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Request for Quote (RFQ) Explained

What is a request for quote (RFQ)? And what is the difference between RFQ vs. RFP (request for proposal) and RFI (request for information)? In this article, we explain these terms, which refer to documents issued in different stages of the procurement process in plant project business.

RFQ MEANING

The term RFQ stands for “request for quote”. An RFQ is a procurement document issued by the procurement department and sent to approved suppliers to collect competitive quotes and award a contract on competitive terms (purchase order). RFQs are issued during the execution of a plant project and are backed by concrete purchasing needs.

RFQ VS RFP and RFI

RFP and RFI mean, respectively, request for proposal and request for information. These are procurement documents issued, generally, in the early stages of project procurement and before actual RFQs:

  • A request for information (RFI) is used to screen suppliers (update approved vendor lists, add second-source suppliers, map product portfolios, etc.).
  • A request or proposal (RFP) is sent to suppliers when the procurement department needs to clarify the technical and commercial aspects of an upcoming purchase, to collect proposals from different vendors.

Other types of documents used by EPC Contractors and End-Users procurement departments are the so-called “RFT” (which means “request for tender”) and ROI (“registration for interest”), as shown in the picture below:

RFI, RFP, RFQ

RFQ PROCESS

As mentioned, an RFQ is a procurement document. RFQs describe the required products and services exactly, their technical specifications, quantity, materials, and attributes. RFQs need to clarify the exact scope of supply and facilitate a technical and commercial alignment of any incoming quote in the contract award phase. In some countries, RFQs are denominated “IFB” (i.e. “Invitation to bid”) or “ITB” (invitation to bid).

After an RFQ has been floated to suppliers, and a sufficient number of proposals has been collected, the engineering and the procurement departments tabulate the incoming bids technically and commercially to rank supplier’s bids.

A series of technical and commercial queries (TQ, CQ) may be then exchanged between the buyer counterparts (engineering and procurement department) and sellers, to negotiate the deal and come to a final purchasing decision.

Of course, for smaller purchases a more agile and faster evaluation process takes place.

 

RFQ process

RFQ TEMPLATE

Typically, an RFQs shall indicate the following details:

  • Purchaser company, address, phone and email
  • List of the goods to be purchased, including quantities and unit of measure
  • Closing date (which is the latest date for suppliers to submit proposals)
  • Requested delivery date
  • Requested delivery place
  • Technical specifications, piping classes, formats, etc).

 

WHY ARE RFQs USED?

RFQs are used to source products and services that cannot be bought based on price lists or preliminary contractual agreements.

Indeed, in such cases, buyers are forced to get competitive bids from suppliers to award purchase orders (which happens on a case by case basis).

In other terms, RFQs are necessary for products and services that have variable commercial terms (price, delivery time, payment terms, etc) or intransparent prices, such as:

  • products manufactured using raw materials with fluctuating market prices (example: base metals as nickel, chrome, moly, etc)
  • products that are available in multiple configurations
  • products whose prices vary depending on the ordered quantity

All these cases are typical for metal products and most piping – with rare exceptions.

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