Construction Management Engineering

Guide To Request For Quotation (RFQ) in Construction

Request for Quotation

A request for quotation (RFQ) in a construction project is an invitation to bid for contractors on various project activities by the owner or main contractor. A request for quote may be for construction work, the supply of materials, or the provision of services in a construction project.

What is a Request for Quotation?

Request for Quotation (RFQ) is a competitive bid document used when inviting contractors or suppliers to submit a price bid for products or services where the requirements are standardized or produced in repetitive quantities.

An RFQ is often used for high-volume/low-value items and should be completed quickly than an RFP. The buyer must provide a technical specification as well as his commercial requirements. The RFQ document may sometimes be referred to as an Invitation to Bid or Invitation to Tender.

Request for Quotation is a request form sent by the client to the vendor or to the supplier or the contractor to inform the client of the details of the products or services they perform.

A proper analysis of tender packages and an estimation of the entire project is a means to obtain the key features that you need to know before making a Request For Quotation.

If the tender package is good, correct and clear quotes can be obtained. All the plans and the detailed document shall be included in the tender package so that key project requirements are conveyed.

When should you use an RFQ?

An RFQ is not appropriate in every procurement situation. RFQs are typically used to purchase very specific products, such as hardware or a list of office supplies. They are, however, used for service procurement on occasion, such as a maintenance contract. RFQs are most effective in strategic sourcing situations where the issuer knows exactly what they want and how many they need.

Consider an RFQ to be a simple pre-order form that clearly defines the product or service specifications required. Every available variable, from style to size to design, should be considered in your request. The RFQ also specifies how each vendor should submit pricing information. The costs of each product are itemized in the responses. With this level of detail, the buyer is able to make accurate vendor comparisons.

Required details in Request For Quotation

The tender package and the scope of work must also be connected in parallel with the quotation request. The RFQ must state this attachment. The attachment shall, therefore, be accompanied by the offer form, a detailed description of the scope of the works, and the project description, which will be the basis for the quotation.

  • Request for details and rate per unit price for the material supply.
  • Request for details and according to the estimated prices given in the tender.
  • Details of labor and rate requested.
  • The subcontractor’s details and their costs are requested.

In addition to the above details, specific requests must be requested in the ‘request for quotation’ form. These include the following:

  • In both the tender and the quotation, it shall be noted that, in the presence and in the acceptance of a customer or designer, any changes to the schedule, materials, or installations shall be made. That will save cash from unexpected, expensive changes or substitutes.
  • A quotation must be requested which is fully detailed, where the full breakdown of the project is mentioned with the materials and details and the price.
  • The quotation must include beginning and end dates, and when applicable, milestone dates. The time factor affecting the construction rate and the price of the materials together must specify the time the quote is valid.
  • The details of payment for the project progress must be properly stated in the quotation.
  • Details on the fulfillment of environmental obligations may be requested. The disposal of demolition waste includes this. The rules and regulations vary from council to council.
  • The registration, builders’ insurance, or proof of license is the next important detail. The following. With the relevant authorities in the State or country, we must examine the details and credentials of the builder. All bidders should provide their insurance information in the full documentation.
  • The quote should also be a reference to the work history and client details. This helps to check the contractor’s previous work efficiency before accepting the quotation.

The number of details in the quotation request will determine the quality and value of the offers offered to the client by the bidders.

Types of RFQs

1.Open bid

An open bid is one in which all qualified vendors can see the responses. During the submission period, bids are opened, allowing vendors to compare pricing. Suppliers can make changes and updates to submitted bids until the bid deadline. Pricing visibility may encourage more competitive pricing and then driving costs down. However, Open pricing can backfire and lead to price-fixing among vendors.

2.Sealed bid

When an RFQ is open to all qualified bidders, the responses are sealed until the submission deadline has passed. In public and government procurement projects, sealed bids are common. It may help reduce the risk of fraud and provide vendor selection transparency. However, vendors may not be as motivated to provide their very best pricing

3.Invited bid

When only specific vendors receive the RFQ, it is referred to as an invited bid. They are utilized in both open and sealed bids. Issuing the RFQ to previously used and trusted vendors can help to accelerate the selection and contracting processes. However, the buyer may miss out on cost savings offered by new vendors who are unknown to them because competition is more limited.

4.Reverse auction

A reverse auction requires vendors to submit their lowest bid, and the cost decreases as the auction progresses. If an RFQ is issued but no vendor meets the price target, a reverse auction may be used as a secondary step. It is a fast, competitive, internet-based process and the lowest offer automatically wins. However, The contract is awarded automatically based on the lowest price, so other important factors may not be considered.

