Home > Encyclopedia of Business > Request for Proposal

• PREPARING GOOD RFPs
• ANSWERING RFPs
• FURTHER READING:

Request for proposal (RFP) is the process by which a corporate department or government agency prepares bid documents to acquire equipment or services. The RFP is frequently published in the legal documents section of pertinent newspapers or in trade journals covering the industry in which the department operates. The RFP can also be distributed to a list of qualified potential bidders who have already been contacted and prequalified as eligible by the agency or department.

Qualification, a key concept in the RFP procedure, frequently depends on follow-up investigation on the part of the hopeful bidder, and careful wording of the original RFP. A company that deals only in Macintosh computers and software written for Apple Computer, Inc., for instance, could not hope to win the RFP bid and fulfill the needs of a government agency that is equipped with IBM personal computers. On the other hand Dell Computer, which sells IBM clones, may indeed fill the needs of the same department if it can prove that its computers can mesh with the existing IBM machines and MS-DOS software.

Private corporations sometimes employ the practice of issuing RFPs, usually when purchasing commodities or services that do not bear directly on the company's own products or services. Government agencies are closely associated with preparing and evaluating RFPs since their responsibility to get equipment and consulting talent at the lowest possible price is closely monitored by the press and tax watchdogs. This attention to low cost as monitored by the RFP process is exemplified by an old joke in which astronauts are asked how they feel about sitting on top of a rocket designed and built by a long string of low bidders.

Developments in public and private sector businesses and organizations have led some to doubt the continuing efficacy of RFPs. Many contractors are less than totally truthful in their responses to RFPs, a practice that can lead to nasty surprises for the contracting business or agency. Furthermore, the accelerated pace of business today makes the traditional RFP process too slow to allow agencies and businesses to respond to changes in technology and the marketplace. In light of these obstacles, many businesses and agencies are turning to the use of a streamlined RFP, known as a request for information (RFI), to identify qualified contractors. Many businesses are also eliminating the RFP process entirely by developing their own prototypical products and services in-house, where they are better able to maintain quality and scheduling control.

Even among corporations and agencies that continue to make use of RFPs, problems can arise. Under the Freedom of Information Act, all RFPs presented to government agencies are part of the public record, and can yield information useful to competitors. Finally, agencies and businesses issuing RFPs frequently know more about the products and services they require than do any potential contractors, and are therefore obliged to educate all parties responding to RFPs, a time-consuming process.

In response to these and other criticisms of the RFP process, the Society of Professional Administrators and Recordkeepers (SPARK) began development of national standards for RFPs in 1996. Through the creation of a model RFP, SPARK hopes to streamline the process while retaining the main strength of the RFP, namely, the in-depth information it can provide. Further efforts to modernize the RFP process are driven by computer software companies, including Microsoft, which launched its Exchange software to compete with Lotus Development Corporation's venerable Notes package in 1996.

PREPARING GOOD RFPs

There are some elements that an issuing agency should make sure to include in a good RFP:

