What’s the Difference Between Contract RFT RFQ RFP RFI?
Detailed explanations to RFT, RFP, RFQ, RFI. Expert advice for both buyers and sellers on how to get the most from these procurement and purchasing processes.
Contract negotiation training graduates often ask us to explain four key terms that comprise the ‘RFx‘ processes: RFI, RFQ, RFT, and RFP. These processes have grown in popularity in procurement and purchasing. This is especially so in larger buying organizations.
Only the best negotiation training teaches how to select the most suitable process. Further, to use each process well, having expert training is key.
In practice, you may find people wrongly use these phrases to mean the same thing. This is because many organizations don’t know the differences well enough. Lack of proper training can result in buyers missing negotiation advantages.
On our contract purchasing training for buyers, clients tell us how their departments use these purchasing processes to “write the rules” of the buying game to side-step negotiation. There is a great deal that suppliers can do to improve their position. As a starting point, we help students on our procurement sales negotiation training courses to get to grips with the differences between these processes:
An open inquiry that spans the market seeking broad data and knowledge.
A chance for potential suppliers to competitively cost the final chosen solution(s).
A chance for potential suppliers to submit an offer to supply goods or services against a detailed tender.
Sometimes based on a prior RFI, a business needs-based request for specific solutions to the sourcing problem.
Request for Information (RFI)
As the name suggests, procurement uses RFIs to gather information. In turn, this helps decide on the next step before contract negotiations begin. Thus, RFIs are usually not the final stage. Instead, procurement often uses RFIs along with the three requests above.
An RFI is a solicitation that procurement sends to a broad base of potential suppliers. Its purpose is for conditioning, gaining information, preparing for an RFP or RFQ, forming a strategy, or building a database. These facets are useful in later supplier negotiations about:
- Supplier facilities, finances, attitudes, and motivations
- The state of the supply market
- Supply market dynamics
- Trends and factors driving change
- Alternative pricing strategies
- Supplier competition
- Breadth and width of product/service offerings, by the supplier
- Supplier strategic focus, business, and product plans
Procurement may use RFIs to include a detailed list of products/services for pricing requests. The pricing should be used for comparative purposes for later negotiation. Negotiators should not use pricing as the basis of their buying decisions. Through analysis of RFI responses, you may find strategic options and lower cost alternatives. You may also find opportunities to reduce costs.
Request for Quotation (RFQ)
RFQs are best suited to products and services that are as standardized and as commoditized as possible. Why? Procurement wants to make suppliers’ quotes comparable before contract negotiations begin.
An RFQ is a solicitation sent to potential suppliers. It contains, in exacting detail, a list of all relevant parameters of the intended purchase. These include:
- Personnel skills, training level, or competencies
- Part descriptions/specifications or numbers
- Description or drawings
- Quality levels
- Delivery needs
- Term of contract
- Terms and conditions
- Other value-added needs or terms
- Draft contract
Price per item or per unit of service is the bottom line with RFQs. Other aspects of the contract negotiation deal impact the analysis process as determined by the buyer. Supplier decisions are usually made by the well-trained procurement department. This comes after comparing and analyzing the RFQ responses for negotiation benchmarking advantage.
RFQs are typically for supporting documentation for sealed bids (either single-round or multi-round). RFQs may be a logical precursor to an electronic reverse auction.
Request for Tender (RFT)
An RFT is procurement’s open invitation for suppliers to respond to a defined need—as opposed to a vague request. The RFT usually requests similar information to an RFI, plus specific metrics. RFTs will usually cover product and service offerings as well as information about the suitability of the business.
It is not unusual for a buyer to put out unclear or vague business needs in their RFT. This lack of clarity can make it harder for the supplier to propose a solution. This is not the best use of an RFT. Instead, RFTs should only be used when the buyer is clear on their needs. Ideally, the buyer should also be clear on the range of procurement solutions that might fit the buyer’s needs. This gives the trained buyer a contract negotiation advantage.
Without proper procurement training, however, too many buyers issue RFQs that are really RFTs.
Request for Proposal (RFP)
An RFP is procurement’s solicitation sent to potential suppliers with whom a creative relationship or partnership is a consideration. Typically, the RFP leaves all or part of the precise structure and format of the response to the discretion of the suppliers. In fact, the creativity and innovation suppliers choose to build into their proposals may set apart one trained vendor from another. Later contract negotiations tend to take more time and be more wide-reaching in their impact on the buyer’s business.
Effective RFPs typically reflect the negotiation strategy. They also reflect short and long-term business goals and provide detailed insights with which suppliers are able to win the contract. If there are specific problems in the RFP response, these are described along with whatever root cause assessment is available.
With good procurement training, your RFP and RFT should seek:
- Specific data
Your RFP and RTF should also seek questions about the following to assist your later negotiations:
- The specific items on which the suppliers are proposing
- Business needs
- Performance measures
- Instructions on how to reply
- Due date
- Technical and other training
- How will we evaluate how feedback will work
- Describe the process for selection
- Request for cost breakdown (sometimes)
- Communication: cover letter (sets the stage), calls in advance
- Who to contact with questions
- Addressee—chosen carefully
Buyers: Putting these processes in place the right way requires:
- Effective negotiation skills training
- A supporting organizational infrastructure
- Procurement or contract negotiation training
Otherwise, these processes are at risk of being used as a token exercise to keep your department happy but being avoided in practice. While The Negotiation Experts do offer clients advice in the area of implementing procurement processes, our focus is on sales, procurement, and contract negotiation training, with other customized negotiation courses.
Sellers: How and “if” you participate in these processes is the first question you need to address. If you have a company policy, be sure to first check your and the buyer’s competitive negotiation style, position, and power. Not doing this can end up wasting your time, costing you the business, or worse: you could win unprofitable business.