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The Great Colocation Bake-Off

Brad Henderson • 7/8/2022
The term “bake-off” is typically attributed to a contest where amateur cooks prepare delectable treats and the winner receives bragging rights or some sort of prize. The term, however, has another meaning and can be used in describing competitions between professional services groups, including investment bankers, real estate brokers and Information Technology (IT) vendors.

Running a formalized purchasing process to secure colocation facilities can seem like a bake-off. When properly run, the colocation site selection process ensures that a company purchases the best possible space and services at a competitive price.

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 and real estate advisors facilitating the process. For all parties involved, it is in the collective best interest to ensure that all efforts are expended appropriately and respectfully. Through the following six-phase plan, Cushman & Wakefield explains how to run an effective and efficient colocation site bake-off.The-Great-Colocation-Bake-Off-Image-Blog-Body

PHASE 1 - PROJECT MOBILIZATION

Establishing an operational and organizational model for the smooth execution of a procurement process is essential to the overall success of the project. This includes outlining processes to manage the team’s tasks and timelines.

Identifying stakeholders

In Phase 1, the team should identify stakeholders whose input or approval is required, which might include project-appropriate third-party consultants. This identification is critical to the success of the project as executives sometimes try to limit stakeholder engagement to reduce both the time and complexity of the sourcing event, but positive outcomes and stakeholder engagement are positively correlated, making this process even more important. Given this, the team must find the correct balance of stakeholders that will drive better purchasing outcomes and provide the most value.

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In these early stakeholder meetings, it is also appropriate to review, evaluate, create, confirm and document current assumption and requirements of the project. The goal is to develop a common baseline for the project starting point, with defined outcomes for success.

Outlining a project plan

A project plan is a critical tool for colocation procurements. Many clients underestimate the timeframe necessary to successfully review, select, negotiate and complete a transaction as well as the time needed to plan and execute a build or relocation. It is rare that the team’s progress is slowed due to its advisors or the colocation provider, but far more common that the project is delayed due to an insufficient allotment of time for the client’s internal reviews, discussion and approval. A reasonably fast process would take four to six months to select a colocation facility with another six to 12 months for the build and relocation. Setting a clear project plan and timeline is necessary so that all involved recognize the time required.

Best practice: Block time in each stakeholders’ schedule to ensure they fully realize the time required and commit to it ahead of time. 

Managing documents

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.

Cushman & Wakefield recognizes the importance of this component of the procurement process and has an established approach to the organization, storage and management of project information on a secure client portal.

Note: In some cases, the client IT policies prohibit the client personnel from accessing external portals like Cushman & Wakefield’s. In those cases, Cushman & Wakefield has applied this documented approach to client hosted portals where Cushman & Wakefield takes responsibility to curate and manage all documentation. 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 steps of project mobilization have been established, the next phase is to undertake a comprehensive review of the opportunities available, identify local market operators, review supply and demand dynamics, assess potential human and natural risks and explore 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 factors in the target market.

PHASE 3 - STRATEGY DEVELOPMENT

At this phase, it is critical to work jointly with the team to develop and document a strategy to yield the best outcome given the nature of the current data center market environment.

Creating the RFP

A request for proposal (RFP) is widely considered to be the best-practice process for big-ticket procurements by companies and governments, however, the team needs to establish the specific amount of information that must be collected from various vendors in the RFP. While in some procurements events there have been well over 1,000 questions or items of information collected, a total of 200 questions is more likely a practical approach. With more sophisticated and larger projects, however, there are typically a larger number of questions that are relevant.

Not all questions are equal. It is important to have weighting for each question so more essential elements carry a higher weight in the overall analysis. It is also important to make answers to the questions concise and comparable to some standard or specification where virtually all answers are graded and quantifiable.

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 makes scoring and evaluation proposals much easier.

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 consider whether the information is interesting or actionable and to remember that when in doubt, leave it out.

Limiting proponents

In Phase 3, the other dynamic to manage is how much to exercise various providers in the process. With some client projects, there have been dozens of proponents to consider, but engaging all of them in a full process is not the best choice.

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!”

