The three types of tenders include open, selective, and negotiated tenders. These differ in terms of who can bid for the tender, as well as their advantages.
You may or may not be new to tendering. If you are, you’ve probably seen the phrases “negotiated tender”, “open tender”, and “selective tender” thrown around left, right, and center. If you’re a veteran bidder, this article might not interest you as much– but we have plenty of others that can help improve the way you tender here.
As you might have guessed, there are several types of tender procedures that dictate who can submit a proposal for a specific tender. This is due to the wide range of goods and services requested by tenderers, which may sometimes only fit certain suitors. Keep on reading to understand the advantages and disadvantages of the most commonly employed tender procedures.
This is the main tendering process used today. This process invites everyone to submit a tender proposal, offering an equal opportunity to all. This is believed to: stimulate competition, ensure that everyone gets a fair chance by minimizing discrimination, and allows one to receive the most cost-effective option. This enables innovation.
There are certain disadvantages that arise with open tendering. It’s known to be slow and costly, as it garners the attention of a large number of suppliers––many of which are unsuitable but still have to be acknowledged. This may result in a lot of time, money, and effort wasted in trying to submit and analyze a tender proposal. tenderers can lessen these pitfalls by requiring bidders to go through a pre-qualification process; these may help reduce the bidding firms dramatically. Lastly, although competition is beneficial to the tenderers given that tenderers also compete on price, they have to be careful. While underpriced tenders may seem appealing, there might be a price-quality trade-off at play. A lower price may involve low-quality material, low quality of work, and other such factors to cut corners.
Open tenders can either be single-stage or two-stage. Single-stage tendering occurs when there’s enough information to come up with a price on the spot. A two-stage tendering, on the other hand, means that information is insufficient, so two separate agreements occur. The first one settles technical specifications, and the second one settles the price.
This tender is more restrictive, whereby the organization requesting a product or service pre-selects a number of suppliers and invites them to bid on the contract. This type of procedure is best suited for complex contracts that only align with a few firms’ capabilities, and aims to improve the quality of bids received. These firms generally have a track record that signifies competence for similar projects (e.g. in terms of complexity, size, and nature). Generally, no more than 6 suppliers are invited to submit a tender. These suppliers would first be contacted to gauge their interest in the contract; of those interested––and who end up submitting a tender––a preferred tenderer is selected based on certain considerations (e.g. price, quality).
The benefits of pursuing selective tendering are that it results in a quicker conclusion than open tendering, and can be seen as less wasteful. This is due to the lower documentation cost. Yet, there are certain disadvantages that come with selective tendering. Selective tendering tends to exclude smaller suppliers who are in the process of establishing themselves in the market. Moreover, these contracts tend to involve a higher price given the lack of competition. The lack of competition may be further aggravated due to the risk of collusion and favoritism during shortlisting.
Similar to open tendering, selective can be either single-stage or two-stage.
The negotiated tender involves reaching out to a single supplier that is highly suited to a specialist contract, or reaching out to a supplier to extend an existing contract. These types of contracts are prevalent within the construction and engineering industry.
Given that the supplier and tenderer are acquainted with each other and their work, this can benefit the tendering process by decrease the duration and cost of the exchange. Additionally, there’s quality assurance and a higher expected success rate given the (oftentimes extended) relationship between the tenderer and supplier.
The downside is that the price of the contract is likely very expensive, outdoing the expenses that would be incurred in selective and open tendering. Additionally, the negotiation isn’t as simple as you may think. The absence of competition may result in a prolonged negotiation period that ensures both parties receive a fair deal.
It’s important to acknowledge what different types of tendering procedures entail, and how these impact the tendering process. This helps companies better understand (and prepare for) the (non-)competitive environment they’d potentially be involved with.