Business Tenders: Tendering Process

Procurement or making purchases of goods and services in smaller organizations or for that matter where value/quantities are smaller, the purchases officer calls for quotes from three to five vendors/suppliers from the market and does a comparison to choose which vendor offers more value for money. Shortlists and up on approval from the management goes ahead and places the order with the selected vendor.

Now multiply this activity to a bigger value/quantity. It is basically the same thing but something for a bigger value/quantity.

The article, tries to explain what a tender is and what are the steps involved. The main idea is go gain, as a buyer, the highest value for money.

What is a 'Tender'

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To invite bids (or offers from vendors in the market place to provide their resources) for a project, or in other cases, to accept a formal offer (i.e. a takeover bid – however, in this article, we will not be discussing any take-over bids). Tender usually refers to the process whereby governments and financial institutions invite bids for large projects that must be submitted within a finite deadline. This is done not only to facilitate procurement of goods/services but to ensure the vendor(s) pass through a competitive process prior to selection have a fair opportunity to prove their ability to deliver as required/expected.

Most institutions have a well-defined tender process, as well as processes to govern the opening, evaluation and final selection of the vendors. This ensures that the selection process is fair and transparent.

Organizations cannot do everything on their own e.g. manufacture cupboards and shelving solutions along with various other stationery products that are needed on a daily basis; therefore, it makes business sense to collect different vendors and ask them to meet with the business’ stationery requirements at prices that are better than those that supply the same stationery products. This concept, can, be expanded into bigger projects like construction of buildings, roads, labor supply, appointment of consultants etc.

Today, almost all businesses somehow or the other depend on each other for supply of different goods/services and will select an offer or tender that meets their needs and provides the best value for money and that is the key, Value For Money!

Depending highly on the nature of the work/service involved, the tenders are generally widely advertised to offer opportunities to a number of suppliers, encourage competition and provide a greater pool of offers to select from.

Then What Is ‘Tendering’?

Tendering is the process of making an offer, bid or proposal, or expressing interest in response to an invitation or request for tender.

The organization, floating the tender is called, the buyer or the client/customer whereas the organization submitting the tender is called a supplier or a service provider (where the requirement is for a service).

The tendering process is generally utilized for procurements or contracts involving substantial amounts of money and is generally floated by:

·         Government departments, offices and agencies

·         Medium to Large private sector companies

 How Does It All Happen?

The buyer will prepare a works package, also referred to as Requests for Tender (RFT), Requests for Proposal (RFP) outline what is required. The document also outlines the particular requirements, criteria, and instructions that have to be followed otherwise, the tender can be rejected by the buyer and the buyer may or may not call the tender bond. We will discuss the tender bond and calling the tender bond at a later stage in the article.

Interested suppliers will then prepare a tender clearly stating their technical expertise along with their financial strength to deliver on the project. They will outline their advantage over competitors; provide information on qualifications, competencies and experience. Further they have to demonstrate how their bid offers the best value for money. This tender will contain all technical information to show the buyer that the vendor has a clear understanding of the scope/criteria and will include all possible drawings and schedules not forgetting their pricing.

The submitted tenders are then evaluated in a manner that is free from bias or favor. The offer that best meets all of the requirements outlined should win the contract.

Most buyers prefer to pre-qualify a vendor. This constitutes a pre-audit of the possible vendors to understand their technical competence and their financial strength. This exercise is carried out to avoid any non-performance during the execution of the project or anytime after the contract has been awarded.

The Tendering Process

The main steps in the tender process are:

The organization requesting the tender will determine the type of tender that will be used, as well as what will be involved in the tender process; the value, complexity and business category determine how tenders are invited A monetary threshold generally dictates if it would be a open or a closed tender. Closed tenders are generally executed through the Request for Quotations document and the Open Tenders are executed through a Request for Proposal document.

Open Tender: A bidding process that is open to all qualified bidders and where the sealed bids are opened in public for scrutiny and are chosen on the basis of price and quality. These are generally advertised in the media.

Closed Tender: Wherein, a select group of potential vendors are invited, to provide their written offers by a specified date.

The specified date may or may not be extended. Extension of time can be for any reason, low interest in the tender or perhaps a vendor has requested more time. Ideally, time extension is not granted but then it is a subjective matter as is left to the tender committee to decide.

Buyers have pre-defined monetary thresholds for which these two documents are used depending what the tender committee decided on the specific tender. It should also important to note that open tenders are far more formal than the closed tenders and require extensive documentation vis-à-vis closed tenders.

It is also worthwhile to note, in case where interest in low and a very few/less than expected number of vendors have responded, the whole exercise of re-tendering should be carried out in order to maintain transparency, unless it is difficult to do so due to urgency, technical specifications etc.

The tender package prepared outlines what is required, the contractual requirements and how the vendors should respond, ideally.

As and when the vendors respond, the first and foremost activity is to ensure is to obtain all relevant documentation that has been requested in the tender package. Parallel, to this is to check, if there is a requirement by the control framework, for vendors to be pre-qualified. In such cases, they would send in an Expression Of Interest, which would help them get pre-qualified, after which a pre tender briefing sessions would be conducted in order to clarify any uncertainties, plan and prepare a response to any and all queries of the potential vendor(s).

Each tender will be checked for compliance, and if compliant, then evaluated against the criteria specified in the tender package documentation. The tender that offers best value for money will be awarded the contract/business. It is at this stage where the potential buyers are required to submit a tender bond. The value of the bond shall be determined by the Tender Committee and is stated in the tender invitation. The buyer shall call on the tender bond for the following cases:

•        A tenderer withdraws their tender prior to the contract award date.

•        The successful tenderer refuses to enter into a contract.

•        The successful tenderer does not provide the performance guarantee in the specified time when the Contract is awarded

Notification and debriefing: when a contract has been awarded, the successful tenderer will be advised in writing of the award. In ideal circumstances, unsuccessful tenderers are also advised and offered a debriefing interview; however, it is advisable to at least send all unsuccessful tenderers a regret letter.

There are also chances whereby, vendors may choose not to participate in the first place, this is specially the case in closed tenders, these vendor(s) then send (or at least should send) a letter to the buyer stating their inability to participate. This letter may or may not state the reason(s) for not participating in the tender.

Contracts established and managed: generally a formal agreement will be required between the successful tenderer and the buyer.

Some vendors may also request an advance as a mobilization advance. The buyer asks for an Advance Payment Guarantee.

Similar to these different guarantees, the buyer may or may not ask (depending on the value of the contract) for insurance cover. This requirement of providing appropriate insurance cover will be stated in the tender package.