What is RFX in Procurement?
RFx is a term, used to refer to a family of ‘Request For…’ documents. RFx is used to collect different types of responses from suppliers. The three most commonly used documents in this family include Request for Quotation (RFQ), Request for Proposal (RFP), and Request for Bid Terms.
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Request for Quotation (RFQ)
A request for Quotation (RFQ) is prepared by the buyer and sent to a number of prospective suppliers inviting them to submit commercial offers with regard to the product being sourced. RFQs are generally used in the case of competitive bidding (though they might also be used on a non-competitive basis).
Note that, unlike a purchase requisition, an RFQ may not be a single-page document form but could consist of a document consisting of a number of pages elaborating various requirements. Based on the responses, the purchase manager may award the contract to the most qualified bidder.
In competitive bidding, bids are selected based on the price quoted. If the purchasing organization decides not to award the contract to the lowest-price bidder, it needs to inform the bidder why he did not receive the contract.
Competitive bidding involving RFQs is the best method of selecting suppliers in the following situations:
- Procurement pertains to a standard product or product requirements are clear.
- Price is the dominant criterion owing to the nature of the product and there are no major non-price variables.
- The market is competitive and several qualified sellers exist.
- There is no preferred supplier for the item.
- Volume is high.
- Government regulations require competitive bidding.
Request for Proposal (RFP)
RFPs are used when suppliers/vendors are selected on the basis of negotiation rather than through a formal competitive bidding process. RFPs require suppliers to submit a detailed proposal on how they propose to achieve the objectives stated in the document. Apart from price, there are several other criteria that play an important role in selecting the best supplier for the contract. These criteria may relate to the supplier’s manufacturing ability, quality services, speedy delivery, risk sharing, and product support.
The RFP process can take one of two forms, ‘open’ or ‘closed’. In an open RFP, any potential supplier can view the RFP documents and submit a response. Open RFPs are used more commonly in government environments to ensure that purchase decisions remain unbiased.
A closed RFP (also known as closed envelop RFP) is issued to specific, invited respondents only. Closed RFPs are usually issued by organizations that have ample knowledge about the product/service being purchased and have already shortlisted potential suppliers for the purchase.
As against RFQs, RFPs do not seek a price quote that conforms to the given material specifications but invites bidders to propose potential solutions to the problem stated. RFPs facilitate competition, allow information gathering about potential suppliers and acquire market intelligence. Purchasers may also float a Request for Information (RFI) beforehand which is basically a market inquiry issued to prospective suppliers.
Based on the RFPs received, interested suppliers may submit their proposals detailing how they propose to meet the requirements of the RFP along with their pricing, lead time, service support, and other aspects of their value proposition. Note that, unlike a response to RFQ, the response to RFP is not about conformance to given specifications but a detailed response on how the vendor proposes to meet the objectives stated in the RFP.
Once proposals are received, the buyer will evaluate various proposals and compare alternative approaches proposed by various suppliers. The buyer will then negotiate with the selected suppliers on different terms and conditions of the supply contract. In the case of software packages, the buyer may require the vendor to provide a product walk-through, Proof of Concept (POC) or Prototype to be delivered as part of the selection process.
Request for Bid Terms
Request for bid terms is also called Request for Tenders (RFT), which is used in place of RFQs in specific cases. As against RFQs, which are normally for low-priced or standard items, Request for Tenders (RFTs) (though similar to RFQs in respect of clearly defined conformance specifications) are used for more complex solutions where selection involves factors beyond price, for example, qualitative factors.
An RFT is a formal, structured invitation to suppliers to submit a bid to supply products or services. In the public sector to fortify and secure the tender bid engagement, an official fee is needed to ensure that such competition for the use of public funds is open, fair, and free from corruption.
Government tenders are the most common example of RFTs, where a government may publish an invitation for suppliers to make a proposal for a contract. An evaluation team goes through the tenders and decides who will get the contract.