Request for Proposal Documents

Getting Better Terms With a Competitive Bidding Process

Request for Proposal Documents - Getting Better Terms With a Competitive Bidding Process

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mrPliskin

A well-managed RFP process helps you procure the best products and services

All too often, organizations have problems with their suppliers.

Sub-standard goods, tardy deliveries, inflated prices, and disrupted supply chains can all have an obvious adverse impact on your organization's success.

So how can you help your company overcome these problems? How can you get the best possible product for the lowest possible price? And how can you ensure that your business needs will be met on a timely and assured basis?

Part of the solution lies in starting the relationship with your supplier with a competitive bidding process, by issuing a well-crafted Request for Proposal (RFP) to the market. This competitive bidding process seeks the best possible quotes for required products/services from vendors, measured using common set of standards.

The RFP, also referred to as Invitation to Tender (ITT) or Request for Information (RFI), forms the cornerstone of this bidding process.

A formal, written document, the RFP outlines information about the organization, and details the products and services to be sourced from external vendors. It lays out the specific requirements that vendors need to keep in mind when responding to the bid, and outlines how the company will review and award the proposals received.

Although creating a RFP can be a long, drawn-out process, it is well worth the effort for large one-off purchases, and for ongoing supply contracts. In these cases, it yields many benefits:

  • It provides a detailed lead for vendors. They are therefore are able to respond with their most competitive, comprehensive quotes in terms of both quality and pricing.
  • Depending on how it is advertised, it allows for wide distribution to many suppliers, and thus ensures that you get the best-matched product for your needs.
  • It clearly outlines the risks and benefits upfront. This ensures that only dedicated suppliers, interested in a stable relationship, apply for the contract. This translates into a more reliable supply chain.
  • Since an RFP essentially reflects your organization's needs in writing, it formalizes the relationship between you and your supplier and puts you in control over the desired levels of service.
  • It lends clarity to any issues involved, because you identify these up front.
  • It provides a common standard against which to compare each bid submission. Because the format that suppliers reply in is the same, it makes it much easier to compare solutions than it would otherwise be.

Creating an RFP

Now comes the key question – how do you create a RFP? Procurement requirements vary from industry to industry and company to company. Within one company they also differ for different products and services. Given this scenario, is there any general framework you can apply to create a competitive bid?

Yes! While the specifics are unique to each situation, if you follow the steps below, you'll be able to issue a competitive bid in the marketplace.

Step 1: Look for Proven Formats in Your Industry

If you're operating within an established company or industry, the chances are that there are established and proven RFP formats that you can draw on. Spend some time researching these. If they do, consider whether they're appropriate, and if they are, use them as a starting point for your RFP.

For example, if you're sourcing a new IT system, use an RFP format that specializes in this – your IT department will point the way, and your RFP process will be much richer as a result. And if you need an extension to your office, use an approach used in the construction industry – an architect can help you out here.

You can save yourself a great deal of pain by using other people's skills, and by learning from their experience!

Tip:

If you find an existing RFP format, make sure it covers the points below. And consider using these as a starting point for less formal RFPs, or for RFPs in industries that don't have established formats.

Step 2: Analyze Your Requirements

Start by defining exactly what you want to buy. This includes:

What are you looking to source and at what price? Gathering all the information regarding the bid will enable you to make a sound and factual estimate for the value of your RFP.

  • Deliverables: What do you want delivered? Make sure that you spend plenty of time talking to the key people involved, so that you can identify and document all of the requirements.
  • Scope: What is the scope of your requirements? Do you need ongoing support after the installation of a piece of machinery or an IT system, for example?
  • Timing: Is there a business-critical deadline by which you need to have received the goods or services?
  • Vendor evaluation criteria: What are the factors you need to consider, so that you get the best possible vendor, at the most competitive price, with the most suitable product? What are the criteria you will use when deciding which supplier you'll award the contract to? This could be just price, or a combination of price, delivery, quality and past experience.
  • Constraints: Are there any risks associated with the project? What factors will affect the quality of the product or service you want? What are the factors that can impact time schedules?

