Ever wondered how organizations decide what they'll purchase directly, what they'll get 3 quotes for and what they'll send out in a formal RFQ or RFP bid? "How Organizations Buy Goods and Services" provides an outline of how and why those decisions are made in the private and public sectors in Canada.

1. How Organizations Buy
Goods and Services
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2. What you’ll learn…
•Why private sector companies go to bid.
•What the bid process does.
•How it’s different in the Public Sector.
•When organizations go out to bid.
•When they don’t go out to bid.
•When they get 3 quotes.
•When they issue an RFP/RFQ.
•A common example of how it works.
•What’s an RFP, RFQ or RFT?
•What’s the difference?
•What ‘total spend’ is.
•Where to go if you have questions.
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3. Putting Contracts Out to Bid
The main reasons private sector companies
go out to bid:
• Financial transparency.
• Due diligence.
• Cost control.
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4. What the bid process does:
• Keeps transactions at arm’s-length and
discourages ‘back-door’ deals.
• Creates an opportunity to reduce costs through:
– Volume pricing.
– Competitive bidding by vendors.
• Allows purchasers to test the market and find
creative solutions.
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5. In the public sector
Public Sector organizations:
• Are mandated to go out to bid.
• Based on dollar value of contract.
Since tax dollars fund purchases, the bid process
is designed to:
– Keep transactions above-board and
transparent.
– Offer vendors equal access to opportunities.
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6. When do they go out to bid?
• Most have set purchasing standards.
• Dictate when they should or must go out to bid.
• Common format for purchasing: divide total
annual spend for products/services into 3
categories:
– Low spend purchases.
– Medium spend purchases.
– Large spend purchases.
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7. When don’t they go out to bid?
Category #1- Low-spend* purchases:
• Dollar limit is preset.
• If total spend is under limit, buyer chooses
vendor directly.
• May be prequalified, preferred vendors, or
• Buyer may source vendor as need arises.
• Usually involves issuing a purchase order (PO).
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8. When do they get 3 quotes?
Category #2- Medium-spend* purchases:
• 2nd higher dollar range is preset.
• Must have minimum of 3 quotes before
purchase is made.
• May be prequalified, preferred vendors, or
• Buyer may source vendors as need arises.
• Usually involves issuing a purchase order (PO).
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9. When do they issue RFP/RFQ?
Category #3 – Large-spend* purchases:
• Where total spend goes above a higher set limit.
• Buyer mandated to source vendor through
formal bid process.
• Can include issuing an RFQ, RFT or RFP.
• Usually involves signing a contract.
• Often for a period of 3-5 years.
• Sometimes with options to extend.
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10. A Common Example
• Under $10,000 spend: Buyer sources vendor
and completes purchase.
• Over $10,000 but under $100,000 spend:
Buyer must obtain 3 quotes. Sometimes must
choose from preferred vendor list.
• Over $100,000 spend: Bid coordinator creates a
bid document. Opportunity goes out to bid in the
form of an RFQ, RFT or RFP.
*Example only. Will differ between organizations.
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11. What’s an RFQ, RFT or RFP?
• RFQ: Request for Quote
• RFT: Request for Tender
• RFP: Request for Proposal
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12. What’s the difference?
RFQ/RFT:
• RFQ or RFT refers to the same type of bid.
• Usually used for commodity purchases or where
client knows exactly what they need.
• Usually simpler/shorter to respond to than RFP.
RFP:
• Typically used when client is searching for a
proposed solution to a complex problem/project.
• Can be extensive and complex to respond.
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13. What’s “Total Spend”?
Companies typically consider “total spend” to be:
• Total projected costs to complete a project.
• …or
• If products/services purchased regularly:
– the total accumulated costs for a year.
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14. How Organizations
Buy Goods and Services
Questions?
Email: Debbie@EchelonOne.ca
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15. About the Author
Debbie Ouellet of EchelonOne Consulting
is an RFP consultant and business writer
who helps business owners win new
clients and grow their business
She does that by helping them to plan and write great RFP
responses, business proposals, web content and marketing
content.
You can find out more about Debbie at www.echelonone.ca