Understanding procurement jargon
WE have previously highlighted the value for money concept during the hype of Black Friday and subsequently festive season spending. Added-value, value for money, value chains, values are all huge prospects of the procurement objectives. This article is meant to broaden the understanding of terminology used in the procurement sphere.
Most often than not, it is widely thought; procurement practitioners have their own unique language, which when not understood can cost a prospective supplier possibilities of landing a contract. Today we look at common glossary of terms which are of global standard.
RFQ – Request for Quotations: An RFQ is a formal plea for a quote from a potential vendor or supplier. When an organisation requires a particular product or service to enhance business operations, procurement teams may ask for RFQs from different suppliers to evaluate which to select.
Quotations are meant for low-value, recurring products which are commonly used in organisations. Vendors and suppliers often welcome the opportunity to bid for a job and offer pricing quotes based on the company’s needs, then perform the service or provide the product if selected.
An RFQ is for informational purposes and is not legally binding. This method of procurement does not promote maximum competition.
RFP – Request for Proposals: This is a business document that is commonly used broadcast a project. It describes the opportunities availed to consultants regarding the project. Furthermore, it solicits bids from qualified contractors to complete it.
Most modern organisations prefer to launch their projects through RFPs, and many governments always use them. A typical RFP will have an evaluation criteria, terms of references which detail the scope of work to be done.
In essence, the RFP thrives to say, consultants can propose how they can best offer their services for a certain project.
The aspect of propose gives liberty to the interested party to come up with a cutting edge solution. When responding to RFPs, consultancy firms are competing against their concepts and strengths of their skills.
RFI – Request for Information: in some cases when organization does not have much information on how to complete a procurement exercise. This is normally used in highly technical procurements or capital projects.
The entity might invite interested companies to offer information on how to develop specifications or coming up with terms of references in the case of services.
EOI – Expression of Interest: This is a systematic approach envisaged to gauge available and appropriate suppliers in a particular market who would want to bid for a certain tender and further derive a short-list out of the lot.
The shortlist is used either to establish a database of pre-qualified suppliers who will be locked into a long-term agreement (LTA) with an entity, or, alternatively the shortlist can be used for the second stage of the tendering process which is normally a Request for Proposal (RFP).
ITT – Invitation to Tender: An invitation to tender, also known as an ITT, is a formal procurement document that is issued by the buyer, inviting suppliers to bid for the contract of works they are looking to fulfill.
It could be for the supply of either goods, services or works that the procurement authority (the buyer) requires. In-line with the tender process, it is common that before an ITT is released, the step beforehand would be to issue a pre-qualification questionnaire, PQQ. This helps the buyer to narrow down the potential suppliers, pushing the invitation to tender out to the selected businesses that have been successful in the previous round.
This process is particularly standard in public sector procurement. Some tenders still require a hard copy submission, but again this will be detailed in the documents.
Some buyers are specific with the design, layout, font, word or page count and submission process so ensure you read the instructions thoroughly (Thornton & Lowe, 2020).
PE – Procuring Entity: Any organisation that has the right to do its own procurement or on behalf of other requesting entities is called a procuring entity. This term is quite popular in the public procurement space.
ETB – Entity Tender Board: This is an internal panel, which has authority to make procurement decisions and approvals in an organization.
In the case of public procurement, this body is established by the controlling officer (CEO, executive director, managing director, etc.) of that particular procuring entity. They play a fundamental role in safe-guarding the integrity of the procurement process.
LTA – Long-term Agreements: An LTA can provide an undefined volume of goods and services over a set period in accordance with agreed conditions, including price.
This agreement may be between the supplier and the organisation direct, or an organisation with which collaborative procurement is undertaken.
TORs – Terms of Reference: Means the terms to be referred to that explains the objectives, scope of work, activities, and tasks to be performed, respective responsibilities of the procuring entity and the consultant, and expected results and deliverables of the assignment. These TORs will define the parameters to which a service is required.
INCOTERMS - International Commercial Terms: These are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC) relating to international commercial law.
Incoterms outline the responsibilities of exporters and importers in the arrangement of shipments and the transfer of liability involved at various stages of the transaction.
They are commonly used in international sourcing transactions or procurement processes and their use is encouraged by trade councils, courts and international lawyers.