What's the difference between request for proposal (RFP) and open tender

In the wake of YB Lim Guan Eng's charges relating to the Penang undersea tunnel, politicians on both sides of the political divide have begun mudslinging at each other.

Amidst this, there have been some debate going over whether a Request For Proposal (RFP) and an Open Tender are the same thing. I cannot help but wonder why this has become a point of contention, since the charges were not at all concerned with the type of procedure involved.

However, since no two sides can come to an agreement, I would just like to clear up this matter. A few academicians aligned with the DAP have come out with the argument that the Penang Transport Master Plan (and the tunnel project) was an RFP, and therefore not only an open tender, but actually a "double open tender", while some others claimed that open tender is the "genus" and an RFP is therefore a type of open tender.

The dispute is not over which system is better. Both the open tender and RFP systems have their respective advantages and disadvantages, and both are widely used by the Malaysian government as well as other institutions across the world. However, they are patently different things.

What we usually term as an "open tender" in layman's term is actually a Request for Tender (RFT). Other lesser known names include Invitation to Tender (ITT) or Call for Bids (CFB). How it works is like this:

In a Request for Tender (RFT) or open tender, the client puts forth a very detailed series of specifications, and all the prospective suppliers submit their respective bids detailing how they plan to supply goods or services according to those specifications. In other words, each prospective supplier will demonstrate to the client how they can execute the same set of specifications at a much lower cost than their competitors. The client will typically select the supplier who can execute the tender at the lowest cost without compromising the integrity of the project.

Whereas in a Request for Proposal (RFP), the client is putting out not just a request for the price, but for the entire proposal itself. The client begins by putting out the RFP announcing to all prospective suppliers that they would like a certain something done (either a product, project or a service and so on), and invite any prospective suppliers to come forward and present their proposal. There isn't a fixed set of requirements or detailed specifications that all suppliers have to adhere to, but merely a rough idea (i.e. "we want a bridge"). Each prospective supplier then puts forth their own proposal, and since each and every proposal is different from another, the client might not necessarily choose the cheapest one (instead going for a more expensive but more attractive proposal). In this respect, the RFP system is more flexible and less rigid.

However, there the evaluation and selection procedure would have to be much more stringent and structured than that of an RFT, because it would be difficult for the client to demonstrate impartiality (given the lack of a fixed set of specifications to act as a common yardstick), especially if the client is part of the public sector.

As to the argument that there are many types of open tender, I would agree. True, there is more than just one type of open tender or RFT. Other types include selective tendering (where only a pre-selected list of suppliers are invited to submit tenders), negotiated tendering (where the client approaches a single supplier due to an excellent reputation track record or a previous relationship, and the terms of the contract are then negotiated), serial tendering (for minor repetitive works such as maintenance works; and so instead of a price, suppliers bid with a schedule of rates) and framework tendering (instead of a single one-off job, the project may be carried out over a very long period of time on a call-off/as required basis). But these all have one thing in common: they all have a single fixed set of specifications that all prospective suppliers have to adhere to, and they are not supposed to deviate from it. An RFP does not have this.

Of course, that is not to say that the RFP system is inferior of flawed. But in the public sector where transparency is of the utmost importance, the more rigid RFT or open tender system provides a common yardstick for us to measure all the prospective suppliers' bids against each other. Whereas in the private sector, RFP is far more popular because of its less rigid structure, and since public money is not involved, the lack of a "common yardstick" is not a problem.

Public sector projects are usually costly and constitute high risk for fraudulent procurement, abuse of power of elements of corruption. Public procurement would channel large amounts of public funds to the market, it is not surprising that the procurement process would be vulnerable to fraud and corruption in the process.

The more rigid RFT where purchaser or in this case the government has clearly defined criteria or specification which would naturally reduce the potential for corruption. Whereas RFP which has no clear specification, scope and greater flexibility is more suitable for professional services rather than public sector.

This important feature in RFT has proven handy as collusion between procurement government officers and bidders often happens in different stages of procurement, more typically in pre-soliciting and soliciting stages such as providing insider information, contractors submitting their own proposals, tailoring specifications and shortening tender periods.

The bidding process is vulnerable to fraud and corruption, it can be difficult to detect, especially in large organisations such as government's ministry, department or agency with complex procurement operations or process. Corruption and abuse of power may also take place during site visits, awarding of tenders, issuing work authorisation, assessing work progress.

In RFP which is looser and more flexible, contractors and vendors may take advantage of the weak system. Many lapses may occur during procurement. In this sense, a seemingly more defined, limited and rigid RFT would serve as an extra safeguard to protect transparency and accountability against bad politics due to lack of integrity and good governance.

The government has previously confirmed that the lack of transparency in government procurement is among the main reasons that national debt has increased.

As such, RFT is the way forward to stop and prevent the malpractice. In fact, the government should make e-procurement mandatory in all transmission of requests for participation and submission of tenders so that the use of electronic means would be able to prevent fraud effectively and comprehensively.

Transparency and fair competition are important to ensure public funds are channelled correctly and best results can be achieved from the procurement.

RFT which is more rigid, defined and limited in scope of project is seen as more suitable in preventing fraud and irregularities, while it enables strong institutional monitoring, adequate controls and safeguards.

Dr Pamela Yong

Deputy Chairperson

Institute of Strategic Analysis & Policy Research

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