Difference Between Sealed Bids and Requests for Proposals
Sealed bids and requests for proposals are both procurement methods that allow potential suppliers to make competitive bids. While sealed bids involve a single bid per vendor and allow you to quickly choose the most economical option, requests for proposals use a more detailed process that allows for more negotiation and evaluation of options.
To choose the right procurement method for your company, you'll want to compare how each process works and explore the different pros and cons of sealed bidding and requests for proposals.
The sealed bids method involves coming up with specific requirements and specifications for the business's procurement need and then posting a notice inviting potential suppliers to submit bids with their offered price. Each bidder gets the chance to submit a bid form once without any modifications allowed. The company will typically select the bidder who offers the lowest price while also considering how responsive and responsible the supplier appears.
To promote fairness during the process, all bids are kept confidential so that bidders can't see each other's offers. The reasoning is that bidders will be more likely to make reasonable yet still competitive offers. If bids were public, suppliers may try to underprice each other and may not receive fair compensation for their products and services.
Using a sealed bids policy serves as an alternative to directly negotiating with suppliers. Rather than having the company and potential supplier enter detailed discussions during the bidding process, communication with this method focuses only on responding to questions regarding the stated specifications. This allows for a more efficient bidding process
Rather than just soliciting price bids from suppliers like with the sealed bids method, the request for proposal method is a more formal process that begins with soliciting basic information from potential suppliers who could potentially offer what the company needs. This generally involves sending potential suppliers a request for information form, which will allow the company to gather basic information about the suppliers and their capabilities. After reviewing the forms of multiple suppliers, the company can decide with whom to continue the bidding process.
At that time, the company will send those suppliers a request for proposal form. This document not only details the project needs, budget, timeline, performance metrics and potential risks but also explains how the bidding process will work. Suppliers can respond with detailed proposals that demonstrate their unique capabilities, pricing and reasons for standing out against competitors.
The company will review each supplier's request for proposal and consider not only the price but also the unique features and capabilities of the bidder in the procurement decision. The company will particularly pay attention to the original proposal criteria to determine which supplier is the best fit. Unlike the sealed bids method, negotiation is allowed with the top supplier options that meet specifications. In the end, the company usually chooses the supplier that offers a reasonable price but also the best value.
An advantage of using the sealed bids method is that the bidding process goes by more quickly than with the request for proposal method. Since the company only has to consider the suppliers' bids and goes with whoever can meet the needs and has the most competitive price, it requires less time for evaluation and discussion.
For example, your company may need to procure some replacement equipment as soon as possible to restore operations. While you probably wouldn't have time to evaluate detailed proposals, you could choose from a handful of bids and obtain your product within days rather than weeks.
This method is good for when the product or service your company needs has clear specifications that won't require a back-and-forth discussion during the bidding process. It's also suitable when there are several bidders in the market who likely have the qualifications and ability to offer a price the company can afford.
While using the sealed bids method can make it easier for you to choose from several alternatives, it comes with a major disadvantage. By considering just a few factors like price, responsiveness and basic ability to meet specifications, you could miss out on choosing the best supplier available. Unlike requests for proposals, you don't get to interview suppliers and ask questions that clarify anything beyond the bidder's ability to meet basic specifications.
Another disadvantage is the lack of flexibility that a sealed bid policy gives you. When bidders submit their sealed bids, they can only offer one option to you and name one price. There is no room to evaluate other product or service offerings from the same supplier that could be a better fit or come with a comparable or even lower cost. In the end, the simplicity and speed of making your procurement decision will come at the expense of fewer options.
A key advantage of using the request for proposal process is that your company can more closely evaluate potential suppliers. Starting with a request for information helps you gain crucial information about each supplier's history, offerings and capabilities before you request an official proposal and move forward with considering them. The request for proposal form allows you to further communicate as many details and expectations as needed so that bidders can suggest the most suitable products. Bidders also get more of a fair chance to display their capabilities and value to your company.
