Request for quotation

What it means

An RFQ, request for quotation, is a request sent to several suppliers for clearly specified goods or services where price and terms are what count. The buyer knows exactly what it wants, such as a particular material in a given quantity, and asks suppliers for comparable price quotes.

Unlike an RFP, a request for proposal, an RFQ does not ask suppliers for creativity or ideas on how to solve a problem. It is used for standardised purchases where offers are interchangeable and differ mainly in price, delivery time and payment terms.

An RFQ is part of a company's purchasing process and, for larger volumes, may be a step in a more formal tender. In the public sector a similar principle applies in public procurement, which, however, is governed by strict statutory rules.

How it works in practice

A good RFQ states the exact specification, quantity, required delivery date and place, payment terms, warranties, the deadline for bids and the format in which they must be submitted. The more precise the request, the easier the offers are to compare.

Unit price is not the only deciding factor. Compare total cost including transport, duty, packaging and payment terms, and consider the supplier's reliability. With new suppliers, a supplier audit can help.

Regular RFQs for recurring purchases keep prices competitive and protect the company from depending on a single supplier. They also document a transparent selection, which is useful in internal audits or when using grants with procurement rules.

What to watch out for

If the specification is vague, suppliers will quote for different things and comparison becomes meaningless. The cheapest offer may then mean lower quality or missing components that have to be paid for later.

Purchases funded by grants and those made by public contracting authorities are subject to special procurement rules that an ordinary RFQ may not satisfy. Failing to follow the procedure can lead to grant reductions or penalties.