The other dynamic to manage is how much to exercise various providers in the process. With some projects, there have been dozens of proponents to consider but engaging all of them in a full process is not the best choice. For example, in his book, The Paradox of Choice, author Barry Schwartz explains that choice overload can lead to decision-making paralysis. His tagline–one that is useful in the stage of the process–is “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 the 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.

Similarly, the RFQ can be followed with a Request for Information (RFI) where further information is collected and evaluated with the goal of eliminating more proponents. Finally, a more comprehensive RFP can be released to collect the remaining information from the remaining proponents to help facilitate a final decision.

At Cushman & Wakefield, the proprietary RFx process (the collection of the RFQ, RFI and RFP) and tools allow for the 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. This process allows 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 the RFx package to a 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.

Completing the RFx process

Utilizing the preplanned questions, weightings and scoring methodology, all the responses are scored utilizing the Cushman & Wakefield RFx Workbook scoring algorithms which automate much of this process, including the generation of summaries for analysis. The various components of the financial terms are also auto generated into cashflow and value models, further facilitating analysis and comparison of each proposal.

Based on the foregoing evaluation, vendors are selected to move forward in the RFx process and to the RFP stage. This is the time in which final, detailed information is collected, 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 this analysis, it is also recommended to develop a list of outstanding information and questions for further investigation.

Next, a physical tour of a few candidates’ facilities 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. At the conclusion of the 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.

Best Practice: Since important decisions are going to be 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 from the proposal. As a part of the Cushman & Wakefield 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.

The softer side of RFPs

While the procurement process is heavily analytical, there are also less quantifiable aspects to consider, such as having similar company values.

A recent RFx project for a major global corporation featuring many proponents serves as an apt example of how these softer aspects can make all the difference. After a full RFx process, Cologix–a major data center company–earned the corporation’s business. While Cologix’s facilities are world-class and their proposal was competitive, so too were many of their competitors. There was something more that pushed them over the finish line to win the business.

Cologix explained that they view RFPs as a relationship between the companies, as opposed to a rote business transaction. Years ago, Cologix made an organizational commitment to elevate their RFP response capabilities and make them a competitive differentiator by creating a dedicated RFP response team and to prioritize continuous improvement.

Sean Maskell, the President of Cologix Canada, said that within the company “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.”

“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 the approach leads to deeper relationships that build longer-term projects.

PHASE 5 - OFFER & NEGOTIATIONS

While the entire RFx process is a form of negotiation, more formal negotiations usually take place once the client has selected a short list of finalists.

Clients often underestimate the amount of time needed for iterative meetings to review the content, which is another reason to limit the amount of information solicited and analyzed to only what is necessary. As outlined in Phase 1, prebooking meeting with key stakeholders to ensure availability can ensure that Phase 5 stays on schedule.

As negotiating is a fluid process, it is a good idea for the client and advisors to continually iterate its strategy until everyone is collectively satisfied and believes that the best agreement has been reached. Prior to final signoff, most clients have an executive level review to approve financial obligations and any other strategic considerations.

Best Practice: Select one or two primary alternatives with one or two additional alternatives as backups. Negotiations will include the financial and non-financial aspects 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 agreements that will govern the deal as the terms of MSAs, SLAs, Service Orders and other documents will need to be negotiated and agreed to in this process.

PHASE 6 - DUE DILIGENCE & CLOSING

Upon executive signoff, the client and vendor teams move toward closing with a formal signing of all legal documentation and the finalization of the client build, provision and migration in the plan. While this is an exciting phase of the process, diligence is required to ensure that all critical conditions and milestone dates are monitored, and that all closing documents are duly executed.

Also, at or before this stage of the process, 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 outside sources.

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 the RFP response are critical as are the softer considerations in the negotiation. Many of the successful vendors Cushman & Wakefield has worked with bring a combination of passion and a true spirit of collaboration to the overall negotiation, qualitied that can help one proponent stand above the rest.

Cushman & Wakefield’s Global Data Center Advisory Group has worked with Hyperscalers, Cloud Service Providers and Enterprise Customers to assist them in finding new data center facilities and to dispose of surplus facilities. For organizations of all sizes, Cushman & Wakefield has specialized expertise in identifying, negotiating and securing colocation facilities. For more information on how Cushman & Wakefield can assist you with your 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 sales@cologix.com.  

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