Step 3: Construct the RFP

Initial analysis over, we move to the drafting stage. All the data you've gathered now needs to be converted into the RFP.

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The key point to keep in mind at this stage is that the RFP is much more, than a request for a price. It must elicit information that will enable to evaluate the capability and trustworthiness of the supplier to deliver what you require – which may need to take place over an extended period.

Most RFPs will include the following headings (or similar ones):

  • Executive Summary: This covers the entire requirement, as well as some brief background information about your company so the vendors are aware of the basic nature of your firm. The objective here is to showcase your importance as a buyer.
  • Project Description: An overview of the project or business activity that the product or service sought will feed into, and the objectives of that project or ongoing activity.
  • Design and Functional Requirements: Be very precise. The more detailed the specifications are, the more accurately matched a response you will get. (However, remember that there can be different ways of achieving the same result – don't specify the solution so closely that you exclude valid options.)
  • Request for supplier details: It is essential that you get information about the vendor's competence and experience. References are helpful here, as are profiles of named individuals who will be carrying out work included in the deliverables. You also need a summary of the vendor's corporate history and financial details that will allow you to assess their financial stability.

    You also need to know the vendor's capacity to deliver and their estimated delivery time. This will help you assess whether the vendor will be able to support your required time schedules. You can also cover this area under a prequalification screening if you want to narrow down the list of vendors you eventually want to distribute the bids to.

  • Your contractual terms and conditions.
  • Any other specific information, assumptions and clarifications.
  • Evaluation criteria: You may wish to inform vendors about the bid evaluation criteria on which they will be analyzed. You may also want to let them know any other specific requirements, terms and conditions you might have.
  • Submission guidelines: Make sure that your RFP document includes the name and contact details of the person to whom bids should be submitted, and any other logistical details such as the format of submissions required (hard copy or pdf, for example, and if hard copy, how many copies you want).
  • Dates: The RFP should define timelines such as the proposal return dates, project award date, project start date and any other such date you consider important.

Tip 1:

Some people recommend specifying expected price ranges within RFPs. While this may be useful in some situations, no supplier worth its salt is going to quote below the bottom of a stated price range, and many may pitch their projects to fully use the maximum budget. In many cases, you'll get best value if you conceal the project's budget from suppliers.

Tip 2:

Responding to RFPs can take up a lot of time, and suppliers may choose to prioritize RFPs where they have a good relationship with the potential client. Don't be arrogant in the way you treat suppliers, ensure that they have the information they need, and make sure that they have a fair amount of time to respond. The last thing you want is to spend weeks preparing an RFP, and then to have only one supplier respond.

Step 4: Logistics

Think about what type of supplier is likely to be able to meet your needs. How can you get the RPF to that supplier? Is there a suitable website on which you can advertise it, or should you contact a shortlist of potential suppliers directly?

Key Points

An RFP is a formal written document inviting vendors to bid for a specific product or service that you require.

It should detail the company background and the deliverable desired, and should give guidelines as to how the vendors should respond. The RFP should also be used to seek details that establish the vendor's reliability.

A well-managed RFP process helps you get best value for your organization's money. It helps you procure the best products and services, at the most competitive prices, with the greatest reliability.

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Comments (7)
  • Over a month ago Michele wrote
    Hello mel,

    Given the rigorous structure of a typical RFP, students will learn the process and the thinking that goes into the development of a quality proposal. In my organization I am required to tender any project over $10,000. The discipline required to write a RFP forces you to carefully consider and document your requirements - an essential task.

    Michele
    Mind Tools team
  • Over a month ago melo133 wrote
    I teach multiple courses in operations management, business, math and physics. I have students submit project proposals each quarter and there is a wide range of qualiyt in the proposals. I'm considering using an RFP framework to solicit educational project proposals from students (junior and seniors) - mel
  • Over a month ago MichaelP wrote
    ianhowlett, you raise a good point and one companies should be thinking about as they write the RFP. You can request specific data and also prepare an evaluation template. I also think it is good practice for a company to be requested to present their proposal as part of the selection process. Being good on paper and being good in reality are two different things!
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