It's commonly known that when a firm wants to start a new project or service internally or to its customers, the firm needs to obtain and evaluate the products and services available in the market by the vendors through RFQ, ITT or RFP. The following explains what and when to use each option.
Request for Quotation (RFQ)
Typically used for purchases where order value exceeds $5,000 but is less than $50,000. This allows departments to quickly obtain written quotations to ensure compliance to the Purchasing Policy. RFQ is generally a one page document that provides a description of the required software or services and lists the terms and conditions of the organization. The vendors will provide a quotation document indicating their price and delivery information based on the request.
RFQ’s are considered an informal method of tendering which is a convenient way to survey the market for best price without incurring substantial legal obligations. To avoid the possibility of your request being viewed as a RFP, avoid mention of fixed or firm prices as well as tendering language such as “irrevocability, bid closing date and tender”.
Invitation to Tender (ITT)
A formal method to identify a project to be completed and the process for its completion. An ITT is issued to any interested party. Tenders describe in significant detail specifications and are normally widely circulated to potential suppliers. You can always utilize a commercial newspaper as a means of communicating opportunities to potential suppliers and also issue direct invitations to vendors identified through a vendor database.
ITT are used when you know what you want to accomplish and how you want it done. Vendors are competing primarily on their qualifications and the submitted price of software, work or services required. In some instances, departments opts for a two step process in which the ITT is preceded by a Prequalification Statement to review the capabilities of potential bidders as well as understand who they are and what they can offer. In this scenario, price becomes the evaluation criteria of the ITT.
Request for Proposal (RFP)
Similar to ITT, RFP is a formal method of obtaining price yet differs in that the RFP allows for numerous methods by which a project result can be achieved. Price is not the primary factor in evaluation. RFP seek the best value through the competitive bid process yet provides for both objective and justifiable reasons for its choices. RFP describes in detail the project to be completed, the intended result and the criteria for choosing a successful bid. It can propose a preferred method of completing the work or can ask the proponents to provide solutions, seeking the creative input of suppliers.
RFP can be as simple or as detailed as you require, allowing greater flexibility in its design yet must be evaluated according to the published criteria for evaluation. RFP’s are used when you know what you want, when you want it, why you want this result but not how. RFP’s are legal documents subject to laws of competitive bidding and should only be issued by those aware of the legal implications of the bid process.
Sole Sourcing/Direct Award
For Sole Sourcing contracting, the buyer purchases software/services without going through a competitive bidding process. This method of contracting is both quick and easy but is only used primarily for low value purchases or on a limited basis. However, there are situations where Sole Sourcing may be used, such as: