If you are working on a tender, you will encounter the term RFP many times. RFP stands for Request for Proposal, and it is about asking vendors to make a proposal indeed. In this post, we will see what is an RFP in details, and why it is important for you to know. If you are working on a tender, or if you are a project manager, these are all things you must know. So, read on.
What is a Tender in Project Management?
For project management or business in general, tender is an offer or bidding process where several suppliers make their offer to another company, the client. The client will have to select one of the vendors at some point, and this is also part of the tender.
To simplify the definition, we called suppliers the companies participating in a tender, but the correct term here is vendors. A supplier just supplies you with something and disappears, such as a raw materials and commodities. On the other hand, vendors are more focused on a solution – a product and a set of services around it, such as maintenance, upgrades and so on.
It is natural that, in the tender process, the client company will need a convenient way to have multiple vendors participate and make their proposal. Of course, the client’s job only starts there: they will have to evaluate the proposal in comparable terms, and eventually select the best fit for their use case. This is particularly important since we are not buying raw materials but complex solutions: comparing between two proposals of different vendors is not an easy task. The RFP can make it a little simpler.
How does a Tender work?
Before we dive deeper into the RFP for the tender, we can understand the life of the tender in general. This will help us better understand the role the RFP plays in the tender. Let’s look at this from the client’s perspective.
First, we want several vendors to participate in our tender so we have different options to choose from. However, we do not really want anyone to post an offer, we want only companies that qualify and that can potentially fulfill our requirements. So, we start with an Invitation to Tender. This is basically a letter sent to specific companies, or even posted publicly to allow companies to participate. Here, the goal is grabbing vendors’ attention and get them to meet with you one time. When you meet, you will present your high-level requirements so that each vendor can decide if they are interested in participating.
Note that in some contexts the Invitation to Tender is known as Request for Tender (RFT), that is, I am requesting a vendor to participate to the tender.
This is the way you have a list of vendors, and now it is time to present them with the RFP. As we will see in a moment, this is the document that details all your requirements. Depending on the nature of the tender, you may make it public, share it in the very first meeting, or share it only for those that accepted to participate in the tender. All of this depends on the confidentiality and timeline of your project, and there is no “secret formula”.
Once the RFP is out, vendors will have some time to make their proposal (indeed, RFP stands for Request for Proposal). Then, it is all about selecting.
The vendor selection process varies from client to client and from tender to tender. In general, you want to allow several rounds to allow vendors to make questions after the RFP is presented and before they make the proposal. Then, you may want to allow several sessions to clarify your requirements after vendors have presented their proposal and you want them to correct them somehow. Eventually, proposals cannot improve any further. Here, you typically make a shortlist of the best vendors and either do another round or enter price negotiations to see which one is the best deal for you. At this stage, all solutions should be mostly comparable.
Now that we know all this, we can dive deeper into the RFP for our tender.
What is an RFP in a Tender?
The Definition of Tender’s RFP
We know by now that RFP stands for Request for Proposal, and it is a document prepared by the client company that asks vendors to make a proposal. Specifically, it highlights a set of requirements and ask the vendors to propose a solution to address them.
Because of this, depending on the scope of the project, the RFP is somewhat detailed and is several dozens of pages long – up to a few hundreds. Even if the RFP is not a contract, it is written in formal language almost like if it was. This is because the RFP is multidisciplinary and will contain all the key requirements for the solutions. Those requirements will span from technical requirements to legal requirements, to governance requirements.
For example, if you are issuing an RFP to have a vendor manage all the mobile phones for your company, you may want to add the 4G Internet coverage (technical requirement), some ISO certification about information security (legal requirement), to a report of aggregate monthly spending (governance requirement). Of course, real RFP are way more complex and detailed than this, but you get the idea.
So, in short, the RFP should contain all the requirements for the solution, at all levels. It is a formal document that asks: “I want problem X, Y and Z to be solved, please present me your solution to solve them”.
How do you write an RFP?
As you can imagine, the way to prepare an RFP depends on the client company procedures and by the scope of the tender. An RFP for Internet connectivity services will be a lot different than one to manage the canteen for a manufacturing facility.
However, in all cases you want some professional that knows how to write business documents prepare the RFP. Ideally, you would want a team of professionals – here the big four Deloitte, KPMG, EY, and PWC can help you. Yet, they cannot invent the RFP from scratch.
In fact, the role of the people writing the RFP would be to go around in the company and poll for the requirements various actors inside the company have. Then, their job is to package all these requirements together in a document that is formal and clear, which can be provided to the vendors – the RFP.
Because the breath of this document can be very big, it will generally have multiple sections and can also have exhibits such as images and annexed documents.
Why do you want to write an RFP?
If a project is large enough, you will want to write an RFP for two main reasons.
- Ensure all vendors propose a solution that complies with all the requirements, and easily identify the vendors who did not comply or cannot comply to skim them out.
- Receive similar proposals from all the vendors, so that they are more easily comparable
While point #1 is about staying on track, point #2 will save you a lot of time. Each solution will be different, and not 100% comparable with the others, but at least an RFP allows you to compare them for the way they address your requirements.
Because of this, if you are a vendor it is recommended that you structure your proposal with the same sections of the RFP, replying point-by-point. In addition, if you are the client, you may want to add at the beginning a section that details how proposals should be presented.
Is the RFP a legally binding document?
Almost. More specifically, it will not be binding for the vendor who eventually wins the tender. This is because, once the vendor has been selected, a proper contract will be drafted, and that contract will detail all the binding conditions. Such contract will generally include some annexes with the requirements, which may be either taken out of the RFP, or modeled on the proposal that the vendor stated will deliver.
If the RFP is not binding for the winner, then it is not binding for anyone, right? In most cases, that is true, but not always. More specifically, some vendors may that did not get the bid may try to raise concerns about the transparency of the tender or legally claim to be put at disadvantage. In that context, the RFP can be a document they can cling to. So, they will want to treat it as legally binding in case things go south, and precisely for that you need to prepare for it. You need to think that as legally binding from the start.
How can an RFP put a vendor in disadvantage compared to others? An example can make things clearer: suppose you are an Internet Service Provider and needs supply and configuration of router – equipment that keeps your network up and running. Two big manufactures of routers are Cisco and Huawei, which produce products with comparable technical features. You invite both Cisco and Huawei at your tender. Here, a good RFP will list the features you need for your routers, as well as any ancillary service. Instead, a “bad” RFP would say “I want Cisco router model X”. Clearly, Huawei cannot satisfy this request, so this kind of RFP would be created to cut Huawei out of the game, and this is why it would be unfair.
If you want to go for direct selection of your favorite vendor, you should do that. Instead, if you are running a tender, you should play it fair. It is worth noting that this Cisco-Huawei example is extreme, in reality there are more subtle ways where clients company may achieve similar results.
Beyond the RFP in a Tender
If you are facing a tender, you will deal with RFPs at some point. However, not all vendor engagements require RFPs. A lighter version of the RFP is the Request for Quote, or RFQ.
The RFQ is different from the RFP because there is no “solution” component in the RFQ. That is, in the RFP we ask vendors to provide a solution, and also present their economic proposal for that solution. Instead, with an RFQ we do not really need a solution and there is no problem to be solved. Instead, we have quite a clear idea of what product or service we want, we just need to know the price. For example, if you need to buy a commodity equipment (e.g., an industrial oven) you will just need an RFQ. Even for simpler services with unquestionable requirements (e.g., repainting a wall, upgrading electric wiring to comply to new laws), an RFQ is all you need.
With an RFQ you have no proposal, just quotes. Hence, there is little room for discussion and the process is much faster.
Another tender buzzword is a Request for Information, RFI. Here you are not really launching a tender, just probing the market for potential proposal. You are testing vendors’ appetite.
Tender RFP in Summary
Just to wrap things up, RFP stands for Request for Proposal – it is a document client companies make to ask vendors to present their solutions (proposal) to a complex problem. It includes all the requirements of the solution and asks the vendor also to economically evaluate their proposal.
The goal of the RFP in a tender is to streamline the bidding process, quickly evaluate proposal through a similar template, and ensure all vendors comply to requirements (or make clear which parts they cannot satisfy).
You need to know about RFP and tender if you work as a project manager, business consultant, or if you hold any management position. But do not stop there with this guide about lexicon. Instead, go further and learn how to better harness your power with this guide on referent power.
