A Request for Quote (RFQ) allows construction businesses or companies to get precise insights about costs for materials or services. The quote that a company or business receives after sending out an RFQ (sometimes known as a price quote) helps investors understand which vendors can provide the best value for money.
What is an RFQ?
A request for quote or invitation for bid (IFB) is a process in which a company or business (property owners, construction companies, and contractors) requests accurate pricing information from select suppliers and contractors to provide specific services or fulfill certain projects.
The RFQ process is vital for construction businesses that require a consistent supply of standard products or services.
What is the role of an RFQ?
A request for quote allows subcontractors in the construction business (plumbers, electricians, material suppliers, etc.) to submit bids/quotations with pricing information about a particular product or service required.
An RFQ is one of the best tools to help select the most ideal supplier or subcontractor that offers optimal value for investment. An RFQ generally includes the following information:
- Exact quantities and technical parameters of a product/service desired for purchase
- A response submission deadline
- A product or service delivery schedule and timeline
Remember, RFQs are just temporary pricing information. They’re not legally binding documentation. Therefore, neither the client nor the provider considers the use of an RFQ document as a final contract or official agreement.
Here are some ways various professionals at different levels in the construction business can use an RFQ:
- Project owners and real-estate developers can send an RFQ to a general contractor, architect, or building designer to understand the pricing information associated with office building construction. Nowadays, this process is done with the help of general contractor software that lets you collaborate and process documents online.
- Then general contractors can then send RFQs to other subcontractors and vendors (electricians, carpenters, designers, plumbers, etc.) to evaluate the costs associated with each specialized job on the building.
- Subcontractors mostly send out RFQs to material suppliers and dealers (electrical components dealers, wood suppliers, cement suppliers, etc.) to get an approximate value of how much construction raw materials will cost for their work on a particular project.
Types of RFQs
There are four types of RFQs:
Open bid
This RFQ document is made available to all shortlisted subcontractors/suppliers. Open bids can be accessed by other vendors (if access is enabled) during the bidding process, revealing the price quotes shared by other participants.
While this can be an excellent method to get the best and most competitive pricing, it can create conflict amongst vendors or subcontractors.
Sealed or closed bid
Under sealed bidding, the purchaser keeps bids closed during the bidding process. Once the deadline is over, the purchaser accesses all the bids for comparison at a particular time. Vendors/suppliers don’t have access to open or view the quotes shared by their peers until the concerned authority/project owner opens the bids.
Closed bids can help reduce the chances of fraud during the bidding and selection process. Additionally, it ensures transparency for buyers by eliminating foul play and unnecessary conflicts. Sealed bids are specifically useful when managing a private or government project.
Invited or restricted entry bid
Some vendors and suppliers maintain a loyal customer database. RFQ by invitation works when you send bids to specific suppliers or subcontractors with whom you’ve previously collaborated. You can combine invitation bids with open or closed bidding techniques.
Reverse bid
In a generic bidding process, the seller submits a quotation or pricing estimate for a particular project and hopes to secure the highest price for a particular project, product, or service. In RFQ reverse auction, the buyer submits a bid.
This happens when you don’t get the desired pricing that fits within your stipulated budget through an initial RFQ round. You can shortlist the best candidates for the project and submit a bid to a select group of vendors to offer the best cost estimation for the construction material/services you want to purchase.
The Complete RFQ Process
Planning and preparation
Before sending out an RFQ to the vendors, determine your precise business requirements. During preparation, ensure that you’re providing as much detail as possible to get accurate responses from suppliers/vendors.
Apart from product/service requirement details, you’ll need to consider the following:
- The type of RFQ you want to send out
- The list of vendors whom you want to invite or have shortlisted
- The deadline for quote submission
- The technique for comparing pricing
Detailed documentation with the RFQ
Details are the key to getting the correct pricing information from the vendors. Include the following documentation with your RFQ whenever relevant:
- A brief introduction and summary pertaining to the RFQ
- FAQs and submission
- The business overview, company description, project details, and other relevant background details for the particular project
- Eligibility criteria
- General terms and conditions, explaining the scope of negotiation
- Pricing template
- Selection and evaluation criteria
RFQ issuing and management
Once you’ve determined your business requirements and included enough detailed information, it’s time to share the RFQ with the shortlisted vendors. It’s recommended that you select no more than 10 vendors. Such limitation allows for a quick conclusion and less confusion or complexity while encouraging healthy competition.
Allow adequate time (a few weeks) for the suppliers to discuss your requirements with the team and subsequent suppliers. In case you receive any questions from a particular vendor, share the answer with every participant to keep things simple. A centralized, automated bid management tool makes the entire process quick and easy.
Unless you’ve opted for an open bid, maintain strict confidentiality on the RFQs shared by the selected vendors.
Selection
The vendor/supplier that offers you the best value for your investment will always be your first preference while making a selection. However, make sure you’re carefully going through any accompanying documentation, fine prints, and terms and conditions shared by the vendor.
Once you’ve made the selection, keep proper documentation of the process, the qualified bids, and the winner.
Contracting and closing the deal
If required, negotiate with the vendor to reach a fruitful conclusion for both parties involved. If you’ve already prepared detailed documentation during the RFQ, your contracting process should become easy and straightforward. Don’t forget to share the non-selection information with the rest of the vendors, maintaining a professional tone.
Conclusion
Issuing RFQ documents and dealing with the bidding process doesn’t have to be manual work. Bidding software empowers RFQ automation, enabling companies to create templates, collaborate with suppliers, subcontractors and vendors, automatically score proposals, and more. Technology is evolving procurement techniques and ensuring better vendor selection.