How to Negotiate & Award Contracts
When running your business, it may become necessary to create contracts with vendors and suppliers for goods and services so that everyone knows where they stand. An excellent way to determine the best businesses to award contracts to is to put out an RFP, or Request for Proposal. An RFP is a document you send to providers to garner information about them in order to compare and contrast providers. Using the proposals you receive, you can determine to whom you should award contracts.
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Instructions
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Using an RFP to Receive Offers
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When composing your RFP, remember that the purpose is to obtain all pertinent information about your prospective suppliers in order to make an educated decision. Identify precisely what needs you require from the supplier, such as staffing or office supplies. Ask the supplier to show proof of how financially stable they are, the backgrounds of their employees, how quickly they can provide their services, their client satisfaction policy, and, of course, how much these goods and/or services will cost. Ask the supplier to provide reference information from companies who have been satisfied with their work.
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Make it public by advertising your RFP to vendors you already know and their competitors. Send a copy of the RFP to businesses who have already solicited you. Use your contacts to find other suppliers who have provided positive experiences with your contacts. Set up a meeting for questions so that suppliers may gather additional information and gain clarification. Give vendors plenty of time (at least a month) to prepare their proposal and deliver it to you.
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Review the proposals you have received from your prospective vendors. Rate each vendor from "1" - "5" in terms of pricing, availability, range of products and services, reputation, financial stability and eagerness to please. Decide which of these factors is most important, second most important, third most important, and so on. Using these guidelines, select a first, second and third choice of vendors.
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Approach your top three choices and notify them of their ranking. This allows each supplier a chance to counter with a better offer in any one area where they might be lacking. For example, if one company is at the top of your list in terms of availability, stability and eagerness to please, they may be more willing to relax their pricing for you if they if they know they stand to gain the majority of your business. You can even quote specific price points to your prospective supplier and see if they can deliver those numbers. Often times, they will appreciate your candor, as you are giving them a second chance to sweeten the deal.
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Based on your comparisons and the suppliers' offers and counteroffers, you are now able to choose to whom you will award the contract. If at all possible, consider awarding a large contract to one business and then a smaller one to two or three others. For example, if you can award 50% of your business to one supplier and then 50% to be split between two or three other suppliers, something can happen to your first choice and you won't be left out in the cold.
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Tips & Warnings
Don't be afraid to quote specific numbers. If you require your vendors to deliver their goods or services at a specific mark-up, it is often quicker to let them know this. You may secure a better rate this way as they will all compete to offer a slightly lower number for you.
Consider bringing in a temp or a friend to compare proposals with you. A second pair of eyes is always beneficial, and they may see something that you have missed.
Never award a contract to a vendor based solely on friendship or family relationships. Remember that once you enter into a contract with a business, it is legally binding. This is why it is incredibly important to make sure you are confident this supplier can make you happy and keep your business running smoothly.
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