A request for quotation (RFQ) is just one of many RFx documents that are a part of the procurement process. If you know how to write an RFQ, it can be very useful in the procurement process. In the right situation, RFQs are advantageous and offer quicker results than their more common counterpart, the RFP.
RFx documents and procurement terminology can be confusing, so this post will explore the request for quotation document in depth including answering:
Let’s get started.
What is a request for quotation (RFQ)?
A request for quotation or quote (RFQ) is a document that details a buyer’s requirements and asks vendors to respond with pricing and payment terms.
An RFQ is different from an RFP because it focuses almost exclusively on the cost of a specific item or items. By contrast, RFPs are slightly more flexible and allow the vendor to propose creative solutions. RFQ decisions are made primarily based on price while RFPs may be more subjective and consider a number of factors to select the right vendor.
- Note: RFQ may also stand for request for qualifications.
When should you use an RFQ?
An RFQ isn’t a good fit for every procurement situation. Typically RFQs are used to buy very specific products, such as hardware or a list of office supplies. However, they are occasionally used for service procurement, such as a maintenance contract. RFQs work best in strategic sourcing situations when the issuer knows exactly what they want and how many.
Think of an RFQ as a no-frills pre-order form - it clearly defines the product or service specifications needed. From style to size to design, every available variable should be accounted for in your request. The RFQ also outlines how each vendor should provide their pricing information. Responses include itemized costs of each product. This level of detail allows the buyer to make accurate vendor comparisons.
Should you use an RFQ?
- Do you have a list of prequalified vendors that can supply the specific product or service you need?
- Do you know exactly what you want to buy and how many of each item?
- Is price the most important factor?
- Are you buying something that is ready out-of-the-box and needs no specialization?
- Will you be able to manage the item yourself without support from the vendor?
If you answered yes to all of these questions, then an RFQ is a good choice for you.
4 Types of RFQs
A request for quotation may be presented in a few different ways. Each type of RFQ has pros and cons.
Open bid
An open bid is when responses are visible to all qualified vendors. Bids are opened during the submission period allowing vendors to see one another’s pricing. Suppliers can alter and update submitted bids until the bid deadline.
Pro: Pricing visibility may encourage more competitive pricing, driving costs down
Con: Open pricing can backfire and lead to price-fixing among vendors
Sealed bid
A sealed bid is when an RFQ is open to all qualified bidders but the responses are opened only after the submission deadline has passed. Sealed bids are common in public and government procurement projects.
Pro: May help reduce the risk of fraud and provide vendor selection transparency
Con: Vendors may not be as motivated to provide their very best pricing
Invited bid
An invited bid is when only specific vendors receive the RFQ. They are used with both open and sealed bids.
Pro: Issuing the RFQ to previously used and trusted vendors can speed the selection and contracting process
Con: Competition is more limited and the buyer may miss out on cost savings offered by new vendors that are unknown to them
Reverse auction
A reverse auction asks vendors to supply their lowest offer and the cost decreases as the auction goes on. The reverse auction may be used as a secondary step if an RFQ is issued, but no vendor meets the price target.
Pro: It is a fast, competitive, internet-based process and the lowest offer automatically wins
Con: The contract is awarded automatically based on the lowest price, so other important factors may not be considered
The RFQ process
Before issuing a request for quotation, you must decide exactly what your business needs. The preparation phase is the most time consuming, but don’t rush it. While you prepare, remember that the more detail you can provide, the more accurate and useful your vendor responses will be. Be sure to collaborate with your internal stakeholders to explore all the necessary requirements.
In addition to the details of the product or service you’d like to buy, you’ll need to decide:
- What type of RFQ will be issued?
- Who will be invited to respond to the RFQ?
- When will the deadline be?
Documents and information to include with your RFQ
Detail is at the heart of every effective RFQ. The extra information will help expedite vendor responses as well as the contracting process.
Along with your RFQ, it’s important to include some additional documentation:
- Invitation to bid with introduction and summary
- Business overview with a description of your company, details on the project and any other relevant background information
- Prequalification requirements to ensure the vendor is eligible to respond
- General terms and conditions including whether or not terms are negotiable
- Pricing template or table, broken down by item and cost element
- Selection criteria and scoring weights
Now it’s time to send the RFQ to your vendors. For most RFQs, it’s best to select no more than eight vendors. Be sure to allow enough time for the supplier to work through the RFQ with their team, at least a couple of weeks. Hopefully, you’ve provided enough information that questions will be minimal. But, when questions do arise, share the answers with all participants. A centralized RFP management system makes this quick and easy.
