RFQ VS. RFP in EPC PROCUREMENT
RFQ vs. RFP: what’s the difference? An RFP is a generic request for proposals issued to suppliers, an RFQ is a request for quote that specifies the exact products, quantities and delivery time required by a project. RFI, RFP, and RFQ are terms used in different stages of the procurement process of large EPC Contractors and End-Users operating in the project business.
DIFFERENCE RFQ vs RFP
To explain the difference between RFQ vs. RFP, the following should be considered:
- 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 technical and commercial aspects of an upcoming purchase, to collect proposals from different vendors.
- An RFQ (“request for quote”) is floated to suppliers to award a purchase contract based on competitive offers from suppliers, in the final stage of procurement of materials and services for projects.
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:
WHAT IS RFQ (REQUEST FOR QUOTE)?
RFQ is the document issued by the procurement department of EPC Contractors or End Users to a list of suppliers to collect competitive quotes and award a purchase order for goods or services. RFQs describe exactly the required products and services, their technical specifications, quantity, materials and attributes (or, at least, they should) so that suppliers are able to send quotes. In some countries, RFQs are denominated “IFB” (i.e. “Invitation to bid”) or “ITB” (invitation to bid).
As a sufficient number of proposals has been collected, the engineering and the procurement departments tabulate them to shortlist a restrict number of suppliers for the final negotiation and order award.
A series of technical and commercial queries (TQ, CQ) may be exchanged between the buying organization and suppliers during the procurement process, to clarify the content of the different proposals and make sure that the best decision is taken. Of course, for smaller purchases a more agile and faster evaluation process takes place.
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).
THE “RFQ TO ORDER” PROCESS
Suppliers that receive an RFQ respond with a bid (called also, quote) that outlines the terms of their technical and commercial proposal (unit and total prices, delivery conditions and terms, payment terms, general terms and conditions of sale etc.). Buyers tabulate the proposals received by suppliers and shortlist the best bids for the final negotiations. Purchase orders are issued at the end of the evaluation process, which can last from days to months and absorb significant resources. This procurement cycle is common to EPC contractors and End Users in the oil & gas and power generation industries.
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.
WHAT IS RFP (REQUEST FOR PROPOSAL)?
RFP stands for “request for proposal” and are sent by the procurement department of EPC Contractors or End Users to a list of prospective suppliers (in vendor list, or not) when the detailed specifications of an upcoming purchase are not yet final or clear. RFPs are often issued to purchase a complex product or equipment, to collect technical advise from specialized manufacturers and refine tender documents or identify a clear scope of supply, or to purchase services that can be rendered in alternative ways by different vendors. Likewise, RFIs, Requests for proposals do not imply the sender commitment to buy the goods or the services they relate to.
WHAT IS RFI (REQUEST FOR INFORMATION)?
RFI stands for “request for information”, and is a process activated by the procurement and/or engineering department of EPC Contractors or End Users to collect documented information about the scope of supply, the technical know-how and the supply abilities of a list of potential suppliers (and do not imply any type of commitment to purchase). As suppliers reply to RFIs, the procurement department tabulates and compares the received answers for future purchasing decisions. Suppliers may be included in vendor lists or considered as second-source for critical materials. RFIs are, therefore, a way for companies to map, explore and store supplier’s information.
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