There’s an art to selecting a provider through a tender process, and employers will benefit from demanding details on technology and service level agreements, says Rachel Gordon
The market for tendering around flexible benefits schemes is an active one. Although the concept of flex has been around for a number of years now, many organisations are just launching a scheme, or are thinking about doing so, for the first time. Employers that have been offering a scheme for several years, meanwhile, may be looking to refresh their plan using a new provider, or to simply check that they are using the right supplier in the market for them.
When looking to carry out a tender process, employers must be sure from the start about exactly what they want from a consultant or provider. This could be for a single supplier to manage the flex scheme, or just for them to design or administer it. Depending on the size of its HR team, an employer may want to do some of the administration or design itself, but requires help from a supplier with sourcing products and other benefits.
Martha How, head of reward at Hewitt Associates, says there is a “massive amount” of bid activity going on right now. While some of this is re-tendering, much is for organisations wanting to launch flex for the first time.
Some employers that are re-tendering are right to consider a change. “I’ve seen some [schemes] where the original design is very poor and they may not be compliant with tax regulations,” says How.
However, she adds that tendering can be a tough and frustrating experience for the supplier and employer alike. No consultant or provider wants to put in hours of work for a tender when, in fact, an employer may just be going through the motions and has already decided where the business will end up. Equally, employers may not end up with what they are looking for unless they issue an accurate, comprehensive brief upfront and are clear about what they can afford.
Involving the right people in the tender can also make a difference to the results, especially if procurement is involved. How explains that HR staff typically tend to have a better knowledge of project details than those in procurement. “The procurement people tend to have less knowledge of scheme requirements, although they may be very good on areas like service level agreements. It can be difficult if there is an embargo on talking to the actual [HR client within the] company to find out about what they want. We have had to deal with some frankly silly questions from procurement asking us for views on an entire market which can be quite irrelevant for the company in question.”
Nigel Dumbrell, flex consultant for Aon Consulting, believes employers should look for providers with experience and not simply opt for the cheapest quote. “Having the right people to source benefits can make an enormous difference and it is also vital to understand the tax and legal aspects. Some companies will be looking at flex following a merger and it can work well in a Transfer of Undertakings (Protection of Employment) (Tupe) situation. But, there have been cases where a scheme has been poorly implemented and a host of problems later materialise. If an employer goes for the cheapest quote, it can come back and bite them.”
He adds that employers should also be wary of using a consultancy which only has a few senior people. “You need a team working on your behalf, people with experience and who are sharing ideas.”
If employers already have flex they should look for providers that can produce a fresh take on the scheme for the annual enrolment.
It may sound basic, but those employers considering implementing flex should think clearly about whether a scheme is for them before they embark on a tender. Nicholas Bennett, senior consultant with Oval Reward, says: “The employer has to ask: ‘why am I doing this?’ The cost can be high for some companies and it could be there are other ways to improve choice without implementing full flex. Simply offering total reward statements can be a good starting point.”
Organisations which are planning to make changes should first conduct an assessment or audit of current benefits. If they do then decide to go ahead with flex, they may then wish to run a controlled pilot with a consultant first. “You may need to review matters. I’ve found that a pilot run with a company’s sales team, for example, can show how it’s working before the full roll out. You need a consultant who will take the time to get everything in place. Although costs should come down, flex is an investment and getting all the elements from the IT platform, to payroll to on-going communication, plus working with focus groups and perhaps unions and dealing with renewal dates with existing products can take many months to get right. “
Graham Poskitt, a consultant with Hay Group, explains some businesses may feel flex is the preferred option when consultants could, in fact, make more cost-effective recommendations that could transform the benefits package. “There are so many cases where benefit take up is low and the whole deal is too complicated. It could well be that an organisation just needs to better brand and publicise what it is already doing.”
He adds that, during the tender process, employers should “nail down consultants on the detail”. He explains that in some cases, he has seen providers talking about such perks as bicycles or childcare vouchers without explaining the specifics on what employers will receive in terms of service for agreed fees.
