by Paul Wengert, CMIR Fellow
 
More and more frequently, corporations are issuing requests for proposals (RFPs) to various types of service contractors for the performance of surplus asset management and disposition services. Increasingly, these RFPs are being issued by purchasing departments utilizing a process and methodology developed for the procurement of inventories and capital assets. This article seeks to point out the issues involved in selecting a contractor to provide disposition services and how to ensure that the correct criteria are utilized to select the “right” service provider for your needs. Introduction to Outsourced Services: Corporate surplus asset management functions (a.k.a. “investment recovery”), by necessity and/or choice, augment their resources by utilizing the services of some form of third-party service provider to help them achieve their goals and objectives. The results of the Investment Recovery Association’s last benchmarking study revealed that over 75% of all Investment Recovery Association corporate members employ some form of outsourced contractor services.
 
Corporations must understand the needs of the investment recovery team, and those of the business units that are supported by the IR function, before devising criteria for the selection of an outsourced service provider and developing a selection process that targets those needs. Both corporate decision makers and outsourced service providers have a vested interest in a successful selection process. The service provider certainly wants to exceed the client’s expectations while making a profit, and the corporation wants a selection that delivers the desired results. Not all corporate needs, scope of work or cultures are the same—and certainly not all potential contractors possess the same competencies. 
 
Establishing the correct match between corporate needs (the true needs of the operating business units) and contractor competency is key. Service, reputation, industry experience, dependability and value-adding services are far more important than simple price comparison. Too often the needs of the company do not match up with the evaluation criteria established by an administrative process, and therefore do not match the capabilities of the contractor selected. This is a formula for disappointing vendor results and a frustrating experience for the corporate function.
 
 Types and Characteristics of IR Service Provider: We are all familiar with the various types of outsourced  services: brokers, dealers, auctioneers, service and consulting companies. Each of these providers has a place in our business and can provide needed services. All bring value to the understaffed corporate investment recovery department under different situations. It is not our intent here to review the characteristics of each of these outsourced resources; it is the intent of this article to provide an overview of how that selection process should or should not work. 
 
Identify What Services are Needed: The first step in constructing a focused RFP is developing evaluation criteria for the selection of a service provider is to develop a task-specific scope of work for the RFP. The investment recovery professionals should be tasked with identifying what exactly they and the business need done. This requires documenting:
  1.  what the needs of the supported business units and functions are 
  2.  what is not being accomplished 
  3.  what are the unrealized opportunities to contribute to the corporate bottom line. 
It is critical for the responsible corporate decision maker(s) to be able to specify and prioritize the tasks to be performed by the contractor that are necessary to meet the expectations of management. These tasks must be specific. The corporation and contractor must both know and understand what specific tasks are expected to be performed, who will perform them and what the expectations/deliverables are to be. All this should be made very clear in the RFP. For example, within the RFP, stipulate who will be responsible for: 
  1. Physically identifying, inventorying and cataloging assets for possible redeployment or sale. 
  2. Construction /  turnaround / outage project support to ensure site cleanup and optimization of value of residual materials, inventories and equipment. 
  3. Redeployment of identified surplus by providing an electronic means of making the surplus easily visible to the potential corporate users; how this will be done. 
  4. Marketing the non-redeployable surplus assets by selecting the most suitable sales technique and, given business constraints, asset value and market conditions,  tilizing all sales venues and techniques. Not all sales strategies are equal in potential return, ppropriate for all types of assets and consistent with the corporate culture and philosophy. 
  5. After-the-sale services, including ensuring all paperwork is completed, payments are made, pickup (or removal) is coordinated and reporting is completed. 
  6. Demolition support services to ensure that maximum value is obtained from the assets that are associated with a facility to be demolished, before the demolition process begins.
  7. Development of an ongoing investment recovery process to include training of corporate personnel. 
Reasons for Needing an IR Service Provider: There are various motivations for a company to choose to employ the use of third-party surplus asset service providers. The key for most managers is to recognize the importance of investment recovery as a corporate fiduciary responsibility to the shareholders and stakeholders. Once this need is accepted, the circumstances to be considered in evaluating the need for additional IR resources are shown below. Third-party service providers can supplement the existing process to provide workforce resources on a permanent or temporary basis based upon operating and budgetary requirements. Operating requirements that suggest the incorporation of thirdparty service providers into the process can be either permanent or temporary. 
 
Permanent Change of Corporate Organization Model.
Corporate organizational retirements, realignments, downsizing initiatives, reorganizations, acquisitions and divestitures and redefinition of “core function” all can impact how a management team staffs the investment recovery function. Unless the service level is maintained in support of the operating business units, the need for IR will decrease due to a lack of responsiveness and visibility. 
 
Understaffing of IR Resource. 
Statistics have shown that there is a general trend toward reducing the level of in-house staffing of the investment recovery function. 
 
Expansion of the Scope of Work.
Corporate acquisitions and permanent expansions of facilities often result in an increase in the scope and responsibilities of the IR function. Most companies are reluctant to add permanent staff, so there can be a need for outside resources.
 
Temporary Project Driven.
Surplus generated as a result of demolition projects, turnarounds, outages and construction projects create an opportunity for a temporary workforce to supplement the in-house workforce to accomplish the work in a timely manner. 
 
Case Studies 
To illustrate the importance of matching corporate investment recovery department needs with evaluation criteria used in an RFP, we will examine a couple of actual examples, case studies if you will, that do not appear to match the  business unit needs with the contractor capabilities. 
 
