Request for Proposal

A Request for Proposal is a document with which a buyer asks for bids. In it, the buyer describes what they need, by when, and under what conditions. They then send the document to several companies that could deliver. These companies respond with a proposal: what they propose, what it costs, how long they need. The buyer compares the responses and awards the contract. The English abbreviation RFP is used in German just as it is in English, alongside the spelled-out term.

Why corporations don’t just make a phone call

For small purchases, you simply ask for the price. For large projects, that doesn’t work. If a hospital needs a new administrative system, years of work and many millions of euros are at stake. A wrong choice can hardly be corrected, because switching providers again would be very expensive.

An RFP forces the buyer to write down their requirements beforehand. That sounds trivial, but it’s half the benefit. Anyone who can’t formulate what they want ends up buying the wrong thing. In addition, all providers are judged by the same criteria. This makes the decision comparable and verifiable afterward.

For public sector buyers, there’s an additional legal reason. Government agencies spend taxpayer money and must publicly tender contracts above certain amounts. A clean process protects against accusations that a contract was handed to an acquaintance. Unsuccessful bidders can even challenge the decision.

From requirements catalog to contract award

An RFP begins with a description of the starting situation and the goal. Then follows the most important part: the requirements. Often these are hundreds of individual points, ranging from “must support 5,000 concurrent users” to “data must be stored in Europe.” A distinction is usually made between mandatory requirements and desired features.

Added to this are the rules of the procedure. The document states a submission deadline, a fixed format for the response, and the weighting of the evaluation criteria. A typical example: 40 percent price, 40 percent technical suitability, 20 percent references from similar projects. Providers may raise unclear points during a question round, and the answers go to all bidders simultaneously.

After that, a selection team evaluates the submitted proposals using a point system. The best two or three providers are often invited to give a presentation or must demonstrate a test setup. In the end, there is a contract that makes the commitments from the proposal legally binding. It’s important to distinguish this from related documents: a Request for Information only gathers market knowledge, while a Request for Quotation asks solely for the price of an already clearly defined service.

RFPs in the AI and cloud business

In tech news, RFPs are often behind the big numbers. When a government agency moves its IT to the cloud—that is, to rented computers in third-party data centers—a tender process precedes it. Providers like Microsoft, Amazon, or SAP employ entire departments solely to write such proposals.

Since the AI boom, many RFPs concern language models and graphics cards. A bank is looking for a chatbot for its customer service, a state government wants translation software for public offices, a corporation needs computing power for its own training. Such documents today almost always contain questions about data protection and data storage location. For investors, winning a tender is a signal, since it means revenue over several years.

A common misconception is that the cheapest bid always wins. A very low price can even be excluded if it seems unrealistic. A curious recent side effect: many companies now have their RFP responses drafted by AI systems. Some buyers, in turn, use AI to evaluate the incoming stacks.