What is a Request for Quote (RFQ)
A request for quote (RFQ) is a type of procurement solicitation in which a company asks outside vendors to submit a quote for the completion of a specific task or project. An RFQ, akin to a request for proposal (RFP), provides comprehensive information to the bidder concerning the project's requirements. An RFQ frequently requires the bidder to itemize costs for each phase of the project allowing the soliciting company to compare several bids for like services.
BREAKING DOWN Request for Quote (RFQ)
When the soliciting company knows the exact number or type of product or services it desires, it customarily uses an RFQ. Typically, companies use an RFQ when products and services are standardized, or off-the-shelf. The use of a request for quote enables the soliciting company to compare bids from various suppliers easily.
The soliciting company will send an RFQ to several potential vendors, requesting bidder pricing. For example, a government agency that wants to buy 500 computers with a specific hard drive size and processing speed announces an RFQ. Since the product is uniform, the agency can quickly compare quotes from different suppliers.
The request for quote is typically broken into four sections: the preparation phase, processing phase, awarding phase, and the closing phase. The RFQ includes payment terms, factors influencing bid selection, a bid submission deadline, and other necessary information required for bid consideration. The company will award the contract to the vendor that meets the minimum qualifying criteria and presents the lowest bid.
An RFQ, also known as an invitation for bid (IFB), is usually the initial step for submitting a request for proposal (RFP). With a request for proposal, bidders are asked to offer a more comprehensive price quote. RFQs may also be sent as an attachment to an RFP.
RFQ Advantages and Disadvantages
Companies do not publicly announce RFQs. Using an RFQ reduces the procurement processing time, because there is no need to prepare procurement solicitation documents. The number of vendor quotes requested limits the amount of RFQs received, which diminishes the selection process time.
The RFQ results in deviations from the standard process, because the soliciting company determines which vendors to send RFQs to. Included in the RFP solicitation process are vendors that respond to the RFQ and meet the minimum criteria. The limited number of bidders also limits competition. Companies work only through the businesses they trust to deliver the correct product or service. However, competitors not invited to bid may be able to provide the item at a lesser price.
When to Use an RFQ
Using an RFQ makes the solicitation process more efficient because fewer responses are provided, and the estimates, or quotes, are qualified. Fewer quotes mean a reduction in evaluation time as bids are received only from qualified bidders rather than from a pool of qualified and unqualified bidders.
A quote received in response to an RFQ is not an offer, and the procuring company cannot use it to create a binding contract. The purchase order is an offer from the company to a vendor to purchase goods or services according to specific terms and conditions. The company awards the contract when a vendor accepts the offer.