If you purchase a ratable amount of fuel every month, one of the best ways to ensure you are getting a great price is to leverage that ratability and put your fuel contract out for bid to the lowest bidding fuel supplier.
Desert Fuels wants to help you with crafting the kinds of RFP’s that will make every wholesale fuel supplier knock down your doors to bid on your fuel.
This article is written for municipalities, government agencies, state, county, city governments, companies, and anyone who purchases ratable bulk fuel (minimum of 8000 gallons per month).
Most companies or government agencies don’t have the luxury of allowing suppliers to fight over their fuel business. But if you have a ratable amount of fuel that you go through every month you are in a great position to put your needs out to bid and ensure that you are purchasing at a very competitive price.
We have seen every type of proposal. They go by many different names. Here are a few acronyms you might see and what they stand for:
- RFP (request for proposal)
- RFQ (request for quote)
- RFB (request for bid)
- ITB (Invitation to Bid)
- IFB (Invitation for Bid)
When we receive one of these, we can tell which fuel buyers or purchasing departments have done their homework and which one’s have not. That said, we also understand that if you are a purchaser for a municipality, government entity, or company with multiple bulk purchasing needs, you have to be a jack of all trades and know at least a little bit about how every product is purchased.
Desert Fuels wants to help you with crafting the kinds of proposals that will make every wholesale fuel supplier knock down your doors to bid on your fuel. So, we’ve come up with some tips on developing a strategy for putting your fuel needs out for bid, and how to craft a proposal like the pros.
The Essential Components of every RFP
Without these elements, you’ll find that Desert Fuels and other fuel suppliers will bombard you with these questions:
- Deadline for bids to be submitted
- Contract length
- Opportunity for Questions contact and deadline
- Volume you go through each month & year (share your history)
- Tank size & products they hold
- Tank locations – physical delivery address of tanks
- Above or below ground tanks, special fittings, pump, meter, etc
- Intended use of fuel (off-road?, buses)
- Payment terms (check or ach, days to pay)
- Special delivery instructions (time of day, escort on property) Driver requirements/clearances
- Taxes – are there any taxes that you are exempt from
- Invoices – how and where to send them
- Lucky 13… Price – see below
Big Three PRICE Decisions
What type of price/contract do you want?
Daily Index-Based Contract
Description: This is a contract that is based on a daily price that adjusts with the market based on a third party benchmark or index. Your suppliers will bid a price based on a published third party benchmark and a differential from that benchmark. Read about Fuel Pricing and OPIS Contracts 101.
Pros/Cons: Common widely accepted practice that most suppliers will be familiar with. Ensures you will contract on a competitive daily price that moves with market on a daily basis. Limit risk of price spike by supplier. It’s transparent – based on third party benchmark
- Include in RFP a specific benchmark you are looking for based on what is most common and competitive in your region.
- Get a subscription to the benchmark you are asking for
- Specify what is included in the differential (tax, freight) We recommend all taxes listed separately. Bid should only include supplier related costs of profit and freight
Daily Bid Price (With Qualified Suppliers)
Description: Qualify a certain group of suppliers to provide quotes on demand when delivery is needed.
Pros/Cons: You will receive competitive quotes when you are ready to order. This process can be time consuming and labor intensive. It also usually requires starting the process 48 hours before you will need the fuel. Can also potentially run the risk of no supplier responding to the quote due to a fuel shortage and not being able to get fuel.
- The RFP will be focused on suppliers submitting all information deemed necessary to ensure suppliers sufficiently meet your qualifications.
- Outline in the RFP how the bid process will work, how much notice will be given and to complete the bid and then perform if selected as the winning bidder.
- Strive to get at least 3 suppliers qualified to ensure a competitive balance.
Description: This is a fuel contract where you get one price that is locked in over the life of the contract. You pay one price per gallon per product for all of your fuel purchases, any day during that contract. (link to blog). Example: You contract for one year January through December with your price locked at $1.83 per gallon, regardless of the day you purchase during that contract period.
Pros/Cons: Predictability…..this is a great strategy if fuel is a budget line item and if you have a good idea of exactly how much fuel you go through. This is not a good strategy if you are a reseller of fuel. You may not always buy at the best price, depending on what the market is doing. Additionally, you will pay a premium because of the unpredictability of the market. On the flip side, you don’t have to deal with the headache or the volatility in the market. Locking in a price can save or cost you a substantial amount of money. If you are looking at this option through those eyes, then this is definitely not the right choice for you.
- Include a specific future day and time for bid and how long that bid is good for.
- Qualify suppliers before they bid.
- Decide on the terms & contract ahead of time.
- Notify qualified suppliers of the exact day, time, and window for bid.
- Have approvals completed before bid date. You must be in a position to execute the contract to the lowest bidder at the time of bid. This type of bid can change by the minute. The supplier will have a short-window to lock that price in. Many suppliers will only guarantee that price for a short period of time because the futures market is real-time and constantly moving.
Top Bid Proposal Mistakes:
Creating a bulk fuel RFP incorrectly can be very costly. Not only will it be costly in time trying to clarify bid language with potential suppliers but you may ultimately end up paying more for fuel because fuel suppliers have to pad their numbers in order to make up for their risk because of the RFP ambiguity. In our experience, this happens the majority of the time. Most fuel RFP’s make at least one of the following 4 big mistakes.
- Ambiguity – Being unclear in what you are asking for will lead to frustration from all in involved and lead to tough decision making when trying to compare apples and oranges.
- Insufficient Information – The more a supplier has to guess at, the more margin that will be built into the price to protect against worse case scenarios.
- Inappropriate Bid Deadline – Setting the bid deadline to short or too far out in the future can cause suppliers who otherwise might be interested in participating in your bid to decide to pass or forget about your bid.
- Not Being Responsive to Feedback – Listening to suppliers provide feedback on the bid and/or suggestions on things to tweak to ensure you receive a competitive quote is key. Don’t be afraid to listen, consult other suppliers and issue an amendment to ensure at the end of the process you receive the best bids possible to choose from.
As you can see, crafting a proper bulk fuel RFP can be very confusing and difficult with lots of traps and details. We hope this preliminary look on how to write an RFP helps. In our next blog (in a few months) we will discuss specific fuel pricing language (as the language can get even more complex) and give you a sample RFP that you can use as a framework for your next RFP.
In the meantime, feel free to reach out to me, Jay Kennedy or anyone here at Desert Fuels to answer questions. We truly believe in simplifying the wholesale fuel industry and standardizing it. If we can help you, just give us a call.