What is a competitive tender?
A competitive tender happens when a company wants to buy something from other companies, like stuff or work. The company tells many other companies, “Hey, we want to buy this thing.” Those other companies are called suppliers. The company asks the suppliers to write down how much money they would charge to provide that thing the company wants to buy. This written offer from a supplier is called a tender.
The goal of competitive tendering
The company does this competitive tender process to get the best deal possible. It hopes that by having multiple suppliers submit tenders, it will be able to pick the supplier that offers the best combination of a low price and high quality. The company is trying to get the most bang for its buck.
How the competitive tender process works
The typical competitive tender process has a few key steps:
Step 1: The company writes a tender request
First, the company specifies precisely what goods or services it wants. It might be raw materials, finished products, or some kind of work or project. The company needs to describe what it wants to buy in a lot of detail so suppliers know precisely what to offer in their tenders. The company’s detailed write-up is often called a tender request or invitation to tender.
Step 2: The company sends its tender request to potential suppliers
Next, the company figures out which suppliers can provide what it wants to buy. It then sends its tender request to those potential suppliers. The request tells the suppliers how to format their tenders and when they are due.
Step 3: Suppliers create and submit their tenders
The potential suppliers interested in selling to the company will assemble their tenders. A tender usually includes details on what the supplier would provide, the price they would charge, how long it would take them to deliver, and any other important information or terms. The supplier submits this tender to the company by the due date specified by the company.
Step 4: The company evaluates the submitted tenders
Once all the tenders are submitted, the company reviews and compares them. The company will consider the prices in the tenders to see which supplier is offering the lowest price.
However, the company usually won’t just automatically pick the cheapest tender. It will also evaluate the quality that each supplier is offering. If one supplier has a slightly higher price but will deliver much better quality, the company might pick that supplier. The company also looks at other factors, like how quickly each supplier can provide and how reliable they seem.
So, the company weighs each tender’s price, quality, and other key factors to determine which supplier gives them the best overall deal. It’s seeking the best mix of reasonable price, quality, and service.
Step 5: The company picks a winning tender
After the company carefully evaluates all the tenders, it picks the one that seems like the best overall deal. It will notify the winning supplier that their tender has been accepted. The company and the winning supplier then sign a contract based on the details in the winning tender. This contract is a formal agreement for the supplier to provide the goods or services and for the company to pay the agreed-upon price.
The company will also let the losing suppliers know that their tenders were not accepted this time. It’s considered good business practice to notify everyone who submitted a tender about the final decision.
Why companies use competitive tenders
There are a few key reasons why a company would go through the competitive tender process:
To get the best price
The main reason is usually to get the lowest possible price for what they want to buy. When multiple suppliers submit tenders, they are competing against each other. They each want to win the business. This competition puts pressure on the suppliers to offer their best possible prices in order to beat out the other suppliers. As a result, the company hopefully gets lower prices than if it had just gone to a single supplier.
To ensure quality
While getting a low price is important, companies also use competitive tenders to ensure they are getting high quality goods or services. By comparing multiple tenders, the company can see which supplier is offering the best quality and pick that one, even if the price isn’t the absolute lowest. The tender process lets the company balance price and quality to get the best overall value.
To be fair and transparent
Many companies, especially large ones or government agencies, use competitive tenders to be fair and transparent about how they award business to suppliers. By openly requesting tenders and evaluating them all against the same criteria, the company can show that it is not unfairly favoring certain suppliers. This helps prevent corruption or favoritism in purchasing decisions.
Advantages and disadvantages of competitive tenders
Like anything, competitive tenders have both benefits and drawbacks.
Key advantages
The biggest advantages are:
- Tenders usually lead to lower prices for the company buying the goods or services
- Tenders allow the company to compare options and pick the best overall deal
- The tender process is generally seen as fair and transparent
Potential disadvantages
However, there are some potential downsides:
- Running a tender process takes a lot of time and effort for the company
- Creating a tender can be a lot of work for the potential suppliers too
- The company might miss out on good suppliers who are put off by the tender process
- Focusing too much on price in the tenders could lead to lower quality
