A Request for Proposal

14 October 2010

The request for proposal (RFP) is a formal document sent out by one business to many third party vendors. The purpose is to locate the best possible price on a raw material, needed component or a specific service that a business does not possess on its own.

The request for proposal is sent out after a company has received a response to their request for information documents that have already been circulated. The responses they receive will supply the needed information for an informed decision to be made on how can supply what.

The request for proposal is the document that is specifically asking for what the price is for the material that will be needed by a business. This is sent out to as many third party vendors that answered the request for information with a positive response. The positive response is they can provide the needed material or services.

There are two avenues in which a request for proposal can go. There is the blind bid where the third party vendors are unaware of what their competitors bid are. In some professionals’ minds, this is the best approach to receive the best and honest bid. The logic is that a company will only place a bid for an amount they can actually do the work for or deliver the product for.

The second type of request for proposal is an open bidding system. This way, each third party vendor can see what other companies are bidding. This allows for a business to lower their price just to get the contract. At times, this can lead to problems when a business bids below what they can actually deliver the product or services for.

In the public sector, this is a common occurrence when the low price leads to cost overruns and substandard materials being used to produce the product at the low cost.

The choice on how to handle the request for proposal is that of the stakeholders of a business, if the lowest possible cost is the only factor or a realistic bid will be more beneficial.