Request for Quotation (RFQ) is a tool for buyers to purchase material at a competitive price. It is a contract document that communicates the buyer’s requirements to sellers. For government and public sectors, buying items through an RFQ is mandatory to provide equal opportunity to sellers. Here, we shall look into RFQ Meaning and definition, the Need for an RFQ, RFQ Types, RFQ Process, RFQ Example, RFQ best practices, RFQ tools, and finally we shall have a brief comparison of RFQ with RFP and RFI.
Projects require supplies, consumables, or support from third parties, and a Request for Quotation (RFQ) is a great help in these situations. The sellers will review the RFQ, ask for clarification, and submit their responses. The buyer can also organize a bidder conference where bidders can clear their doubts.
Request for Quotation (RFQ): Meaning, Types, Process, Example
A Request for Quotation or Quote (RFQ) 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.
Need of an RFQ (Requests for Quotation)?
You need RFQs to fulfill your 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 the required material support or consumables on your own, but you can get them easily through third parties. In addition, 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.
Types of Request of Quotation (RFQ)
An RFQ can be of the following types:
- 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. This RFQ provides transparency, but 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 or an authorized seller in your region. You invite only the manufacturer or their authorized agent to bid for the items. Though the quality of the material is high, prices are usually high because of the absence of competition.
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 do not get the best offer.
A well-defined RFQ process smoothens the bidding process by providing complete requirements, terms & conditions, payment information, delivery, inspection, etc.
Most organizations have a template to fill their requirements. This helps bidders provide the information in a structured format, and buyers can review the 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
Prepare the RFQ Document
The first step is to collect requirements. Ensure relevant stakeholders are involved in the collecting 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
Define the Vendor List
This is an optional step. You can specify those vendors and disallow others if you have any pre-selected vendor list to quote for specific items or services.
Issue the RFQ
Once you define the requirements and get management approval, you can issue the RFQ with a submission deadline. Again, give bidders enough time for bid preparation and provide mechanisms to clear their doubts, so you can ensure all bidders get answers to all clarifications. You can also organize a bidder conference.
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.
Select and Award the Contract
After evaluation, you select the lowest bid if it fulfills technical requirements. If negotiation is allowed, you select the lowest offer after a few rounds of negotiation. Afterward, you can sign the purchase order, and this document will be legally binding.
Request for Quotation Sample or RFQ Example
Below is a sample Request for Quotation (RFQ) :
How to Use RFQs
In RFQs, the seller breaks down requirements to a granular level for cost estimation. As a result, sellers might need 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.
RFQ Best Practices
- The supplier must understand the terms and conditions before submitting the offer.
- 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.
- The buyer must provide all details in a well-structured format.
- The buyer must clarify all suppliers’ queries.
RFQ Vs. RFP
RFQ is different from a Request for Proposal (RFP). In RFP, the buyer has a problem and asks sellers for creative solutions. RFP is mainly used for construction and service contracts, while RFQ is for buying commodities.
RFQ ends with a purchase order, while RFP ends with a contract.
In RFQ main deciding factor is pricing, while RFP has many deciding factors such as pricing, technical skills, experience, resource availability, legal requirements, etc., depending on the type of procurement contract.
RFQ Vs. RFI
RFI stands for Request for Information, and it is a non-binding document. A buyer issues an RFI to collect the information from the seller. This information helps them develop the RFQ or RFP.
RFI is a communication tool that buyers and sellers can use to communicate information regarding the product or services.