What is a 'Request For Proposal - RFP'

A request for proposal (RFP) is a type of bidding solicitation in which a company or organization announces that funding is available for a particular project or program, and companies can place bids for the project's completion. It outlines the bidding process and contract terms, and provides guidance on how the bid should be formatted and presented. A request for proposal for a specific program may require the company to review the bids to not only examine their feasibility but also the health of the bidding company and the ability of the bidder to actually do what is proposed.

BREAKING DOWN 'Request For Proposal - RFP'

A request for proposal typically includes background on the issuing organization and its line of business. The request sets out specifications describing the solution it seeks and evaluation criteria disclosing how proposals are graded. Requests for proposals may include a statement of work describing tasks to be performed by the winning bidder and a timeline for providing finished work.

Reasons for Issuing a Request for Proposal

The complexity of a project may result in the need for a formal request for proposal. The organization may benefit from many bidders and perspectives when seeking an integrated solution from multiple suppliers. For example, a business moving from a paper-based system to a computer-based system may request proposals for the hardware, software and user training needed for establishing and integrating the new system into the business.

Government agencies or other entities may be required to issue requests for proposals for providing full and open competition to drive down the cost of a solution. However, accepting a proposal that is most responsive to specifications may not always mean the lowest-priced bid.

Creating a Request for Proposal

Skillfully creating a request for proposal may dictate the success or failure of the resulting solution. If specified requirements are too vague, the bidder may not design and implement a complete solution for the problem. If the requirements are too detailed and restrictive, the bidders’ creativity and innovation may be limited.

The process begins with drafting a request for proposal. Bidders review the solicitation and submit suggestions for improvement. After implementing feedback, the final request for proposal is issued. Bidders submit their proposals. The customer selects a small group of bidders and enters negotiations on pricing and technical details. The customer may ask the remaining bidders to submit a best and final offer before awarding a contract. The contract is presented to the company providing the best solution to the issue.

Example of Request for Proposal

Say, for example, the Federal Railroad Administration (FRA) issues a request for proposals for financing, designing, constructing, operating and maintaining a high-speed rail (HSR) system. Interested parties submit proposals meeting the requirements outlined in the document. Based on the proposals received by the deadline, the Department of Transportation (DOT) establishes commissions for further review and development of the proposals. The DOT chooses the proposal most encompassing its goals and hires the company to carry out the work.

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