Throughout the process, it’s crucial that you maintain a level playing field. Share all the same information and ask all of the participants the same questions. As you receive responses, it’s good practice to confirm their receipt with the vendor. Unless you have an open bid, keep information about other vendors’ offers strictly confidential.
The biggest benefit of the RFQ is that scoring and selection should be fast and straightforward. The preparation you put in at the beginning will now pay off. With your pricing template or table, you can easily compare vendors side by side. If working with a selection committee or additional stakeholders, compose a memo with the key information. The memo should include a summary of how many bids you received, the number of bids that were qualified and why others were disqualified.
Your final selection will likely be the vendor that offered the best price and terms. However, be sure to read any accompanying documentation provided. Key insights may be included in the cover letter or executive summary.
Once you’ve made your choice, keep clear documentation of the process, the qualified bids, the published criteria and the winner. This data offers transparency and can be used in the future when issuing new RFQs.
Notify your selected vendor. Remember that the response provided is a quote, not a formal agreement. Create the contract after you extend an offer, finalize the details and receive the vendor’s acceptance.
Because of your excellent preparation, the contracting process should be simple. Create your contract with the details, terms and conditions, payment information and deliverables that were outlined in the initial RFQ documentation. After the contract is executed, notify the other vendors of your selection.
Remember that it is beneficial to maintain cordial relationships, even with unselected suppliers. Provide any answers, information or context you can to the vendors that didn’t win the bid. Update vendor profiles with any new information so that next time you’re ready to engage them, you have all the right info.
After the contract is signed it’s a good idea to set a reminder to check back in. While the deal is still fresh in your mind, make notes and set a reminder for yourself in six months or a year to check back in. Periodic vendor evaluation is a key part of the procurement life cycle.
General vendor evaluation questions:
- Is the vendor fulfilling their side of the agreement?
- Are you getting the value that you were hoping for and had planned on?
- Can the relationship be improved?
- Has the vendor received and acted on feedback?
- Are other vendors offering more competitive pricing now?
- Has the market changed?
How to write an RFQ
The request for quotation documents vary widely from one industry to the next and can be customized to fit your business’s needs.
Key RFQ components:
Buyer information
- Project name
- Project goals and background
- Buyer point of contact information
- Submission deadline and instructions
Selection criteria
- Prequalification questionnaire
- RFQ type (open or closed)
- Scoring criteria
- Selection process timeline
Detailed specifications
- Product or parts description
- Technical requirements
- Quantities
- Delivery requirements
Terms and conditions
- Legal and security requirements
- Terms and conditions
- Disclosures
- Standard contract
RFQ examples
Government RFQ
RFQs are often used in public procurement. The U.S. General Services Administration used an RFQ when they needed to establish government-wide janitorial services. As you might expect, the RFQ is very detailed and offers very specific information about scope, guidelines and requirements. The document also provides a clear process for evaluation so suppliers know what to expect.
Nonprofit RFQ
RTI International is a nonprofit institute based in North Carolina. The organization provides global research and technical services to government and commercial clients. In 2017 they prepared a request for quotation when they needed to acquire new tablets and tablet covers. This document is a great example of the detail-oriented nature of the RFQ.
Utility company RFQ
BrightRidge, a public power company, created a request for quotation to purchase a very specific piece of equipment. The document details all the specifications for the transformers and offers helpful information and instructions to guide vendors.
RFQ template
Every RFQ is different. An RFQ that works well for supplies procurement, won’t be well suited to an IT support services quote. RFQ templates can be used as a guide, but customize them to fit your needs.
Download this RFQ and customize it to meet your needs.
Additional RFx resources
Need more templates? Interested in learning more about the other types of RFx documents? Want to know what the difference is between an RFI, RFQ and RFP?
We’ve got you covered. Check out these helpful blog posts:
Remember that issuing RFx documents doesn’t have to be a manual process. RFP software empowers RFP automation and allows issuers to create RFx templates, collaborate with vendors, automatically score proposals and more. Technology is transforming the procurement process and empowering better vendor selection.
To learn more, check out this ebook: RFP software guide: How to find an RFP solution that identifies right-fit vendors.
Originally published at https://rfp360.com on November 12, 2019.
