Projects always require supplies, consumables, or support from third parties, and a Request for Quotation (RFQ) is a great help in these situations.
The document communicates its requirements to sellers or service providers.
The seller will review the offer and ask for clarification if required. The buyer usually organizes a bidder conference where all bidders can clear their doubts.
What is a Request for Quotation (RFQ)?
A Request for Quotation or Quote (RFQ) is a document that provides buyers’ requirements to sellers so that sellers can review the requirements and submit their offer with pricing and other terms and conditions.
RFQ is also called Invitation for Bid (IFB) and is used when the requirements are well specified. In RFQs, buyers can ask for a price quote per item, hour, meter, or other units of measurement.
RFQ is different from Request for Proposal (RFP). In RFP, the buyer has a problem and asks sellers for creative solutions.
Types of Request of Quotation (RFQ)
You can divide RFQs into many types. A few popular categorizations are as follows:
- Open RFQ
- Sealed RFQ
- Single Source RFQ
- Invited RFQ
Here, sellers can see each other’s responses and change their bids until the deadline. This encourages competition, and the buyer gets a better price. However, sometimes it may lead to price-fixing among sellers.
This RFQ is common with government and public sector units. The tender is open to all sellers, but bids are sealed and open after the deadline. Though this RFQ provides transparency, you may not get the best price or negotiate it lower.
Single Source RFQ
This RFQ is issued mostly in spare parts purchases where you have a manufacturer and their authorized seller in your region.
Though the quality of the material is top-notch, prices are usually high because of the absence of competition and restricted by a particular manufacturer.
Here, you invite a pre-selected list of bidders to save time and get better quality work. It speeds up the process, and work quality is good.
Though this method saves time, you don’t get the best offer.
The RFQ Process
A well-defined RFQ process provides complete buyer’s requirements and other terms and conditions, including delivery, payment, inspection, etc., and makes the bidding process smooth.
Most organizations have a predefined template to fill their requirements. This helps them review bidders’ responses quickly.
You can divide the RFQ process into five steps:
- Prepare the RFQ Document
- Define the Vendor List
- Issue the RFQ
- Receive and review the offers
- Select and award the Contract
#1. Prepare the RFQ Document
The first step is to collect requirements. Ensure relevant stakeholders are involved in the collection requirement process.
An RFQ can contain the following details:
- Material technical requirements
- Transport & delivery requirements
- Inspection & payment terms
- Any local regulations
- Quote valid until
- Quote prepared by
- Unit price
- Total cost
- Training level of competencies
- Part descriptions
- Term of contract
- Terms and conditions
- Delivery date
- Bulk order discounts
#2. Define the Vendor List
This is an optional step, and you may not require it.
You can specify those vendors and disallow others if you have any pre-selected vendor list for some material or services.
#3. Issue the RFQ
Once you define requirements and get the organization’s approval, you can issue the RFQ with a submission deadline. Give bidders enough time for bid preparation and provide mechanisms to clear their doubts. Ensure all bidders get answers to all clarifications raised by any supplier.
You can organize a bidder conference as well.
#4. Accept Bids and Review Offers
After the RFQ closing date, you will open the bids and check for completeness. If the bids fulfill the requirements, you will accept the bids.
Afterward, you will go for commercial and technical evaluation.
#5. Select and Award the Contract
After evaluation, you select the lowest bid if it fulfills technical requirements. If negotiation is allowed, you may go for a few rounds and select the lowest offer.
Afterward, you can sign the procurement contract, and this document will be legally binding.
Below is an example of RFQ.
Why Do You Need RFQs (Requests for Quotation)?
You need RFQs to fulfill your project or organization requirements at an affordable rate and without hassle. You can use RFQs to meet the budget goals with project scheduling timelines.
RFQs are helpful as sometimes you cannot get required material support or consumables on your own, but you can get them easily through third parties. You can use RFQs to buy commodities, consumables, and supplies where requirements are specific and cost estimation is easy.
You can issue RFQs during the project’s planning phase, where the project is broken down to task level and is estimated, scheduled, and monitored to meet the costs and timelines.
Depending on your organizational structure, either the procurement manager or the project manager will issue the RFQ. Once the responses are received, they are the ones to evaluate quotations and will finalize the seller.
How to Use RFQs
In RFQs, the seller breaks down requirements to a granular level for cost estimation. Sellers might have to show their calculations to win the contract.
The buyer will evaluate the quotations, and once the contract is signed, he will track the project costs and progress throughout the project life cycle using tools like the Gantt chart.
Sometimes suppliers are not completely aware of the requirements and can quote abnormally high or low prices; they might also ignore regulations and deadlines. Ensure that they understand all requirements before signing the contract.
Best RFQ Practices
- The supplier must understand the terms and conditions before submitting the quotation.
- The supplier must quote prices as per market prices.
- While estimating, the supplier must understand the skill set needed for resources.
- The supplier must consider resource management data by referring to similar previous projects.
- The supplier must provide proof of technical expertise.
There are many open-source templates available. Some open-source products or tools provide an option to integrate RFQs into their tools so that they can be referred to instantly during the procurement process and visualized using Gantt charts.
All project management tools available in the market offer this feature.
The Request for Quotation (RFQ) is a good tool for buyers to get materialist support from contractors at an affordable rate. Though the RFQ can be of many types, you have to choose the RFQ as per your requirements but ensure that requirements are well defined.
Do you use RFQs in your organization? If yes, please share your experience with them through the comments section.