What's in a Name - Procurement Law Terminology
November 20, 2012 by Elizabeth Mayer
Procurement lawyers love jargon. Even more than this, they love acronyms. This blog post looks at many of the terms used in procurement, explains the differences between them and the ways in which they are used.
Starting with most simple process and working through to the most complex forms of procurement, the easiest way to buy goods or services is to make a direct award to a preferred seller. For public sector procurement, direct awards should only be used in very limited circumstances. The very nature of a direct award is that there is no competition on pricing, so procurement policies tend to limit its application to situations such as work in a leased building that must be performed by the landlord.
Quotes and Tenders
Moving to competitive processes, if a buyer knows exactly what it wants to buy, then the easiest form of procurement would be an invitation to quote (ITQ) or an invitation to tender (ITT). Under this model, the buyer sets out very clear specifications and bidders submit their bids based on the lowest price for meeting the specifications. This form of procurement is used for example in British Columbia by the Ministry of Transportation and Infrastructure. This Ministry carries out a large number of construction projects on highways, has a very clear understanding of the work required and there are many sophisticated construction companies who are able to carry out that work.
Request for Standing Offers
A variation on a simple tender is a request for standing offers (RSO) or a corporate supply arrangement. Here a buyer has a need for repeated supplies of goods or services and seeks qualified bidders to put in standing offers that can be accepted at any time. For example, an RSO might be used for supplying stationery, with fixed prices for providing paper, pens and so on. Whenever new supplies are needed, the buyer goes back to the bidder who provided the standing offer, without the need for a new competitive process. RSOs generally have a fixed duration of say three years to ensure that the prices stay competitive.
Request for Proposals
If a buyer wants more flexibility in its procurement, then it would use a simple request for proposals (RFP). Under this model, the buyer sets out a general description of what is required and asks bidders to explain how they would deliver the result, what the cost would be and allows bidders to distinguish themselves, for example, on the basis of the quality of what’s delivered, use of local businesses and other matters. Although price is still important in the evaluation process, it is not the sole determining factor.
Request for Qualifications
In some circumstances, a more complex form of RFP may be appropriate. For example, the buyer may issue a preliminary document called a request for qualifications (RFQ). This allows interested bidders to submit their qualifications and allows the owner to choose, say, the three most qualified bidders. Only those qualified bidders will then receive an RFP and be invited to submit proposals. The advantage of the RFQ stage for a complex procurement is that bidders know that they have a better chance of succeeding and are therefore more willing to spend the time and money needed to submit high quality proposals. From the owner’s point of view, the quality of bids can be assured at an early stage, resulting in a more straightforward evaluation process of the detailed bids.
It is possible to have a hybrid between an RSO and an RFQ/RFP – bidders submit their qualifications to be placed on a panel of preferred suppliers and may also provide indicative pricing or unit rates for particular services. When the buyer needs to acquire the particular goods or services, it goes to the panel of preferred suppliers and chooses either one supplier or a limited number of suppliers to respond to an RFP. This process is often used for legal services, where a panel of law firms are appointed through an RFQ process and are then asked to bid for a particular project.
Complex RFP processes
For a very complicated procurement, the RFP process can become more complex. For example, there may be meetings with bidders during the procurement process in order to discuss, on a confidential basis, ideas and suggestions from bidders. In other situations, a buyer may wish to engage bidders at a very early stage in the procurement process, and then work with one preferred bidder to narrow down the options for what would be provided and the pricing for the final option.
Best and Final Offer
Finally, there may be a further stage in an RFP process, following the RFQ and RFP, where two final bidders are requested to deliver their best and final offer (BAFO). This can allow the buyer to narrow down the best quality and the best option for its needs, and then have the best two bidders compete solely on price in order to find a winner. Again, this option will only be suitable for complex procurements, where both the buyer and the bidders and prepared to spend time and money on a more lengthy procurement process.
Balance between flexibility and affordability
One of the difficult questions in choosing the best procurement option is the balance between the flexibility in the process and the affordability of the process. The more complex the procurement process, the more it costs both bidders and buyers to prepare and evaluate the bid. Sometimes it can be more valuable to receive five simple bids than one complex bid. This theme will be explored further in subsequent blogs.
These are the most commonly used terms and acronyms in the procurement process. However, the names used are, at the end of the day, not as important as the processes described in the procurement documents. As Shakespeare said, a rose by any other name would smell as sweet – and an RFP by any other name would procure as effectively …