The Great Colocation Bake Off
The term “Bake Off” is typically attributed to a public contest where amateur cooks compete to prepare delectable treats and the winner receives bragging rights or some sort of prize. Over the years, the term Bake Off has been used analogously with competitions between professional services groups including investment bankers, real estate brokers and IT vendors to name a few.
Running a formalized purchasing process to secure colocation facilities can seem like a bake off. Properly run, it is an important process that can ensure that a company secures the best possible space and services at a competitive price and that the successful provider wins the prize. Poorly run, it can be a “Gong Show” where no one really gets what they want out of the process.
A substantial amount of time and energy is expended during the process of securing colocation facilities by the potential client company, the colocation providers and the consultants/real estate advisors facilitating the process. For all parties involved, it is in their collective best interest to ensure that all efforts are expended appropriately and respectfully. Nothing frustrates proponents more than having their time wasted in unnecessarily long or meaningless process. Here, preparation and a phased approach can yield the optimum results.
Phase 1 - Project Mobilization
Engaging an Advisor
Establishing an operational and organizational model for the smooth execution of a procurement process is essential to the overall success of the project. This will include processes to manage the team’s tasks and timelines. At this stage, the team should identify and map any stakeholders who’s input and/or approval is required which might include project-appropriate third-party consultants. Executives sometimes try to limit stakeholder engagement to reduce both the time and complexity of the sourcing event. The problem is that positive outcomes and stakeholder engagement are positively correlated.
There is a balance point here. Engaging a broad audience in the evaluation process can drive better purchasing outcomes however, the organization needs to carefully determine which stakeholders will bring the most value and how they fit into the process. Too many cooks can spoil the broth (or baking). Many stakeholders may have a say, fewer should have a vote.
In these early stakeholder meetings, it is also appropriate to review, evaluate, create (if necessary), confirm and document current assumption and requirements. The goal is to develop scenarios and a baseline for the project starting point, with defined successful outcomes.
Space, electrical power and basic infrastructure are important, but for the most part these features are table stakes for any reputable colocation provider. Other factors such as connectivity/networking services/latency, threat assessment for physical, human, environmental and political risks and availability of complementary professional services as well as the overall terms and conditions of the space can have a significant impact on the value of the client’s use of the facilities. Depending on the client’s industry, regulatory compliance may be critical.
Plan your work and work your plan
A project plan is an important tool for any successful project and critical for colocation procurements. Many clients significantly underestimate the timeframe necessary to successfully review, select, negotiate and complete a transaction for colocation space let alone the amount of time to plan and execute a build or relocation. It is rare that the client project will be waiting on its advisors or the colocation provider. Rather we see time and again, the project being bogged down with a failure to allot sufficient client time for internal reviews, discussion and approval. A reasonably fast process would take 4 to 6 months to select a colocation facility with another 6 to 12 months for the build and relocation. Naturally, project length will vary with size and complexity.
The project plan brings clarity to the amount of time necessary for each aspect of the project. It is critical that all involved recognize the time required and commit to the time.
Best practice: Block time in stakeholder schedules to ensure they truly realize the time required and commit to it.
Many procurement events utilize an ever-growing collection of physical or electronic documents and email chains. Keeping these documents and their various versions organized can be challenging and, if not done properly, can call the integrity of the sourcing process into question. Furthermore, transparency is key for all project stakeholders.
At Cushman & Wakefield, we recognize the importance of this component of the procurement process and have an established approach to the organization, storage and management of project information on our secure client portal. Accessibility to the portal is by permissions defined by the client.
Best Practice: The benefits to this approach include significantly reduced filing required, dramatically reduced email traffic, collation, organization and storage of vendor responses and associated analysis, documented meeting notes and decisions, and record of due diligence process. Full transparency on the Project Plan and deliverables, regularly scheduled meetings, with review of materials, meeting minutes and action registry stored online is another Best Practice.
Note: In some case, our client IT policies prohibit the client personnel from accessing external portals like C&W’s. In those cases, we have applied our documented approach to client hosted portals where C&W take responsibility to curate and manage all documentation. At the end of the day, it is not the technology that delivers the value - it is the rigor and discipline of the document management process.
Phase 2 - Preliminary Market Evaluation
Once the foregoing information has been established, the next step is to undertake a comprehensive review of the opportunities available, identify local market operators, supply and demand dynamics, potential human and natural risks, service or rental rate expectations all with the goal of assessing the relative strengths and weaknesses of the target market.
Best Practice: Keep a SWOT analysis of the above.
Phase 3 - Strategy Development
At this phase, it is critical to work jointly with the team to develop and document a strategy we believe will yield the best outcome given the nature of the current data center market environment.
