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How to Write an Effective Request for Proposal (RFP) to a PEO

As outsourcing HR becomes more popular and more cost effective – according to the National Association of Professional Employer Organizations (PEOs), HR administration costs PEO clients an average of 25.7% less when compared to all employers – more and more companies are seeking good partners to handle many of their HR tasks.

A critical element of the search is the Request for Proposal, or RFP, which is the company’s opportunity to describe what they want and specify what information they need from a potential PEO or another HR vendor. A poorly executed RFP will shut out good companies and encourage bad ones to sneak through, so take your time and do it right. Ensure that your RFP addresses all of the following items.

Scope of services: What services do you want to be outsourced? Most PEOs and similar organizations will flexibly adapt to your needs, but the RFP must specify what you expect your partner organization to do. It should then require the vendor to describe how they will fulfill those services and what their experience is in each area.

Service commitments: Within service categories, what are your expectations for the vendor? Ask them to specify the service levels to which they can commit. There should also be some provision for monitoring and enforcing those service commitments, or concessions they will make if they fail to do so. If your company has specific needs or expectations, the RFP should make these explicit – don’t make vendors guess what you want from them.

Subcontracting and staff: How will the vendor meet its service obligations? How many personnel or teams will be dedicated to your organization? What credentials, certifications, or skills will they possess? Will the vendor subcontract or otherwise use outside staff to fulfill its obligations? Shady organizations can use “pass-thru” and subcontracting structures to hide bad behavior, and clarity upfront can help avoid those situations.

Pricing: How will the vendor charge for its services? Look for predictability and regularity in the pricing; you should know what you’ll be charged before you begin. You’ll obviously want to make sure the pricing is competitive, but perhaps even more important than that: is it smart? Poorly thought out pricing schemes can incentivize waste. Instead, favor pricing models that “provides vendors an incentive to drive down costs,” recommends the Society for Human Resources Management.

Transition protocols: How does the vendor handle changes? It’s possible that your needs will change mid-stream. You may wish to increase, decrease, shift, or end the vendor’s work. In addition to mid-stream changes, how do they handle the initial transition? This can be a risky time for the client because it involves many significant changes; PEOs, for example, become the employer of record for issues like payroll taxes. The RFP should ask for a clear explanation of how the vendor handles any service transitions.

CoAdvantage, one of the nation’s largest Professional Employer Organizations (PEOs), helps small to mid-sized companies with HR administration, benefits, payroll, and compliance. To learn more about our ability to create a strategic HR function in your business that drives business growth potential, contact us today.

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