Special Considerations for RFQ

Requests for Quotations (RFQs) are not public announcements. The soliciting company does not need to plan extensive procurement reports because it only sends RFQs to companies it trusts. In addition, unlike a public solicitation, a company can only receive the number of bids it requested, saving time.

Using an RFQ shortens the time required to procure goods or services. It also provides some security because a company will only receive bids from vendors it prefers. On the other hand, because RFQs reduce competition, a company may miss out on receiving the best price or learning about new high-quality vendors.

When a company receives a quote in response to an RFQ, it is neither an offer nor a binding contract. The solicitor will offer the job to its chosen vendor by sending it a purchase order, which is essentially a contract outlining the terms and conditions of the work. The contract is formed when a vendor accepts and signs the purchase order.

The RFQ process

1. Preparation and requirements:

Before issuing a request for quotation, you must determine exactly what your company needs. The preparation phase takes the most time, but don’t rush through it. While you’re planning, keep in mind that the more information you can provide, the more accurate and useful your vendor responses will be. Make sure to work with your internal stakeholders to understand all of the requirements.

In addition to the details of the product or service you’d like to buy, you’ll need to decide:

  • What type of RFQ will be issued?
  • Who will be invited to respond to the RFQ?
  • When will the deadline be?

Information and documents to include with your RFQ:

Along with your RFQ, it’s important to include some additional documentation:

  • Invitation to bid with introduction & summary
  • Business overview with a description of your company, details on the project, and any other relevant background information
  • Prequalification requirements to ensure the vendor is eligible to respond
  • General terms and conditions including whether or not terms are negotiable
  • Pricing template or table and to be broken down by item and cost element
  • Scoring weights and selection criteria

2. Issuing and management

It’s now time to send the RFQ to your vendors. It is best to limit the number of vendors to eight for most RFQs. Allow at least a couple of weeks for the supplier’s team to work through the RFQ. Hopefully, you’ve provided enough information to limit the number of questions. However, if questions do arise, make sure that the answers are shared with all participants. This is made quick and easy by a centralized RFP management system.

It is critical that you maintain a level playing field throughout the process. Share all of the same information and ask all of the participants the same questions. When you receive responses, it’s a good idea to confirm their receipt with the vendor. Unless you have an open bid, keep information about other vendors’ offers strictly confidential.

3. Scoring and selection

The most significant advantage of the RFQ is that scoring and selection should be quick and simple. The preparation you put in at the beginning is now paying off. You can easily compare vendors side by side using your pricing template or table. If you are working with a selection committee or other stakeholders, create a memo with the important information. The memo should include a summary of the number of bids received, the number of bids qualified, and the reasons why others were disqualified.

Your final selection will most likely be the vendor who provided the best price and terms. However, make sure to read all accompanying documentation. The cover letter or executive summary should include key insights.

Once you’ve decided, keep full documentation of the process, the qualified bids, the published criteria, and the winner. This data provides transparency and can be used to issue new RFQs in the future.

4. Closing and contracting

Notify your chosen vendor. Remember that the provided response is a quote, not a formal agreement. After you’ve extended an offer, finalized the details, and received the vendor’s acceptance, draft the contract.

Because of your thorough preparation, the contracting process should be straightforward. Create your contract using the details, terms and conditions, payment information, and deliverables outlined in the RFQ documentation. Notify the other vendors of your choice after the contract is signed.

Keep in mind that it is advantageous to maintain cordial relationships, even with unselected suppliers. Give the vendors who did not win the bid any answers, information, or context you can. Update vendor profiles with any new information so that when you’re ready to engage them, you have all the necessary information.

5. Review and evaluation

It’s a good idea to set a reminder to check in after the contract is signed. Make notes and set a reminder for yourself to check in six months or a year from now, while the deal is still fresh in your mind. Periodic vendor evaluation is an important component of the procurement life cycle.

General vendor evaluation questions: 

  • Is the vendor fulfilling their side of the contract?
  • Are you getting the value that you were hoping for and had planned on?
  • Can the relationship be improved?
  • Has the vendor/supplier received and acted on feedback?
  • Are other vendors offering more competitive pricing now?
  • Has the market changed?

See Also
Abbreviation Terms Used in Construction
Procurement Management in Construction
Cost Estimation Methods in Project Management