Procurement is one of the common functions in project management or even in regular operation management. When an organization feels that they need to purchase certain goods or services from outside agencies; that is where procurement management comes in.
Procurement involves two entities, a buyer and a seller. The buyer has to specify clearly what they want to buy and other expected terms and conditions. The seller has to give a proposal to the buyer with the details of their offering. Based on the information shared between the buyer and the seller, they negotiate and arrive at an agreement. Such agreements become legally binding to both the buyer and the seller.
Since the agreement between buyer and seller has legal implications, there needs to be complete clarity in the information shared between them. Such information need to be shared in a very formal and documented manner. Such documents are referred as procurement documents. Hence procurement documents become the most important artefact in the procurement process.
Below are some of the procurement documents.
- Request for Proposal (RFP) – RFP is a formal document which is used by the buyer to clearly specify their purchasing needs and the supporting requirements which will enable prospective sellers to understand the needs of the buyer. For example, if the buyer wishes to get an ERP system implemented in their organization, they will look for capable technical partners who can fully implement the ERP for them. In such case, the buyer will prepare a document which will detail out their requirements of the ERP system. This document is referred as an RFP. Based on the RFP, the prospective technical implementation agencies will provide a detailed proposal explaining their solution, implementation timeline, pricing etc.
- Request for Quotation (RFQ) - RFP is a formal document which is used to specify clearly the requirements of certain purchases and requesting for a price quotation. RFQ is used for standard purchases such as hardware, off-the-shelve software product, laptops or any other equipment. RFQ is relatively very small document vis-à-vis a RFP, only providing the specification of the items to be purchased and requesting for a quotation. The seller will submit a price quotation and other terms in response to a RFQ.
- Request for Information (RFI) – RFI is used to seek information on various aspects from the prospective bidders. RFI can seek information about bidders such as their financial statements for last ten years, details of their processes in the organization, certifications they hold, list of their clients, client references, and detail of their past accomplishments, case studies and many more. RFI is primarily used to filter out from a huge list of bidders and select a list of potential suppliers with whom finally a RFP or RFQ with actual requirements can be shared.
- Invitation for Bid (IFB) – Invitation for bid a formal document which is used for inviting potential bidders to come and participate in the bidding process.
- Request for Bid (RFB) – RFB is used to solicit financial bids for specified purchases from a selected pool of suppliers.
- Purchase Order (PO) - A purchase order can be raised favouring a supplier for regular purchases. Generally an organization will have a list of selected and preferred suppliers with a master agreement. For example, an organization has 2 selected suppliers for laptops and other electronic hardware with negotiated rates for the year. In such cases, there is no need for fresh bidding. The buyer can simply raise a purchase order favouring the supplier for the quantity of items to be purchased. PO is referred as a unilateral contract which is raised by buyer. It becomes binding to the seller once the seller accepts it.
- Contract or Agreement – Contract or agreement is a mutual agreement between the buyer and the seller. A legal binding contract will have an offer, an acceptance and sufficient consideration for the both the buyer and seller. The contract once finalized will include the detailed statement of work (SOW) and other terms and conditions.
- Seller Proposal – Seller proposal is a detailed offer from the seller in response to the buyer’s request for proposal or buyer’s request for quotation. The proposal will include various sections such as understanding of the buyer’s needs, proposed technical solutions, proposed implementation plan, pricing, warranty etc.
Procurement is a formal process with legal implications. Hence the information shared between the buyer and seller need to be articulated with clarity and shared in a formal manner in documented format. RFP, RFI, RFQ, IFB and RFB are some of the documents which are prepared by the buyer. While a Seller Proposal and Quotation are prepared by the sellers. Agreements are developed jointly by the buyer and seller. Good quality efforts need to be spent in preparing these documents to ensure clarity at both ends.