A request for proposal (RFP) is widely considered to be the best-practice process for big-ticket procurements by companies and governments. Having said that, the team needs to establish the amount of information to be collected from various vendors. In some procurements events we have seen there have been well over 1,000 questions (or items of information collected). More typically, we have found that 200 questions are likely a more practical approach.
Obviously, the more sophisticated and larger the requirement, the larger the number of questions that are relevant. From a practical standpoint, if you have 10 submissions each with 1,000 questions each – that is a significant amount of information to evaluate and to compare while making a decision.
Best Practice: Evaluate all the questions in terms of what should be included vs excluded, what is mandatory vs nice to have and are there any elements that would constitute a go/no-go decision. A good test is to ask yourself “is the information interesting or actionable.” In other words, based on the information received, what decision am I going to make that is important to my company. When in doubt – leave it out.
Not all questions are equal. It is important to have weighting for each question so more important elements can carry a higher weighting in the overall analysis. It is also important (where possible) to make the answers to the questions concise and compared to some standard or specification where virtually all the answers are graded and numerically qualified.
We have found that providing the respondents with the ability to use drop down selections such as “comply, non-comply, partially comply, exceeds compliance and superior” helps to clarify where the facilities rank on any given element. Furthermore, providing comments sections where respondents can clarify responses particularly such as partially comply, exceeds or superior makes scoring and evaluation proposals much easier.
How many Proponents makes for a good Bake Off?
The other dynamic to manage is how much you want to exercise various providers in the process. With some client projects, there have been dozens of proponents that could be considered. Engaging all of them in a full process is not generally appropriate or necessary.
In his book The Paradox of Choice, author Barry Schwartz explains that choice overload can lead to decision-making paralysis and make you question decisions before you even make them. His tag line – “more is less!”
In cases where there are a large group of potential proponents, it is best to employ a multi-tiered approach using a Request for Qualifications (RFQ) for a broad audience to see who has the minimum requirements pertinent to client’s needs. This might include basic information about electrical power, space and timing and any other go/no-go elements for the request. This way, if there are some early “deal breakers,” only a minimum amount of time is expended, and clearly non-compliant facilities can be eliminated.
In the same vein, the RFQ can be followed with an RFI where further information is collected and evaluated with the goal of eliminating more proponents. Finally, a more comprehensive RFP can be released collecting the remaining information from finalists to help facilitate the final decision.
At Cushman & Wakefield, our proprietary RFQ/RFI/RFP (collectively RFx) process and tools allow for the foregoing multi-tiered approach and is designed to retain all information at every step in the process, thereby economizing the time and effort expended at each phase with little to no duplication of effort. We have found this process allows our clients to cast a wide net and include many suppliers without having to invest an inordinate amount of time.
Best Practice: By advancing only those vendors who scored well on the most important criteria in the RFQ, buyers can limit the number of invited suppliers in the RFI and/or RFP while still maximizing their chances of finding the best match. This is also a good practice in cases where the client has a preferred supplier but would like to periodically evaluate the market to ensure they are receiving competitive pricing and terms.
Phase 4 - Strategy Initiation
Once the strategy has been reviewed and approved the next step is to release RFQ, RFI and/or RFP Package to targeted list of pre-qualified operators as defined in Phase 3. It is important to follow up with proponents to ensure they are clear on what information is required and how to complete the RFx package.
Utilizing the preplanned questions, weightings and scoring methodology, all the responses are scored. The C&W RFx Workbook utilizes scoring algorithms to automate much of this process, including the generation of summaries for analysis. Equally the various components of the financial terms are auto generated into cashflow and present value models, further facilitating analysis and comparison of proposal.
Best Practice: Since important decisions are going to made based on the information collected, it is critical to have a process to verify with the respondent that the information provided has been translated properly in the final information provided to the client. As a part of the C&W process, information collected from each respective vendor is submitted back to them for confirmation and sign-off prior to presentation to the client. This step ensures that decisions are made based on verified information.
Based on the foregoing evaluation, vendors are selected to move forward in the RFx process and ultimately to the RFP stage. Now is the time to collect the final detailed information necessary to help the client decide including template copies of important documents such as Master Services Agreement (MSAs), Service Level Agreements (SLAs), Service Orders and any other legal documents the provider is expecting the client to sign.
As a part of the analysis, it is recommended to develop a list of outstanding information and questions for further investigation.
Next, a physical tour of Short List alternatives is conducted, where the team can inspect aspects of the facility that are critical to the project success, gather any outstanding information or answers to questions not provided in the RFP response. During periods of pandemic restricted access, photos, videos, video calls and virtual tours are used when required.
