Writing an RFQ may be a piece of cake for everyone who is dealing with procurement processes daily. However, for all those just entering this new world, we are starting by explaining the basics of an RFQ.
It is important to realize that writing an RFQ is not something you will do automatically based on a template since there are many different types of RFQs in the first place. To master this and choose the right one for you, we also include a table of the pros and cons of each type of RFQ, so you can easily decide which one suits your needs the best.
What Is an RFQ?
An RFQ or Request for Quotation is a business document where the issuer states the requirements a bidder must fulfill to get the job. In this transaction, the issuer is usually the buyer of goods or services, while the bidders are potential vendors.
An RFQ is commonly used by governmental institutions or any public organization that needs to buy large quantities of specific goods. They have a strict budget they must adhere to (also known as the public procurement process).
This document is very different from an RFP (request for proposal) because the vendors are bound by price. The final decision on who the hired vendor will be is usually made based on the price they have provided. On the other hand, RFP allows the bidding company to provide creative solutions and generally allows more freedom during application.
Is RFQ for My Company?
Generally speaking, RFQ can be used by companies that provide both products and services: construction companies, tech companies, etc. However, sometimes it may be tough to quantify the services that have to be done, so the RFQ is more commonly used by companies that only deal with tangible goods.
RFQ is perfect for use when you have a definite list of things you need to purchase. Also, an important part of RFQ is the price definition, so the vendors must provide a definite price for the product you are looking for.
You must state in the RFQ how the vendors are supposed to provide their prices for the products you are looking for. This will allow you as a buyer to easily and quickly analyze the vendors and choose the most suitable one.
There are four main types of the RFQ - open bid, sealed bid, invited bid, and reverse auction. All of them have their pros and cons, which will be listed in the table later on. Let’s first explain what each type of RFQ represents.
An open bid is the most transparent type of bid out of all four RFQ types. It will allow the vendors to see the bidding prices of one another. This is good for competition because some vendors may choose to alter and lower their prices based on the prices other vendors have offered.
A sealed bid is the opposite of an open bid, and the vendors cannot see each other’s prices. Instead, the bids are opened once the deadline for submission has passed. This is a common practice within government institutions to ensure no one will be preferred since the bid with the lowest price will win the job.
An invited bid can be both open and sealed, depending on the issuer. It is called invited because the RFQ is sent only to a few selected vendors - the bidding process is not open to the general public. Only potential vendors selected by the buyer are allowed to deliver their offers.
A reverse auction can act as an extension to the bidding process. It usually happens when the RFQ has been issued, the deadline has passed, there was no suitable vendor, or there were no vendors at all. It works because the buyer is supposed to lower their price criteria, hoping to find the matching vendor.
Writing an RFQ
Before you go and actually write an RFQ, you need to decide what your requests and technical requirements will be and, more general, which are the delivery requirements. This is based solely on the needs of your business, so there is not a general template you could use, as we already mentioned.
The three most important things to decide on here are the type of RFQ you will issue, how you will decide who will get the job (wining criteria), and the deadline for submitting the proposals.
Once you start writing the RFQ, there are four things you need to include in the document:
Company information - you need to include some basic information about who you are and what you do. Also, it’s good to write a short description of the project. Based on this, the potential vendor will decide whether they want to do the business with you in the first place.
Procurement specification - here, you need to detail what products (services) you need, in what quantities, and the deadlines and other specifications for delivery.
Criteria for selection - of course, you need to define and state which criteria you will decide who is the winning vendor (usually the criterion is the lowest price, but you can put some additional criteria if you have the need).
General terms and conditions - this is the boring part of the RFQ. Still, each of them needs to have stated your company’s legal requirements, general terms, conditions you are doing business on, disclosures, payment terms, terms about the contract you will sign with the vendor, etc.
This should serve as a guideline for you, listing the basics you shouldn’t avoid mentioning in the RFQ. If you feel like you are missing out on something, of course, you are free to add that to your RFQ. However, bear in mind that every RFQ needs to be adjusted to the specifics of your business, as well as to the specifics of the ongoing project.
Down below, we will break down each phase and describe in detail what you should do.
This is the start phase, where you need to look back at your business and see the specific requirements. It is essential to go into specifics here and not rush this time-consuming process because you need to define everything in detail.
The main project goal is to get as many quality proposals as possible. The only way vendors will provide such proposals is to have a very detailed specification of the products you need. There will be no confusion this way, and the decision-making process should be a piece of cake for you.