• Be specific when describing what is needed to fulfill the agency needs. A request for "five Pentium II computers" is not specific. "Five Pentium II computers, each powered by 350 megahertz microprocessors with 32 MB of RAM and expandable to 128 MB of RAM with 4 gigabyte hard drives with 3.5 inch (1.44 MB) floppy disk drives," on the other hand, is much more specific and useful to potential contractors. Such intricate description is needed to make sure that every potential vendor is bidding on the same equipment. Some companies may even want to specify the manufacturers of components that will be inside the computers. This would eliminate the potential problem of a vendor substituting a poor quality component that meets the specifications on paper, but is known for problems. In any case, managers issuing RFPs should have a good working knowledge of the technologies, products, and techniques to be used in their project as a further defense against misunderstanding and misinformation.
• Make sure the potential vendors understand the nature of the RFP agency—what it does, how the equipment will be used, the problem that is being addressed by the RFP, and any future goals that the agency plans that might relate to the equipment. Potential contractors should be asked for examples of similar projects they have undertaken, whether or not their existing infrastructure will support the proposed project, and for precise and complete billing information and cost overflow policies and procedures.
• Look as far into the future as possible. A successful RFP will inform contractors of a company or agency's long-term plans. Providing such speculative information may make a difference sometime in the future, and it does not hurt to see how the bidders respond to the possibility.
• Alert bidders regarding any environmental situations that the equipment might face. If the equipment is being purchased to go to Europe or South America, for example, tell them. Foreign standards might be entirely different from what is acceptable in the United States. If the equipment is intended to go into an old building on the second floor, check with the bidders to ensure that the equipment is not too heavy. Bidders might assume that the RFP agency knows that the item weighs a ton, while the RFP agency might not even have thought about where it will be used.
• Give vendors plenty of time to study the RFP before the deadline. Some companies give vendors as much as one month from the time the RFP is published before the bids are due. This allows bidders time to tinker with their bids, possibly allowing them to seek out new vendors of their own to help meet the needs of the RFP.
• Enforce standards on replying bidders. For instance, if a company returns a bid for "five Pentium II computers with 200 megahertz microprocessors," return it to the company, or throw it out without comment, since the vendor did not follow the RFP's specifications for Pentium II computers running at 350 megahertz.
• Enforce deadlines on vendors. When buying off-the-shelf equipment, an agency should be suspicious of any vendor claiming to need more time than the contract requires in order to meet the needs of the agency. Why does the vendor need more time to deliver Pentium II computers when that type of computer is a commodity? If the RFP is for equipment that is "cutting edge," the RFP agency should require the winning vendor to sign a performance bond that guarantees it will deliver by a certain date. Such bonds carry a monetary penalty that the vendor agrees to pay if it misses the delivery date.
• Try to limit the number of vendors since every bid requires staff scrutiny. Who makes the list? Who doesn't? That is up to the agency staff to determine. Many government agencies and some corporate departments are reluctant to cut vendors off bid lists out of fear of favoritism charges. One way to keep the list manageable is to require potential vendors to refile every few years and to meet certain criteria, such as listing past sales and experience or number of employees available to service the account. Shaky companies that would not be good vendors are unlikely to keep up with such refiling requirements.
• Make sure replying companies specifically address the problem that was the original purpose of issuing the RFP. Bids that address both the company's current problems and future needs carry more weight than those that just cover the minimum the company asked. As such, bids that emphasize quality control and assurance while taking account of workflow, electronic capacities (where applicable), production capabilities, shipping options, and cost, and supply ample references, should be given the most serious consideration.

A lawyer may be needed to make sure the RFP and the equipment or services it seeks are legal under local, state, and federal laws. For example, a company advertising for bids for fuel-oil storage tanks should make absolutely sure that the tanks offered by companies responding to the RFP fit all federal environmental standards as set down by the Environmental Protection Agency.

ANSWERING RFPs

Companies wishing to bid on RFPs should monitor the legal notices in local newspapers and trade magazines, and contact the purchasing departments of corporations and government agencies likely to request services and equipment. Investigate the requirements to be added to the "bid list."

There may be more to answering the RFP than just providing the lowest cost or the highest level of customer service. Some corporations and government agencies give special consideration on their bid lists to minority- and women-owned companies with "set-asides," a certain percentage of a job predetermined to go to companies that are usually smaller and newer to business.

Read the RFP carefully, paying particular attention to deadlines and performance clauses. Some RFPs may require that the winning bidder provide the service by a certain date. If that date is missed, the bidder might be forced to return cash to the organization that issued the RFP.

Determine if the RFP is for both equipment and service. Companies that sell equipment might not be able to adequately service it, yet that service performance may be written into the RFP in a separate section from the equipment specifications. Responders must know they can fulfill the entire contract before answering it.