any of your existing or past contracts with any organization (including any governmental entity, EEOC or antitrust investigations, or workers' compensation). If so, please provide complete details, including the other organization's name, the reason for the damages, and the amount of damages assessed against you for each incident.
3. As used in the above sections, "you" or "your" means your company responding to this RFP, any member of your senior management team, your company's affiliate, and your company's predecessor. (Note that these definitions may instead be included in a "Definitions" section of the RFP.)
In addition to these key questions, you should also order a Dun & Bradstreet Report on the RFP recipient and ask for bank references. For major projects, you should also consider obtaining the vendor's current balance sheet and a profit and loss statement certified as true (according to GAAP) by the vendor's independent auditor.
How would I advise the RFP recipient to respond to these questions? For #1, I might say something like (if true):
We pride ourselves on having a high degree of customer satisfaction. In the course of our XX years in business, we've had a handful of customers who terminated their contracts with us before project completion, but these terminations were for business reasons and never resulted in any legal proceedings.
For #2, I suggest (based on H. Ward Classen's excellent A Practical Guide to Software Licensing (5th Ed., ABA Publishing, 2013) if true:
As with any large corporation, we have during the course of our XX years in business found ourselves involved in claims for damages. But we've had an excellent record of minimizing disputes in customer relationships (that now involve many contractual commitments), with governmental regulatory agencies, with our employees, and concerning state insurance obligations. Where disputes have occurred, nearly all were resolved without resort to litigation or arbitration. Few ever progressed to protracted litigation, and even those which did were ultimately settled without the need for any court ruling. We're proud of this record. And we aren't aware of any assessments that would have a material impact on us providing services to you.
If the customer presses for details of these disputes, I'd simply tell it that the vendor can't disclose anything because of non-disclosure requirements, a statement that is probably always true.
These questions - and their answers - should be an essential part of any RFP and the vendor's response.
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