As already said, before you begin with the actual writing of the RFQ, you will need to decide on the type of RFQ you will issue, so this is the right time to do that. If you opt-out for an invited bid, this will also be the time to decide who will be invited to bid.
Another important thing you need to think about during the preparation phase is the deadlines - both for the bids to be sent and the project to be finished.
Once you formulate this general stuff, it is time to move on and formulate some additional info that may have to be included in the RFQ to simplify applying. So here we bring them in the form of a bullet point list lined up in no specific order.
Invitation to bid - Besides the actual RFQ, you will need to prepare and publish an invitation to bid. This will have a short intro and a summary of what the vendors are about to read.
Business overview - As already said, you should provide some basic information about the company - name, address, your preferred area of business, what you look to achieve with this RFQ, etc.
Vendor requirements - List some basic things you expect the vendor to have.
Terms and conditions - This is to set the solid ground on rules and regulations that will be applied to this specific job. Also, make sure to make a note on whether these terms are negotiable or not.
Product list - Make sure to have stated clearly what products you need, of what quality, and the required quantity. If the product has a specific mark or code, make sure to put that as well. Finally, leave one column for the vendor to put their price. This way, you are making the comparison easier later on.
Criteria - As already said, the vendors need to have an idea based on deciding who wins. Usually, for the RFQ, it is the price criteria, but in some cases, some other selection criteria may be considered.
Once you have finished the preparation phase, it is time to go public with the RFQ. Depending on the type of RFQ you are issuing and whether you are a government institution or a private company, the issuing of the RFQ will be different.
If you choose to go with the open bid, you will most likely publish it on your website, or you could even choose some more traditional mediums of communications like the newspapers. Either way, the clock will start ticking for the vendors to apply.
If you choose to go with the invited bid, then in the previous phase, you have probably narrowed down your choice of vendors, and now is the time to send them official emails requesting the quotation.
Be mindful that there should be no more than 8-10 vendors involved in the bidding process if you opted out for this type of bidding. More than this will make the process inefficient, and basically, there would be no difference or time-saving compared to the open bid.
During this phase, the potential vendors can ask any questions or further clarifications regarding the RFQ you have issued. Again, this is to ensure the quality of their proposal - it’s in their interest to match your requirements as much as possible.
If you have any updates in this process, or some new information has come out, make sure to publish that as well, promptly, so that the vendors have lots of time to react (if the information will affect their proposals in any way).
Once the deadline for the proposals to arrive has passed, you can proceed and evaluate all the proposals you have received. In the first prep phase, you have created specific criteria the proposals need to satisfy to qualify for the winning bid. This will create a vendors list that will match your needs.
This phase should run rather smoothly, mostly because you will compare the vendors based on the price they have offered. It is less likely there will be some other factors included. Once you rule out the proposals that do not satisfy this criterion, you can proceed to evaluate the vendors themselves (what is their position on the market and financial stability) so you see if they are reliable potential partners.
Once you narrow the choices down, it is time for you to make the final decision. Make sure to check everything twice so that you are sure that the most quality bid has won. Check for the prices and other offered terms so you can create a complete image.
One of the last steps in the RFQ process is closing the deal and signing a contract with the selected vendor. But to come to this, first, you need to inform the vendor that he is the winning bid and check whether they are still up for it. Only once you reconfirm their offer can you proceed to prepare all the necessary documentation and eventually sign it. Because you have listed all these required documents beforehand, this phase should be finished very quickly and should not take too much time from you.
Another thing you should do once you sign the contract is to notify all the other vendors who applied that they have not won this time, unfortunately. If you can also provide them feedback on why they were ruled out, it would be great. This way, they will improve their chances of winning bids in the future.
The last phase in this process is the evaluation phase. The best time to evaluate the project is once the project is completed, and then again in six months, from a different time perspective.
This is good because you can see what you were struggling with to improve in the future. Also, you will need to evaluate the vendor to see did he really meet all your expectations and how they contributed to your business.
To evaluate the vendor quality, certain questions can help you with the process:
Have they done everything you agreed on?
Did they provide the benefits you were looking for?
Have they created value for your business?
Is there room for improvement in your partnership?
Have you given the vendor feedback, and how did they receive it?
Is there another vendor at this point who you think can offer better prices?
These questions will help you create a better image of your cooperation with the vendor, so you can decide on whether you will work together again in the future or not.
Tendi is your perfect support for all things the bidding process. Reach out to us today and discover what we can do for your business.