Tender

3 key takeaways

• A tender is a formal, structured process where buyers invite suppliers to submit bids for goods, services, or financial assets.
• Tenders can be used in various contexts, including government contracts, corporate procurement, and financial markets.
• The tendering process aims to ensure transparency, competition, and value for money by allowing multiple suppliers to compete for a contract or asset.

What is a tender?

A tender is a formal offer to purchase or sell goods, services, or financial assets, typically involving a competitive bidding process. In this process, an organization or individual (the buyer) invites suppliers or contractors (the bidders) to submit bids or proposals to provide the required goods or services. The tendering process is designed to be transparent and competitive, ensuring that the buyer receives the best value for money.

Types of tenders

Tenders can be categorized into several types based on their purpose and the nature of the transaction:

• Open Tenders: Also known as public tenders, these are open to all qualified bidders. The process is usually advertised publicly, and any interested party can submit a bid.
• Selective Tenders: In this process, only pre-selected or pre-qualified suppliers are invited to submit bids. This approach is often used for specialized or complex projects requiring specific expertise.
• Negotiated Tenders: The buyer negotiates directly with one or more suppliers without a formal competitive bidding process. This type of tender is often used in situations requiring a quick turnaround or when there is a trusted supplier relationship.
• Single-Stage Tenders: Bidders submit their proposals in a single step, providing all necessary documentation and pricing information upfront.
• Two-Stage Tenders: The process is divided into two stages, with the initial stage focusing on the technical or qualitative aspects and the second stage on pricing.

The tendering process

The tendering process typically involves several key steps:

1. Invitation to Tender (ITT): The buyer issues an ITT, outlining the requirements, specifications, and evaluation criteria for the goods or services needed. This document is made available to potential bidders.
2. Bid Submission: Interested suppliers prepare and submit their bids or proposals by the specified deadline. Bids usually include technical details, pricing, and other relevant information.
3. Evaluation and Selection: The buyer evaluates the submitted bids based on predefined criteria, such as price, quality, experience, and compliance with specifications. The evaluation process may involve technical assessments, financial analysis, and interviews or presentations.
4. Award of Contract: The buyer selects the most suitable bid and awards the contract to the successful bidder. The terms and conditions of the contract are finalized and signed by both parties.
5. Contract Execution: The successful bidder delivers the goods or services as per the contract terms, and the buyer makes payments according to the agreed schedule.

Uses of tenders

Tenders are used in various sectors and contexts, including:

• Government Contracts: Governments use tenders to procure goods, services, and infrastructure projects. This ensures transparency and competition, promoting fairness and value for public spending.
• Corporate Procurement: Companies use tenders to source products and services from external suppliers. This helps in obtaining competitive prices and high-quality offerings.
• Financial Markets: Tenders are used in financial markets for activities such as bond issuance, share buybacks, and takeovers. For example, a company may issue a tender offer to buy back its shares from shareholders at a specified price.

Example of a tender in practice

Consider a government agency that needs to build a new highway:

1. Invitation to Tender: The agency issues an ITT, detailing the project’s scope, technical specifications, timelines, and evaluation criteria.
2. Bid Submission: Construction companies submit their bids, including detailed project plans, cost estimates, timelines, and evidence of past experience.
3. Evaluation and Selection: The agency evaluates the bids based on factors such as cost, technical capability, experience, and proposed timeline. After thorough analysis and discussions, the agency selects the bid that offers the best value and meets the project requirements.
4. Award of Contract: The contract is awarded to the selected construction company, and the terms are finalized and signed.
5. Contract Execution: The construction company begins work on the highway, adhering to the agreed timeline and specifications, while the government agency oversees progress and makes payments as milestones are achieved.

Managing the tender process

Effective management of the tender process involves:

• Clear Documentation: Providing detailed and clear ITT documents to ensure bidders understand the requirements and criteria.
• Fair Evaluation: Ensuring a transparent and objective evaluation process to select the best bid based on predefined criteria.
• Timely Communication: Maintaining open and timely communication with all bidders throughout the process to address queries and provide updates.
• Compliance and Monitoring: Ensuring that the selected supplier complies with the contract terms and monitoring progress to achieve the desired outcomes.

Tenders are a fundamental aspect of procurement and financial transactions, promoting transparency, competition, and value for money. By understanding the different types of tenders and managing the process effectively, buyers can secure high-quality goods and services while ensuring fair and competitive practices.