Invitation to Bid Explained
An invitation to bid is an important part of the procurement process – allowing businesses to remain fair and compliant in the bidding process, while ultimately accessing the most attractive and cost-effective vendor services.
In this guide, DeepStream explores exactly what an invitation to bid is and how it works, as well as how businesses can use the process to evaluate and choose vendors to form successful partnerships and projects.
What is an Invitation to Bid?
A bid invite – also known as an Invitation for Bid (IFB) – is a process in which an organisation calls vendors to submit a proposal for a procurement contract.
The invite contains all the necessary information a supplier needs to know about the project and its requirements – including quantities and pricing – allowing them to submit a competitive bid to win the contract.
The purpose of a bid invite is to streamline the process of searching for new vendors by narrowing down the specifications required for a project and picking the best-qualified supplier that is also offering its services at the most affordable rates.
Bid invites also allow businesses to remain compliant in the tendering process and avoid procurement fraud by giving an equal formal bidding opportunity to all interested parties.
For example, imagine a small family baking company needs to source its flour and icing from a vendor. That baking company would create a bid invite, detailing the number of ingredients needed, as well as the frequency. That bakery firm then sends these invites out to suppliers who may fit the bill. The buyers can then offer their pricing for the service, and the baking company can take their pick of the cheapest suppliers who provide the best service.
When is Best to Solicit an Invitation to Bid?
IFBs are often required by government authorities and industry regulators to ensure all company and supplier rules of engagement are laid out clearly in a transparent and traceable format.
Because of this, IFBs are required when any company seeks to acquire the products or services of a supplier through the bid invitation process.
Before a bid invite can be solicited, a business must first understand and outline the products or services it needs, and what KPIs need to be met within a particular price point.
To keep within regulator guidelines, bid invites should be solicited once these supplier goals have been identified and outlined. Submitting them sooner would result in a messy and unfocused bid invite process that could leave some bidders disadvantaged and the business open to potential procurement fraud –while leaving it too late could result in government fines and sanctions.
What is the Process of Issuing a Bid Invitation in Procurement?
There are four main stages in the bid invitation process– the bid appeal, the bid submission, the bid selection, and finally the contract formation.
The first stage is the bid appeal. Here, a company looking for suppliers offers a document with specifications of what products or services are required, as well as any additional information such as financial requirements or deadlines.
This stage of the process is important as it outlines exactly what a company requires– eliminating suppliers who are unable to offer these services while giving all remaining suppliers a level playing field to submit their bids.
In our bakery company’s initial bid appeal, the need for flour and icing is outlined alongside the quantity of those ingredients required – as well as their financial limitations and their delivery and manufacturing requirements. Some prospective suppliers don’t offer both ingredients in the quantity specified and are ruled out. However, at least five companies do offer this service.
All suppliers interested in fulfilling the contract then submit bids to the client and wait for review. A client isn’t forced to accept every bid, but it is advised that it accepts a small pool of bids that most closely match their needs and priorities.
This step gives the suppliers a chance to respond to the client by either accepting or declining. Once accepted, a supplier then has the opportunity to offer a fair price for the service and market themselves to the client.
In our example, four of the clients that have received invites from our bakery firm decide to accept the invite, while one drops out – its workload being too large to take on another client. The remaining four clients each offer their return proposals to the client. It’s now up to the client to decide which proposal is the most attractive.
The bid submission stage revolves around a supplier’s attempt to convince a business that its services are the best for the price being offered. After reviewing these bids, it’s now time for the business to select the vendor that submits the most attractive bid for its needs and requirements.
This step sees the client gather all remaining bid proposals in one place and compare them by manufacturing capacity, price, logistics offerings and more.
After careful consideration, our bakery company decides that one proposal offers the best level of service for the right price, delivering icing and flour at regular monthly intervals. They decide to go ahead with that proposal and inform the other suppliers that they won’t be progressing with their proposals.
With the selection process complete, a client can now draft up a formal contract with their chosen supplier, being sure to outline the terms of the contract.
Businesses issuing invitations to bid often use RFx software with an eAuction platform to send, receive, manage, record and track bid invites in a single place.
Not only does RFx software offer a compliant and traceable procurement process but an eAuction feature offers bidder visibility, allowing vendors to view competing offers in real time. Suppliers can then adjust and improve their bids in the future, while businesses reap the rewards of the most competitive and attractive bids.
