Request for Proposal (RFP): Meaning, Types, Examples, Finance and How it is Written

Meaning of Request for Proposal (RFP)?

A request for proposal (RFP) is a business document that announces a project, describes it, and solicits bids from qualified contractors to complete it. Most organizations prefer to launch their projects using RFPs, and many governments always use them.

When using an RFP, the entity requesting the bids is responsible for evaluating the feasibility of the bids submitted, the financial health of the bidding companies, and each bidder‘s ability to undertake the project.

Key Takeaways

  • A request for proposal (RFP) is a project announcement posted publicly by an organization indicating that bids for contractors to complete the project are sought.
  • The RFP defines the project, for the company that issues it as well as the companies that respond to it.
  • The RFP describes the project, its goals, and the organization that is sponsoring it and outlines the bidding process and contract terms.
  • RFPs are used by most government agencies and many private companies and organizations.
  • The alternative is a less formal process that may fail to identify the best vendor and the best plan for accomplishing a project.

Understanding a Request for Proposal (RFP)

RFPs are used for complex projects, often requiring a number of sub-contractors. They describe the organization issuing the RFP, the scope of the project being undertaken, and the criteria for evaluating entries. They also outline the bidding process and the contract terms.

The requests include a statement of work describing the tasks to be performed by the winning bidder and the timeline for finishing the work.

RFPs also advise bidders on how to prepare proposals, with specific guidance on how the bids should be formatted and presented. They generally include instructions on what information the bidder must include and the desired format.

The proposal should not be so detailed that it hinders the contractor’s creativity, or so vague that the contractor is left stumped.

Most RFPs are issued by government agencies and other organizations in the public sector. They are generally required to open up competition among private companies and remove bias from the process. The agencies want to ensure that they get the lowest and most competitive bid.

However, any private or public organization may put out an RFP to get multiple bids and a variety of perspectives on the project.

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 a user training program to establish and integrate the new system into the business. A competitive bidding process may give them greater insight into the alternatives that are available.

Requirements for a Request for Proposal (RFP)

Government agencies or other entities may be required to issue requests for proposals to provide full and open competition and 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 can ensure the success or failure of the resulting solution. If the specified requirements are too vague, the bidder may not design and implement an adequate solution for the problem. If the requirements are too detailed and restrictive, the bidders’ 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 narrows the selection down to 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 then presented to the company providing the best solution to the issue.

Benefits of a Request for Proposal (RFP)

An RFP is, in part, an advertisement. It announces that a project is proceeding, and opens the door to qualified candidates who can get the job done.

In government, the RFP has been adopted as a way to ensure that cronyism is removed as a factor in the rewarding of contracts. It also opens up the process to competition, which can be expected to keep project costs lower.

The alternative to an RFP is a less formal process requiring a project manager to research and identify potential vendors for a project. Depending on how exhaustive the search is, the potential responses can be limited. New vendors and innovative answers may be less likely to be uncovered.1

RFP vs. RFQ vs. RFI

A request for proposal (RFP), request for quote (RFQ), and request for information (RFI) are three distinct types of documents that businesses and other entities use to reach out to the business community for suppliers or contractors that they may be able to work with.

  • A request for proposal, as noted above, announces a specific project that is planned and solicits contractors capable of getting the job done.
  • A request for quote (RFQ) is a solicitation sent to a number of suppliers seeking bids for a contract to supply specific products or services. The request must specify the quality and quantity needed, and the timing desired by the company or organization.
  • A request for information (RFI) is a solicitation to suppliers for written information on the products and services that they can provide. It might be used to gather information for a database of suppliers for future reference.

Example of a Request for Proposal (RFP)

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.

A Look at a Detailed RFP

This sample RFP from a nonprofit organization shows the level of detail necessary, in this case for a proposed overhaul of the organization’s website. The proposal describes the project, provides an overview of the organization, and defines its goals for its website. It also details the products and services that are to be provided and defines in some detail the content, design, and functionality of the proposed website.

The sample is provided by TechSoup, a site that provides a library of how-to information and sample RFPs for nonprofits.2

Request for Proposal (RFP) FAQs

Here are the answers to some commonly asked questions about RFPs.

What Does RFP Mean?

A request for proposal (RFP) is an open request for bids to complete a new project proposed by the company or other organization that issues it. It is meant to open up competition and to encourage a variety of alternative proposals that might be considered by the project’s planners.

What Are RFP Requirements?

An RFP must describe and define the project in enough detail to attract viable responses.

The prospective bidder should be able to understand the nature of the business and the goals it wishes to achieve with the project. The project must be defined in enough detail for the bidder to clearly understand its scope and all of the products and services that must be provided in order to carry it out. The format of the expected proposals must also be detailed. Uniform responses are needed to compare and contrast offers.

RFPs follow a fairly rigid format, although that format may vary among the agencies and companies that prepare them. This sample from the Center for Planning Excellence in Baton Rouge, Louisiana, shows the elements in a typical RFP, which include an introduction and background, a description of the deliverables, and information about the selection criteria.3

What Is the Difference Between RFP and RFQ?

Say a hardware store is expanding its gardening supplies department and needs to find the suppliers necessary to fill its shelves. It might send out a request for quotation (RFQ) to a number of potential suppliers of gardening products. The responses will enable it to establish a relationship with one or more suppliers of the quantity and quality of goods it needs, at a price that is established.

When a company or other organization sends out an RFQ it knows exactly what it needs and is seeking the best supplier or suppliers.

An RFP is a more open-ended process. The business or organization is seeking qualified contractors to carry out a new project. The project and its goals are defined in some detail but there is room for creativity in the responses. For example, an RFP for a children’s park might allow the contractor to propose the precise layout, equipment, and amenities the park might contain.

When Would You Use an RFP?

Businesses large and small tend to have just enough resources to maintain current operations. If they want to take on a new project they have neither the resources nor the expertise on hand to add it to the workload.

In such cases, the RFP gives the business an efficient way to recruit the expertise they need to get the project done.

What Happens After the RFP?

The RFP is followed by the Ps. The proposals are submitted for review. Depending on the size and scope of the project, this review may be a multi-level process involving a number of committees. Government agencies, particularly, are not known for moving nimbly.

However long it takes, the review process is used to narrow down the proposals to a few finalists who may be asked to submit additional information with a view to a final selection and a start date for the project.

The Bottom Line

The RFP defines the project, for the company that issues it as well as the companies that respond to it. A well-written RFP conveys the intention behind the proposal and ensures that the end result will meet expectations.

It also ensures an open process. Ideally, multiple bidders will respond. This gives the organization an opportunity to study a variety of approaches and prices and choose the one that best meets its needs.

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