Business tenders are very common among large-scale industries and government organizations.
When there is a need for supply or exchange of goods, the procurement team releases a tender to let potential suppliers know that they are accepting bids.
This formal approach has a vital role to play in identifying the suitable suppliers or buyers at the right time for a large-scale project.
Float a tender means making a formal announcement to the public through advertising in newspapers or other industry publications.
Tendering process involves many detailed and meticulous steps, from submitting bids to awarding the contract.
In this blog, you will know in detail how business tenders work, how to float a tender, and tender evaluation techniques.
Tendering is a business process when a company floats a tender and receives numerous proposals from suppliers or contractors expressing interest in their open projects.
The procurement committee from the buyer side handles the entire process to find the supplier match for their raw material, goods, or services needs.
The tendering process starts when buyer companies float a tender with a concise outline of what they require.
The tender procurement process often has deadlines for each step. So, before it's due, interested suppliers submit technical and financial bids and wait for the evaluation process.
By the end of the tendering, the buyer would have found an ideal match among the received bids.
When a business needs to find a vendor through a process that’s straightforward and fair for everyone involved, they opt for the tender procurement process.
The procurement committee initiates it by sending a request for tender (RTF) to request the vendors to submit their bids.
To do away with malpractices followed to obtain projects like bribery, favoritism, nepotism, and so on, business tenders form a just and equitable ground for everyone to compete equally.
It is protected by strict laws to ensure that fairness stays through and equal opportunity is given to all.
Since tenders are announced publicly, it lets any vendor participate and bid.
Upon receiving the request for tender, interested parties start preparing their proposals and gear up for tender bidding.
The response document that the supplier sends is called ‘tender’, where they state how they can meet the requirements of the buyer.
Suppliers also include their competitive pricing plans, work nature, estimated delivery dates, and other particulars for the buyer to decide.
This is when the requirement for specific goods or an open project is identified, developed into an idea, and later into a request for tender or quotation document.
The structuring of this process changes from industry to industry.
The procurement team appoints a consultant to inspect the needs and draw the plan, budget, and delivery time.
Pre-tender is a crucial stage to cross; even a single mistake here can land you with a mismatched client.
Many factors have to be taken into account before drafting the final request.
This is when you go through the list of vendors who are interested in submitting proposals and filter the unqualified ones out. This is an optional step, not the actual tendering process.
You can straight ahead advertise your request for tender without going through this stage. But by doing this, you save time for both yourself and the bidder.
The prequalification stage also enables the bidder to do early contractor involvement where the participants brainstorm to come up with eco and resource-friendly, cost-effective solutions to accomplish the project.
Tender documents are prepared to guide how the tender should take place and conditions related to the execution of the project in detail, along with the technical aspects and design specifications.
The more information the tender documents come with, the better it is for the tenderer to come up with an exemplary bid.
Once the document is ready, it is advertised in a local newspaper to officially invite the bidders to send business tenders.
This advertisement will include the title of the project, tender requirements, type of contractors required, bidding fee, location, and final submission date.
The request for tender is out, and you start receiving tenders from various vendors. Any tender that has been sent post the submission deadline should not be accepted.
The tender evaluation guidelines and policies set up by the project owner must be documented and communicated with the bidders.
This includes the factors on which a tender will be assessed and considered, for example, the weightage of environmental and other risk factors.
You identify if the tender requirements match their proposals and if they are eligible to handle the project and comply with the conditions.
Those who don’t match will not be considered for further tender bidding. Project owners should carefully review every bid to understand and uncover any underlying risks or bottlenecks.
It may appear as an economical option now, but sum up the surprise costs and expenditure spent to mitigate risks in the future that may come your way.
Don’t go for the lowest bidder or give preference based on quoted pricing. The goal should be to find an ideal supplier/contractor who will deliver real value for money.
Among the qualified entries from the last stage, select a bidder who has taken every condition you laid along with risk factors.
Also, the bidder has come up with a fair pricing model leaving no space for surprise costs. This will be the best value tenderer of all who will benefit you in the long run.
Communicate your results with the selected bidder and award them the tender contract if they accept. There must be an official notification sent to every participant announcing the results.
Planning to float a tender? Here are some reminders to note before you send out your request for tender.
Before floating a tender, you must have carefully evaluated if there is an actual need for procurement or can it be avoided or postponed.
Check the requirements, urgency level, and budgets available before you decide to float a tender.
Construct your business tenders in a clear way that leaves no room for questions and clarifications.
Your bidder should readily understand and find how their bid should be structured in order to get accepted.
The supplier should be able to see the steps and considerations that will lead to the successful bid selection.
The bidder is going to take his chance to bid only after looking at the accepted price range of your project.
Their answers would be dependent on the number you quote, below, slightly above, or higher than the quoted price.
Since it’s your project, you can be the person to evaluate it right and quote a price that’s fair and reasonable for both parties.
Attract more bids by adopting bid confidentiality, where the bidding price of one tenderer will not be visible to another till the tender procurement process is closed.
Bidders shouldn’t feel like they are competing with one another and modify prices based on what other quote. In earlier days, bids were locked in a large physical compartment till the final submission date to avoid bid leakages and collisions among bidders.
