What Is a Request for Proposal (RFP)?

A request for proposal (RFP) is a business document that announces and provides details about a project, as well as solicits bids from contractors who will help complete the project. Most organizations prefer using RFPs, and, in many cases, governments only use requests for proposal. A request for proposal for a specific program may require the company to review the bids to examine their feasibility, the health of the bidding company, and the bidder's ability to do what is proposed.

Key Takeaways

  • A request for proposal is a project funding announcement posted by an organization for which companies place bids.
  • The RFP outlines the bidding process and contract terms and guides how the bid should be formatted.
  • RFPs are used primarily by government agencies to get the lowest possible bid.
  • RFPs allow the requesting company to get multiple bidders.

Understanding Requests for Proposal (RFP)

RFPs outline the bidding process and contract terms, and provide guidance on how bids should be formatted and presented. They are generally reserved for complex projects. These requests specify the nature of the project and the evaluation criteria disclosing how proposals are graded. Requests may include a statement of work, describing tasks to be performed by the winning bidder and a timeline for providing finished work. They also include information on the issuing organization and its line of business.

RFPs also guide bidders on how to prepare proposals. They may outline instructions on what information the bidder must include and the desired format.

The proposal should not be overly detailed as it may hinder the contractor's creativity, and it should not be so vague that the contractor is left stumped.

The majority of RFPs are submitted by government agencies and others involved in the public sector. They are generally required to open up competition among private companies to make the process fair. To keep costs low, these agencies want to ensure they get the lowest and most competitive bid.

The reason an organization may put out an RFP is to get multiple bids. The seeking organization may benefit from multiple bidders and perspectives. For example, a business that wants to change its reporting process from a paper-based system to a computer-based system may put in a request for proposal for hardware, software, and user training to establish and integrate the new system into the business.

Requirements for a Request for Proposal 

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

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 RFP 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 then 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 a Request for Proposal

Say, for example, the Federal Railroad Administration issues a request for proposals to finance, design, construct, operate, and maintain a high-speed rail system. Interested parties submit proposals meeting the requirements outlined in the document. Based on the proposals received by the deadline, the Department of Transportation 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.