Bidding and Methods

This chapter discusses methods for getting information from internal or external organizations.

3.1 Definitions

• Request for quotation

  A request for quotation (RFQ) is a standard business process inviting suppliers into a bidding process to bid on specific products or services. RFQ generally means the same thing as invitation for bid (IFB). An RFQ typically involves more than the price per item.

• Request for information

  A request for information (RFI) is a standard business process for collecting written information about the capabilities of various suppliers. Normally, it follows a format that can be used for comparative purposes.

• Request for proposal

  A request for proposal (RFP) is a solicitation to potential suppliers to submit business proposals, often made through a bidding process, by an agency or company interested in procurement of a commodity, service, or valuable asset.

3.2 Methods for Inviting Information and/or Offers

There can be many ways of doing this particular activity, which can generally be classified in the following ways:

3.2.1 Manual

This method offers information (or information is invited) in hard copies only. This system of inviting offers is popular with government entities, where bidders have to buy the RFQ/RFI from the government office, and thereafter, based on the received RFQ/RFI, the interested bidders can submit the offer in hard copies to the organization's procurement office. These days, even government entities are converting to electronic methods of inviting offers or information.

3.2.2 Electronic

This method of inviting offers and/or information is utilized by private organizations, where speed and accuracy matter more than transparency, since public money is not involved in private organizations. This system of inviting offers and/or information has gained new heights in the last decade, as several online tools and software are developed with good levels of data security.

3.3 Types of Bidding

When we say bidding, it means the method in which we can submit the offer against any proposal for offer or for information. This really depends on the type of organization and how the organization sees a particular end product. For one organization, the end product may be highly complex, whereas for other organizations, it may be a simple end product with less complexity.

3.3.1 Single-Part Bidding

Single-part bidding is a way to invite all the details into a single techno-commercial offer, which may involve a technical offer as well as a commercial offer. This kind of bidding is practiced to reduce the procurement cycle time and is generally used for requirements with fewer technicalities.

3.3.2 Two-Part Bidding

In two-part bidding systems, bids are invited in two parts; the first part comprises the techno-commercial, and the second part consists of the price bid. In such a system, the first techno-commercial offer is evaluated and based on qualified bidders; price bids are opened in public.

3.4 Important Facts for Inviting Information and/or Offers

3.4.1 Use Appropriate Size RFQ

The buyer needs to decide how clearly, they can communicate the requirement to suppliers. The buying organization has a template for communicating the requirements, so it becomes crucial to use the correct RFQ template. On projects, requirements may vary from a simple iron bar to high-complexity turbines; hence, the template for the RFQ is selected appropriately. Obviously, the RFQ template for a steam turbine would be detailed, as compared to iron bar requirements. If the buyer fails to use the appropriate template, it will lead to increased costs based on uncertain risk buffers considered by the seller in their offer. The appropriate size of the RFQ will help in getting the quotation faster, and results in less time spent on clarifying the requirements during clarification meetings with the supplier.

3.4.2 Use Your Own RFQ Template and Content

It is not recommended that the buyer use the RFQ template with the content as provided by the supplier in earlier site meetings or in the office. The path to making that particular supplier a “sole supplier,” may bring many risks, which will lead to fewer advantages for the buying organization, as no other alternative will be available. By doing this, the buyer would be on their way to float the specifications that are completely irrelevant to them, but serve to exclude the competition.

3.4.3 Use an RFI Before an RFQ If It Makes Sense to Do so

If one supplier is your main source of market information, you can first issue a request for information (RFI) to learn more about the market. Selling organizations are very quick to list copious specifications in an RFQ.

The best way to approach the market is to identify a problem or pain that you have and let experts in that particular market tell you how they would resolve it.

3.4.4 Engagement with Supplier Prior to RFQ

If the first time a supplier hears of a sales opportunity is when they receive an RFQ, this works to the buyer's disadvantage, as suppliers are likely to predict a small chance of winning and will not invest their best effort into making a response to the RFQ, if they respond at all. You really are aided by picking up the telephone and calling a supplier, introducing yourself, explaining what you're looking for, and building a long-term relationship with the supplier. This should, and must, be done prior to issuance of an RFQ.

3.4.5 Avoid Checklists in the RFQ

When buying organizations are sourcing, they want to try out the maximum supplier base, which may include the set of candidates from a pool of qualified suppliers and may also include prospective suppliers. Many of these offers can provide lower pricing and a higher quality of service. I have observed that putting checklists involving “yes” or “no” questions does the opposite, and are often used to put a check on suppliers, which does not fit with the customer requirements. This approach will ease the supplier quotation evaluation process, but it creates a wall when submitting the quotation to suppliers who may be able to meet the functional requirements but not the standard questionnaire requirements. Hence, either have your questionnaire revised based on your supplier base or avoid using a standard questionnaire.

3.4.6 Take Appropriate Time for Making an RFQ

While preparing the RFQ, it is important for the buyer to spend appropriate time on its preparation. Clauses like offer validity, warranty terms, and payment terms based on milestones or order type should be revisited before releasing the RFQ.

3.4.7 Participation Fee

In a disturbing observation, some organizations have been involved in situations where they have asked suppliers to pay to participate in the organization's RFQ processes. Public bidding normally asks interested suppliers to purchase the RFQ; this process has its benefits and losses, as detailed in Table 3.1.