Related Terms: Request for Proposals
In many sectors of industry and almost invariably in government, procurement of goods and services takes place by competitive bidding. Vendors are solicited to present a proposal to meet the specifications published by the buyer. Such solicitations are referred to as requests for proposal (RFPs) or requests for quote (RFQs). Sellers present their bids in written form either routinely or, if the job bid is of some complexity, after discussions with the buyer. In many instances purchasing is from a pre-approved list of vendors; vendors get on these lists by answering requests for qualifications. In yet other instances, particularly in connection with preferential purchasing from women-owned or minority-owned enterprises, a frequently complicated bureaucratic process must first be followed to get on the list of qualified bidders; similar processes are involved in procurements under the Federal Government's small-business set-aside programs.
Bidding is common practice in selling at retail in some sectors, especially construction services. Roof-replacements, new windows, new gutters, and siding are sold to the homeowner directly usually in a competitive environment by presenting quotes. The careful buyer will obtain at least three bids before selecting the supplier.
People who start up small businesses in one of the sectors that uses competitive bidding tend to have prior experience of the process acquired as employees or managers while working for someone else in the industry. Occasionally, however, small business owners who sell in other ways may have opportunities to garner sales by competitive bidding as well. This tends to happen when the buyer is a large institution calling on a retail vendor. An example might be a rental business receiving a solicitation from an event organizer for massive stocks of chairs, tables, and tents. The owner may also come across an advertised solicitation which happens to fit the company's capabilities. The bidding process may be quite easy to discern from the solicitation. In other cases the small business may have to educate itself to what are frequently complicated procurement cultures. Resources for learning, however, are available. The U.S. Small Business Administration (SBA), for instance, is an excellent resource for learning how to bid for government contracts.
MAJOR ELEMENTS OF THE PROCESS
For the Buyer
From the viewpoint of the buyer, competitive bidding is a way to identify the best supplier based on a combination of qualifications, history of achievement, timeliness, responsiveness, and cost. All things equal, the low bidder will get the job, but all things are rarely equal. The buyer's process will consist of 1) finding qualified bidders, 2) preparing a concise but complete RFP, 3) publishing the solicitation, 4) evaluating the proposals received, which may involve interviews with bidders, and 5) selecting the winner and notifying the losers.
Precisely because evaluating proposals can be time-consuming, especially when proposals are for some unusual program and are complex, buyers frequently begin with a formal qualification under which vendors are invited to submit packages defining their experience, personnel, and history of performance. The buyer then selects from among those submitting packages vendors it will invite to bid on a job. In more routine situations, the buyer will tend to develop a list of trusted suppliers and will only ask those people to bid. In such a situation the solicitation is sent directly and is not published. Evaluation of proposals is often difficult unless the job is well-defined and standard. A research study may require original approaches, and the buyer must choose from among often equally innovative methodologies. To resolve such issues, the buyer may invite leading bidders to make presentations as well. Often proposals are "unresponsive," meaning that the bidder has failed evidently to grasp the buyer's full intentions. When many bidders are unresponsive, the fault may lie in the RFP itself: it may have been poorly constructed. In a well-managed buying process, both winners and losers are notified of the buyer's final decision. This decision may follow additional discussions with the tentative winner to work out final problems.
Buyers are looking for bidders who have internalized the buyer's problems, are responsive to special issues in the RFP, match their capabilities closely to elements of the job, show that they have the capacity to do the job on time, and are neither "greedy" nor "trying to buy the job." The last phrase is a red flag. It means that the vendor may be "too hungry" and is bidding too low—and may later fail to perform.
For the Seller
The seller does no business until it has been invited to bid and has been selected as a winner. The seller's tasks are 1) pre-solicitation sales activities, 2) getting qualified, 3) reviewing the RFP in light of all available intelligence, 4) deciding to bid or not to bid, 5) being fully responsive to the proposal, 6) differentiating its offer from competitors, 6) accurately to estimate cost, and 7) effectively sell the job in the post-quote period.
The effective seller routinely calls on the buyer and makes itself fully aware of buyer's plans, culture, and ways of doing business. As the saying has it, nothing propinqus like propinquity. In most company-to-company or company-to-agency transactions, known sellers tend to win jobs not necessarily because they are best qualified but because they are most knowledgeable about the buyer's needs. Sales activity works in the other direction too. The buyer will get to know the seller and getting qualified will therefore be easier.