Communicate openly with the tenderers about your bid confidentiality policies, and build your reputation this way.
Companies take time to review your request for tender, prepare tender documents, come up with a bid price and make the final submission.
So, when setting the minimum opening period, be considerate and set a reasonable time. But don’t move the deadline too far, as they might procrastinate or neglect to submit.
To float a tender successfully, you need to first prepare the request for the tender contract document. Including details is a must to target the right vendors and avoid unnecessary communication.
Add the following details without fail to make your tender procurement process a success.
The request for the tender document must carry the tenderer's company details, contact information, address, email, country, etc. this is to let the bidders know where the tender contract comes from.
If you are going to keep the tender value open, mention the bid range or actual tender price. The bidders will quote their value based on the price you mention here.
Also, the date when you officially float a tender and the final date for submission of tenders should be included.
In this stage, you will formally let the suppliers know about the tendering and invite them to participate.
Here, you should list your expectations and requirements that the bidder should meet to place a bid.
By clearly mentioning the terms, you can make your screening process quick. It can be company turnover or involvement in similar projects mention them in your RFT.
Request for proof and supporting documents to validate the listed criteria. You can also request the bidder to add what process they follow while manufacturing goods.
If you are expecting goods or services that meet certain standards, mention them here. Mention the standards or accreditations like ISO, IEC, ISI, etc.
Here is where the client should mention any terms and conditions that the bidder should be aware of before making the tender bidding.
It should also list down the responsibilities that the bidder has to fulfill once they accept the tender contract.
Business tenders should also contain the requirements and how long the supply will be required (if it’s a short-term contract).
Be clear and comprehensive in this section so that the bidder can confidently make the bid and not overcommit.
If this is a closed tender, you might have already gone through the bidders’ profiles and known their scope of work.
Closed tenders are where you already have selected the bidders and conducted a prequalification round.
Open tenders are where bidders begin the tender bidding process by accepting the RFT.
Include how the tender bidding process is going to happen and what the bidders can expect next.
This stage is where you will also include how their tender is going to be analyzed and measured against other bidders.
Evaluating tenders is the most critical process that must be conducted carefully.
It happens after you float a tender and receive responses for it. Tender evaluation happens in two stages.
This stage is when representatives of bidders are invited, and the tenders are checked to filter those who fulfill the terms and conditions.
This prequalification committee will be present with a checklist to verify the supporting documents submitted by the tenderers for the following grounds.
• Possession of proper licenses to carry out the tender contract activity and supply in the region mentioned in the tender notice.
• Audit and revenue-related documents for the past three years.
• Company ID verification, registration documents, pan, IT, and Tax registration documents.
• Infrastructure facilities and raw materials possession assurance to undertake the tender contract.
The committee will verify every document submitted by the bidders and reject those who haven’t proposed the proof properly. Tenderers that are prequalified in this stage will be moved to the next one, which is the technical evaluation process.
In this stage, the committee will rate the bidders from 0 to 10 and make the selection process competitive.
There are multiple factors based on which the committee will assess the bidders and score them for each criterion, and these criteria may change from industry to industry.
Based on the final score, the supplier will be selected.
• Checking how compliant their process is. Technical licenses and certifications are owned by the tenderers, whether they are active or not.
• Total years of experience and similar projects handled before.
• Technical understanding and sound knowledge about the tender contract.
• Whether they have materials, manpower, and sourcing facilities to pull off the project, the committee will decide how much score to keep as the cut-off percentage. The bidders who scored above this are technically qualified bids and are moved to the financial evaluation stage.
In this stage, the committee should decide whether the price offered by the bidders in their business tenders is reasonable and worth the goods/services going to receive.
As the committee knows the price of all the qualified bids, they should decide if it’s valid, comparing it with market prices, the value quoted by other suppliers, and the value offered by previous suppliers.
The committee members are allowed to discuss things with bidders in this round. So, if they want any clarification on the bid and want to confirm the final price, they can.
Every communication should be in written format and recorded. The bidder should be notified that this is not for negotiation purposes and just to clarify the final price.
The bid with the lowest commercial price is going to receive the maximum score, and the other bids are rated consecutively from this. The formula to rate other bidders is,
P = y*(μ/z)
P = Score of the bidder
y = Maximum number of the points set for the financial evaluation stage
μ = Price of the bidder with the lowest price
z = Price of the bidder who is being evaluated
After calculating the score for each bid, the supplier with the highest score will be selected as the best bid, which offers value for the money.
In order to identify the winner of the tender bidding, add the technical and financial evaluation score together for each bidder.
Now the bidder with the highest score will be decided as the winner, and they will be called for further discussion.
During this, they can have the final negotiation and talk about project implementation or goods/services supply.
Different teams from the winning bid will come forward to clarify their concerns and questions.
Then they will be awarded a formal contract which is also known as a Letter of Award.
Later, every participant will be formally notified of the results of the bid either through email or an announcement on their website.
Those who didn’t qualify can contact back to know what conditions they didn’t meet and on what grounds they were rejected to improve their winning chances next time.
To conclude, business tenders aren’t complicated if you understand the purpose it serves and basic etiquette.