Key Elements of a Bid Invitation Document
When drafting up a bid invitation, it’s important to make sure all bases are covered. Here’s what each element of a bid invitation document is used for and why they are important:
A bid invitation document should include the project name and the bidder’s email address, as well as a bidding number and opening/closing dates. Identification is important because it helps a client cross-reference bids efficiently while also allowing suppliers to confirm and validate their bids.
The next part of a bid invitation document involves listing the purpose of the procurement request and the critical components involved (such as price, quantity and frequency of delivery). This part of the form should also specify how goods and services are delivered, along with signatures from both parties. These elements are important because they define the exact parameters of the contract and allow both parties to stipulate their expectations and responsibilities.
The invitation should always notify the client and suppliers that the only products and services up for bid are those outlined in the contract, and any additional work will need to be considered aspart of a separate bid. It’s important to clarify this in the brief, so that all parties involved in the bid invite process understand exactly what services and products are on offer.
Methods of Contact
The final element of the bid invitation document involves notifying the bidders how they’ll be informed if their bid succeeds. This element of the document establishes further communication between the client and supplier and is essential for hitting the ground running as soon as the project is approved.
The Importance of Transparency
Transparency within the bid invitation process is essential, to avoid bid rigging and other acts of procurement fraud. It also creates an open and honest environment in which the supplier that provides the most appropriate and attractive bid for the best price is rewarded.
Businesses can ensure transparency by following all of the expectations of a bid invitation – creating a level playing field for suppliers by equipping each bidder with the same information.
The use of RFx software is also key in creating a completely traceable audit trail throughout the procurement process.
What Criteria Are Used to Evaluate Bids?
When evaluating procurement bids, each submission must be considered against a single set of criteria, including:
The relative price a supplier or service provider is offering the client for its services. It is in a client’s best interest to keep the price as low as possible while maintaining quality.
The industry experience of a supplier. Suppliers must keep their business history accessible for the sake of transparency. A client will be looking for relevant experience and deep, demonstrable knowledge of the industry.
Understanding of Requirements
A client must evaluate the supplier or service provider’s understanding of the project. They need to know that the supplier can understand the work scope enough to fulfil demands.
How well a supplier has performed on previous bids with other companies is also something a client needs to look out for. Sometimes a supplier can appear satisfactory on the surface, but their track record may show a lack of communication or work ethic that could spell trouble for the bid.
A supplier’s competency in the task at hand is also essential information. In the context of procurement, do they possess the logistical expertise to keep up with the demands of the bid for the duration of the contract?
A supplier’s availability could also heavily influence its ability to meet demand. Does it have other clients it is also supplying and if so, how many? A supplier with greater availability is often more attractive in terms of speed and communication.
Each supplier or service provider may have a different methodology for how it works, and some of these methodologies may not gel well with the clients. A client must choose a company with a complementary way of working.
Compliance With Submission Requirements
Following instructions and specifications is a key component to a successful client/supplier relationship. If a client can’t follow the specifics of the bid submission requirements, then it poses questions about its ability to follow the work specified in the bid proposal.
How well a supplier or service provider is performing is another aspect worth considering.If a supplier is struggling financially, it is likely to have a harder time fulfilling the requirements of the bid proposal while staying afloat.
RFx Software from DeepStream
DeepStream is committed to supporting compliant, fair and effortless procurement.
Our RFx software keeps all your work in one place – from eAuction tools that ensure seamless IFB processes, to logging all communications with successful trading partners – with complete visibility for all parties.
To find out more about how DeepStream transforms the entire source-to-contract process, chat with our team today.
Frequently Asked Questions (FAQs)
Q: What does a bid invitation mean?
A: A bid invitation is a document offered by a client to prospective suppliers or service providers, inviting them to make an offer to fulfil a contract for goods or services. The client then decides between the suppliers or service providers that accept the proposal.
Q: Can a bid be rejected?
A: A bid can be rejected by the client, or it can be cancelled by the bidder (providing no plans had been put in place for a working relationship). It is recommended that bid rejections should be as fair and polite as possible.
Q: How do I respond to a bid invitation?
A: When responding to a bid, it is advised that a client follows the bid response procedures laid out by the client. If the client hasn’t laid out any procedures, then the best protocol is to respond via their preferred communication channel and thank them for the opportunity to bid.
Q: Is it acceptable to back out of a bid?
A: Yes, in the public sector, bidders can withdraw their bids at any point between bid submission and the contract formation stage. Any reason can be given for the bid withdrawal; however, this withdrawal must happen before any contract is formed.