Another benefit of a request for proposal is that your company can communicate any questions or concerns with the bidder during the proposal process. This means you get more flexibility when it comes to evaluating competing options since you can perform personal interviews with bidders to better assess differences in value or performance. If you have any questions about the bidder's response to your request for proposal, you can discuss more than the simple technical specifications that a sealed bid process permits. Further, your bidder can even revise the offer based on your discussions, which a sealed bid policy doesn't allow.
Lastly, using a request for proposal helps simplify the process of making more complex procurement decisions, although it's suitable for any kind of purchase. Documentation like the responses to the request for information and request for proposal forms make it easier to perform a cost and benefit analysis and compare features of more complex product and service offerings. This procurement method also allows your company to consider factors like scheduling and quality in your decision.
The flexibility, opportunity for close comparison and increased communication with bidders come with the disadvantage of a longer, more detailed process. For example, you have to consider the additional time you'll spend initially reviewing the suppliers who responded to your request for information along with the time needed to do your comparisons between the options once you receive the suppliers' proposals. At the same time, the request for proposal process demands more time and work for the suppliers, who will have to draft detailed responses to these documents.
While the request for proposal method can potentially help you select the supplier with the best value, there is always the risk that you may end up focusing too much on one variable. For example, if multiple suppliers seem to offer a very similar product, you may choose to just focus on the best price, similar to how you could with the sealed bids method. However, you might miss out on more carefully evaluating differences in quality or delivery date.
Further, while this procurement method opens up the potential for more communication with suppliers during the proposal process, you might still experience breakdowns in communication. Even if you provide detailed documentation and communicate with bidders, some of them could still misunderstand your needs. A lack of clarity can especially hurt you during later stages of the purchasing process once you've already contracted with the bidder.
Whether a sealed bid method or request for proposal process works best for your procurement will depend on the product or service you need to obtain, your timeline and the market. When you need to procure something simple that has clear specifications and high availability, such as a common piece of equipment or basic supplies, you may find the sealed bid method to be an easier way to get what you need for the best price.
On the other hand, the request for proposal method works very well when you need to purchase something more complex, such as technology systems or enterprise software, since you can better evaluate your options. In the end, you'll need to evaluate your needs versus the timeline needed for each of these methods.
In addition to using the sealed bids method and requests for proposals when making procurement decisions, your business may consider taking advantage of some popular alternative competitive bidding and procurement strategies.
- Best value bid: Similar to the request for proposal process, this method involves having bidders make offers and using both the price and other factors, like quality, in making your decision. Bids are ranked and compared through a cost versus benefits analysis, and the company selects the supplier with the highest overall ranking.
- Fixed price bid: When using this method, the company already has determined a fixed price at which it will pay for the procured products or services. Therefore, the goal is to find multiple suppliers from which to choose who can do it at that cost. Bidders are welcome to bid a lower price to be more competitive and stand out to your company.
- Single-source procurement: This method eliminates the need to solicit bids since the company simply chooses one supplier for its needed services or products. This may happen due to an emergency or when some supplier has a special advantage or capability over others in the market.
- Two-stage tendering: When a company uses two-stage tendering, it starts with a proposal process where bidders can showcase their available solutions, and the company can compare proposals to determine the highest-scoring supplier. The next stage involves having the chosen supplier provide a partial proposal that they can negotiate with the company for a more customized agreement than with a request for proposal process alone.
- Request for quotation: If the purchase the company wants to make is small, it can use the request for quotation process to choose a few suppliers and request their costs. The company doesn't need to deal with a lot of paperwork and simply chooses the most affordable option that meets all requirements.
- Restricted tendering: Rather than making the company's procurement needs public and allowing any bidder to participate, the restricted tendering method involves having the company choose only certain suppliers to invite to the bidding process. The procurement team typically does thorough research to choose the most suitable suppliers beforehand to make the selection process easier.