The Use of Quotations

Quotations are requested when the size of the requisition or proposed commitment exceeds a minimum dollar amount stipulated usually by policy in the organization of the bidder: for example, $500.00. This rule may not apply in Governmental purchases as they are required by law to perform and award a RFQ to the lowest responsible bidder. In some Industries, proposals may be requested with the intention of selecting a firm to negotiate or settle final prices with.

Depending on your organization, after a RFQ is solicited and approved by the appropriate representatives, the price quotes are used to generate a purchase order and commitment is then made to the successful vendor. In some instances, the quotes are identified as part of a standing order contract or supply agreement where goods are delivered against this contract at intervals during the contract period or term.

The first step in preparation to issue a quotation is to determine vendors capable of:

  1. supplying the requested item in accordance with the buyer’s specifications (quality)
  2. meeting the stipulated delivery date
  3. being reliable to warrant serious consideration
  4. being competitive
  5. responsible environmentally and stable financially

The number of vendors to include in your RFQ will vary based on the buyer’s experience with the product being procured. Usually three or four are invited to submit bids.  When analyzing bid responses, it is important to ensure that the bidders are comparable in every major respect. Typical areas reviewed include: product specification, delivery date, payment terms and price.

Prior to award it is good practice to keep all commercial aspects of the RFQ in confidence. Even after the award is made, it is a better policy not to reveal to unsuccessful bidders the amount by which they failed to meet the successful bid. This is considered a good standard to adopt. Keep in mind, if your bidders are aware their prices are being disclosed to the competition, they may opt to no longer bid on your quotations opening the door for other vendors and removing the competitive aspect of your tenders. This could eventually increase delivery and product costs.

With any RFQ, you will have the opportunity to invite, award and reject bids. It should be acknowledged a supplier is put to some expense and at times, a very considerable one in these exercises so it is important to notify them of the outcome. After all, you wish to ensure they will bid on future requirements.

An example RFQ should include your invitation to bid letter, items for bid and a sample agreement. Let help, we can supply templates for all the above.

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