RFP procurement is the process of issuing a request for proposal (RFP) to obtain bids for the procurement of goods or services. The process of RFP procurement is widely used internationally as the appropriate vehicle for specific types of procurement or purchasing activity. Although the values vary by firm, purchases or contracts over a specific dollar value are managed through an RFP. Depending on the industry, RFP procurement is also used for: high profile projects, large dollar value projects, contracts for a basket of goods or services, and for projects where there may be a conflict of interest.
In an RFP process, the client is responsible for creating the document with all the necessary specifications, details, and deadlines. This information is then provided to either a pre-vetted list of potential suppliers or posted on an open network, so that all suppliers have access to the request. Suppliers have a specific time frame in which to respond, along with the protocol and procedures surrounding the awarding of the contract.
Under contract law, the RFP process is recognized as a fair and equitable method for gathering vendor responses and awarding a contract. The primary basis for this judgment is based on the transparency of the process. Customers who award contracts to suppliers without supporting data based on the RFP process can be sued in civil court. The onus is on the customer to provide documentation and proof that the awarding process was fair and equitable. Failure to provide this supporting information will result in heavy fines, payable to the unsuccessful supplier.
High profile or high dollar value projects benefit from an RFP process, as it encourages suppliers to provide the best combination of price, quality and service possible. The decision-making process is easier, as the criteria is clear, and all the suppliers are required to provide the same information. In addition, this process manages the interaction between sales staff and the client, allowing both sides to focus on the core issues and requirements.
A contract for a basket of goods is quite complex. This approach is typically used when selecting a supplier for multi-purpose purchases, and not a specific commodity. For example, office supplies contracts are awarded based on a combination of price, delivery, and service. In order to compare prices equitably, the response is based on a specific basket of goods. This focus provides the tool necessary to narrow the focus to a quantifiable value.
A conflict of interest can occur where the person responsible for procurement or the user group has personal connections with firms who provide this service or product. Using RFP procurement allows the firm to mask the respondents’ names, add different people to the evaluation committee, or use other staff to make the decision. This is an excellent way to avoid costly litigation.