Procurement is needed to acquire goods and services for a business. Most businesses attain their clients through competitive bidding. Two of the most common procurement methods are extending an invitation to bid and sending a request for proposals. Though these methods seem similar there are some significant differences between the two.
Invitation To Bid
An invitation to bid is a “sealed bidding method”. It is used when there is no major difference between the products and services that meet the requirements. The real difference is the price.
Providing standardized information to all bidders helps in fostering a true competitive process. Companies submit their prices in sealed envelopes which are opened in public to maintain transparency. The lowest bidder will ultimately win the project without any negotiations.
By setting a minimum qualification benchmark for bidders, companies can overcome the risk of poor performances and low quality work. This element of pre-qualifying bidders will help in judging the bids based on their price points alone.
When To Use
Invitation to bid is usually used in predictable projects and public works. Projects which are already pre-planned and designed are best suited because this method requires detailed specifications and working conditions. This will result in a form of fixed-price contract.
Government and public agencies usually use this method because of its transparency. This method ensures a fair bidding process.
Points To Consider
- It is easy and quick process.
- It simplifies the process by giving out the needed specifications.
- It is helpful when there are a large number of bidders and the only difference is the price.
- There is a considerable risk of poor quality and work performance.
- There are chances of underbidding since the entire process is just based on price.
Request for Proposals
A request for proposals (RFP) is a “competitive negotiations method”. This is used when the end product is clear but the specifications are not fully clear yet. Price is not the only deciding factor; both quality and experience are taken into consideration.
The request will contain details about the end product, general specifications and the proposal evaluation criteria. Proposals will be made based on different methods and solutions and the customer will select one or a pool of proposals. A Final Best Offer is made and the proposal with the best quality and price is selected.
When To Use
A request for proposals is used for big projects with complex end results that require the utilization of technology. This is more of a “process sourcing” method. It also allows companies to see different methods and solutions for the same project or problem.
Points To Consider
- Only the best will be selected as both performance and expertise are taken into consideration.
- Negotiations lead to attaining the best value.
- It encourages innovation and customization of the project.
- It is a more formal and extended process.
Proper understanding of the procurement processes is important to survive in the industry. It provides you with a competitive edge when you fully understand each method.