Meanwhile, Philip Hollingdale, chief executive officer of flex software provider Staffcare, says many employers fail to invest enough time in the tendering process. “[Organisations] may decide they want flex and usually carry out an informal and unstructured selection process. This involves a beauty parade of three-to-four suppliers, given a one-hour slot to pitch.”
He adds that employers will benefit from undertaking more detailed analysis, for example, around the technology that will be provided and service level agreements. “Appointing a supplier in the absence of any specific deliverables or service level agreement, leaves the client completely exposed as to what they might receive,” he explains.
This also ensures that both employers and providers can have a much better idea of what both parties are working towards and the cost involved from the beginning of the project.
How explains that misunderstandings on cost could arise if the brief is not clear. “There have been occasions where we have lost out on a tender initially because we were viewed as too expensive. Later, it has turned out that the cheaper company either failed to do the job or added on a large amount of expenses, and so we won the business next time around.”
Communication can be particularly difficult to price for. “An organisation may say it wants an effective programme of communication, but the costs can vary substantially. You can use so many options from face-to-face, online, paper to balloons, sweets and mousemats. It very much comes down to HR deciding how much it wants to do,” How adds.
Employers should also ensure that they are aware of any commission arrangements from product suppliers. These may enable a consultant to offer low-cost or even free advice. While these may suit some employers, they may not always be the best deal.
“There is no right or wrong in terms of which type of supplier to choose or how to go about the tender process. But, with increased choice, organisations need to be more explicit and measured in what they are looking for,” says Hollingdale.
Tendering can be a challenge, but it is a healthy strategy if an existing provider has been in place for some years and indeed essential if a new scheme is planned. There are plenty of common-sense rules that should be followed and factors such as experience and cost are crucial. But, beyond this, when it comes to a final decision, the benefits team may ultimately base their choice on an intangible factor, for example, a feeling that they can work with a particular provider.
Top 10 questions to ask of a flexible benefits provider or consultant during
1 What is the financial strength of the supplier?
2 How much does the organisation invest in its technology?
3 What references can it supply?
4 Who will be in the team working on my account?
5 What relevant experience will they have?
6 Will those working on my account meet the appropriate regulatory requirements?
7 What do the supplier’s staff think about the benefits they receive?
8 How will the supplier prove that it is meeting service level agreements?
9 Can it provide a complete service or does it outsource some work?
10 What innovation has the business shown in the past few years and what is it most proud of?
Case Study: Rok Construction
Construction company Rok is keen to implement a flexible benefits scheme in order to harmonise perks across the group following a spate of acquisitions. In a step in this direction, it asked four firms to tender to run a feasibility study into the suitability of launching a scheme, before settling on Thomsons Online Benefits.
Richard Sadler, reward leader at Rok, says: “We already offered good benefits, but we now have around 4,200 people yet only 3,000 are on Rok terms. We want harmonisation across the business and flex seemed like a good way of doing this as well as to encourage loyalty.”
Sadler says his experience of working for an employee benefits consultancy in Bristol before joining Rok last December, helped him determine what he was looking for in a perks provider.
“I wanted a firm that could do everything in terms of the study and that had the [flexible benefits] technology which was proven to deliver. We were also looking for assistance with focus groups so that we could find out what people wanted.”
When it came to the cost of introducing flex, Sadler says that, while he was mindful of the fact that the cheapest solutions were not always the best ones, off-the-shelf technology helped reduce the overall bill.
There were also other differences between the tenders with one consultant producing a 700-page report which he found overwhelming, compared with the simple and concise approach adopted by Thomsons.
He says: “I would also recommend an organisation visits a consultant’s office to pick up on how they run things by speaking to the people on the ground.”
It has now agreed that Thomsons will provide total reward statements for all Rok’s employees from the beginning of next year.
“Following the feasibility study, we have yet to announce who will run our flex scheme going forward, but to date, I’m very pleased with the way Thomsons has handled the project,” adds Sadler.