Purchasing goods and services used to be a simple matter. You’d find a company in your town that offered the goods or services you needed, and you would buy them. Simple, uncomplicated and quick.
However, as companies have grown, business has gone global and purchasing now has its own departments, things have got a little more complicated. Enter the RFP or Request for Proposal. This option has been used for some time to ensure that procurement processes are fair and honest, but how much do you really know about how they work?
Read on to find out everything you need to know about how RFP’s work, and how you can take advantage of them.
What Is an RFP?
An RFP or Request for Proposal is a formal document that is either publicly advertised for open tender, or send to pre-approved vendors for an invited tender. The document sets out the requirements for a project, product or service, as well as the terms of the contract. There’s usually a deadline for proposal submission, and because everyone is pricing on the same specifications and scope of work, within the same time frame, it is reasonable to expect that you will be comparing apples to apples when you receive the proposals from companies.
The Pros and Cons of RFPs
There are several pros and cons to procurement by RFP.
On the plus side, companies can be sure that they are getting true comparative quotes, and that all companies have all the facts before quoting. RFP’s are also generally legally binding documents, so there’s a smaller chance of costly surprises later on.
On the negative side, there’s always a risk of corruption within your procurement department, leading to bid rigging or other issues, and it can be a much longer and more complex process to get quotations this way. That is why many companies only use them for projects above a specified value.
If you are considering using RFPs for some or all of your procurement processes, then there are several steps you will need to take:
- If you are going to use a vendor list to send out RFP invitations, then the first step will be vendor screening.
- Next, you will need to decide on the scope and specification for the project.
- If you can, obtain budget pricing for the RFP, so you have a yardstick to measure bids against.
- Compile the bid document, including the specification, scope of work and contract conditions.
- Remember to include a list of vendor screening documentation if applicable. For instance, you may need specific licensing, insurances or other documentation in order to award the project.
- Set a deadline for proposal submission.
- Answer vendor questions.
- Receive proposals on the appointed day.
- Review the proposals you receive, including, if necessary, international screening background checks for companies and individuals.
- Award the contract.
As you can see, there are several steps in the RFP process, but at the end of the process, you should be reasonably sure that you’ve hired the right company for the job, and that means that even though the RFP process is long, it can ensure that your project runs more smoothly.