Case Study #1: The first case study will be of an RFP issued by a company that did not have an in-house investment recovery department and was looking to establish a process. While the actual RFP was 67 pages long, I have included only references to the sections relevant to the topic at hand. The RFP requested the contractors to provide information on the following topics: 
  • Equipment cataloging capability 
  • Appraisals made or managed 
  • Sales (detail whether these are Internet sales or not) 
  • Auctions (detail whether these are Internet sales or not) 
  • Equipment removal (by contractor or buyer)
  • Asset  redeployment process 
  • Transportation and storage of goods prior to sale 
  • Company size and market share 
  • Total dollar volume in sales by sales channel 
  • Breakdown by sales channel (e.g., sale, auction, subcontracted sale) 
  • Breakdown by asset class 
  • Breakdown by purchaser’s country 
  • Number of clients you market to and channel used for marketing 
  • Number of bidders that participate in sales vs. number of winning bidders on an annual basis 
It appears, on the surface, that the RFP was constructed to cover every conceivable situation that an investment recovery might encounter. However, the specific tasks that would be required of the contractors were not identified. The high priority of predominant tasks was not identified. The contractors were left to guess 1) what expertise was most important to the company and  2)what tasks would require the  most time and resources.
 
A logical conclusion would be that all tasks were equally important and that all tasks would be performed. The matrix, which the bidders did not have at the time of submission but which was communicated only after awarding the contract, is shown below. As we can see from reviewing the matrix used, asset identification, inventorying, cataloging (business unit/field support) and after sales support were given no value. Price was valued three times as much as sales capability, twice as much as the capability to coordinate and arrange for equipment removal and one third more than redeployment. 
 
The questions to be asked are: Was this a needs-based selection criteria? Were field work and industry/ equipment knowledge as well as industry- pecific experience major components of the criteria? Should price have been the single most important selection factor? The answer to these questions is “no”. It should be clear that the scope of work in any RFP for investment recovery services, whatever form those services might take, should be specific and that the criteria used for selection should be related directly to the needs of the organization. 
 
Case Study #2: In this instance, a company had an IR function that was staffed by three people in widely dispersed areas in the US. The RFP was not constructed by  any of the IR staff. The stated objective of the RFP was to “identify multiple contractors who would provide assistance in identifying buyers for their surplus assets and compete for the opportunity to sell their assets.” The scope of work was outlined as follows: 
  • Multiple contractors would sign up to provide marketing efforts on a non-exclusive basis for the various assets. 
  • Company would provide all descriptive information necessary to complete the sale. 
  • The contractors would market assets for sale (other contractors that had not signed up would also be allowed to submit potential buyers to the company). 
  • Contractors would be required to submit all potential buyer contact information to the company. 
  • Company would conduct all negotiations with potential buyer(s) independent of the contractor. 
  • Contractor would not be compensated for producing a buyer that the company had previously had dealings with. Company would select the successful buyer and pay the contractors according to the agreed upon commission. 
Asset identification, cataloging, redeployment, field facility support, services, Internet capability and other traditional IR functions were not part of the scope of work. The fact that any contractor (signed up or not) could bring an offer to the company, on a non-exclusive basis, really identified this approach as a simple and viable broker/dealer arrangement, with the exception that all negotiations with buyers are controlled and handled by the company, not by the dealer/broker. 
 
Conclusions/Lesson Learned RFPs for investment recovery must be carefully constructed with input from the business units to be served and the investment recovery professionals to address the needs of the corporation. Consider the following: 
  • The company must clearly know and understand what specific services they need in order to support the business units. Lack of specificity as to the needs and objectives of the process will produce confusion and incomplete or nonconforming responses from the RFP responders. 
  • The scope of work must be explicit and clarify the duties of all affected by the agreement. Any lack of specificity leads to conflicts over performance expectations after contracts are already in place. 
  • The work done by in-house personnel should be identified so that the contractor will be aware of the complete business process. This should include all tasks performed by company non-investment recovery personnel. 
  • The evaluation criteria must reflect the priority of the specific tasks required to serve the needs of the business units. The contractors must know what the most important service needs will be so they can structure their resources and costs accordingly. 
  • The prioritized needs (tasks) to be performed should be weighted to clarify their relative importance to the achievement of the established objectives. 
  • The prioritized needs and weighted tasks required of the contractor candidates should be clearly and completely communicated to all who receive the RFP. 
  • The relationship between the company requiring investment recovery services and the contractor(s) providing those identified services should be cooperative and complementary to ensure optimum value realization. By involving the contractor in the complete process, the company receives the value of the contractor’s expertise. 
  • RFPs must be structured and designed to create a win-win situation for both the corporation and the service provider. Pitting service contractors against one another does not ensure maximum benefit but promotes reluctance on the part of the contractors to commit extensive resources to the service unless they have some assurance that they have a reasonable chance to earn a return for their efforts. 
  • Failure to create an equitable business model results in a less than- satisfactory business service model. This will reflect on the company’s selection process and on the contractor. Above all, it must be understood that contracting for the services of an outsourced investment recovery service provider requires an understanding of the investment recovery process. Investment recovery is not just about selling stuff—it is primarily about service to the operating units.
Providing effective investment recovery management and asset sales are two separate activities. When contracting with a third party for IR services, you are contracting for their experience, expertise, intellectual knowledge of the process, market knowledge and networking assets—not just for a sales or marketing agent. Not all investment recovery contractors are equally capable of performing all required tasks. Investment recovery service providers, just as in-house corporate investment recovery departments, are problem-solving resources with varying skill sets. 
 
When selecting an outsource service provider, you should understand investment recovery is a value-added proposition quite different from the purchase of equipment and materials. The service provider you select needs to understand the many differing markets, marketing approaches and levels of personal involvement required for different surplus assets. In short, obtaining optimum value for your surplus begins with selecting the appropriate service provider.