At the conclusion of the short list site tours, the ensuing RFP evaluation should be a collaborative process including the technical leads, the sourcing team and independent subject matter experts or consultants.
The Soft Side of Hard Procurement
In many site selection decisions, there are softer considerations that are equally important. At the end of the day, the contract will be a marriage between the client and the colocation provider, requiring trusted partnership on both sides. Chemistry, as in personal relationship, is important too. But how can a colocation company differentiate themself and improve their win rate in an RFP process?
Recently we completed an RFx project with a major Global Corporation. There were many proponents to the competition. Ultimately Cologix was the data center vendor that successfully impressed the RFx Corp and earned the business. While Cologix’ facilities are world class, and their proposal was professional and competitive, so too were many of their competitors. There was something more that pushed them over the finish line to win…
After the agreements were executed, talking to the Cologix team, we learned that their beliefs about RFPs are unique. Many years ago, Cologix made an organizational commitment to elevate their RFP responses capabilities and make them a competitive differentiator; To approach RFPs as a relationship and not just a transaction; To have a dedicated RFP response team and commit to continuous improvement.
According to Sean Maskell, President of Cologix Canada, “there is a corporate commitment to view our clients as true partners, to understand their businesses – not just for today, but also where they’re heading.”
The proof was in the pudding as the client commented that one of the reasons Cologix was selected was that they were “easy to do business with.”
“Allowing clients to get what they want – anticipating their needs and artfully shaping their expectations is how we have improved our win rate” said Maskell, “we believe that to have a sustainable business you need to have a portfolio of sustainable businesses (clients).”
Best Practice: For proponents, approaching the RFP as a relationship and not just a transaction will differentiate your response. Humanizing your approach leads to deeper relationships that build longer term projects. Finding ways to break through the layers between you and the project team is an example of the softer tactics when developing your response.
Phase 5 - Offer & Negotiations
While the entire RFx process is, in and of itself, a form of negotiation, more formal negotiations usually take place once the client has selected a short list.
Best Practice: Select 1 or 2 primary alternatives with 1 or 2 additional alternatives as backups. Negotiations will include the financial and non-financial aspect of the transaction. The team can also decide if a Letter of Intent (LOI) is the appropriate next step or if the team would rather negotiate using the legal agreement(s) that will govern the relationship as the terms of MSAs, SLAs, Service Orders and the like will need to be negotiated and agreed to.
Clients significantly underestimate the amount of time needed for iterative meetings to review the content (another good reason to be brutal with the amount of information solicited and analyzed). Prebook meeting with key stakeholders to ensure availability. It is better to have a cancelled meeting than too few.
As negotiating is a fluid process, it is a good idea for the client and its advisors to continually iterate its strategy until everyone is collectively satisfied and believe that the best agreement has been reached.
Prior to final signoff, most clients have an executive level review to sign off on financial obligations and any other strategic considerations.
Phase 6 - Due Diligence and Closing
Upon executive signoff, the client and vendor teams move toward closing (usually facilitated by the client advisors) with a formal signing of all legal documentation and the finalization of the client build, provision, and migration in plan. While this is generally a happy time during the process, especially for the vendor who won the Bake Off, diligence is required to ensure that all critical conditions and milestone dates are monitored, and all closing documents are duly executed.
Also, at (or before) this point it is appropriate to notify those proponents who were not selected.
Best Practice: Have a client pre-approved communication ready to go so that this group is notified in a timely fashion and does not hear it from “the Street.”
What takes the Cake?
For the advisor running the procurement process, planning and a phased approach can help yield a successful outcome. For the company procuring the colocation space, clearly defined requirements, the right balance of stakeholder engagement and the appropriate amount of time dedicated to the process is the winning recipe. For colocation service providers, the technical aspects of your RFP response are critical but so too are the softer considerations in the negotiation. The successful vendors we have worked with bring authenticity and a true spirit of collaboration to the overall negotiation which can break a tie and take the cake. Bon Appétit!
The Cushman & Wakefield’s Global Data Center Advisory Group has worked with Hyperscalers, Cloud Service Providers and Enterprise Customers to assist them with finding new Data Center facilities and/or to dispose of surplus facilities. For organizations of all sizes we have specialized expertise in identifying, negotiating and securing colocation facilities For more information on how Cushman & Wakefield’s can assist you with you Data Center needs please contact us.
Cologix provides carrier and cloud neutral hyperscale edge data centers and services across North America. Cologix is the interconnection hub for cloud service providers, carriers and a rich ecosystem of partners who want to deploy applications at the very edge across Canada and the U.S. Visit www.cologix.com or email email@example.com.