Selecting the right company to fulfil a procurement contract and meet order requirements can be a challenge. A company needs a balance of quality, efficiency and cost-effectiveness from a potential supplier or contractor. But what is the best way to find the right company for an important project?
Open tendering is one solution adopted by many successful businesses. In this guide, DeepStream explains what open tendering is, how it’s structured, and the many advantages it can have in the source-to-contract process.
What Is Open Tendering?
Also known as ‘competitive bidding’, open tendering is a procurement strategy that involves offering bid invites to all potential suppliers or contractors to provide materials or services for a business project.
It’s a process that involves advertising the contract opportunity and inviting interested parties to offer bids for the work.
Compared with ‘closed’ tendering, the invitation is open to all eligible and qualified vendors without any additional restrictions or prerequisite criteria.
Open tendering, therefore, promotes fair trade and transparency between clients and vendors. It also provides equal opportunity for all interested parties to compete in the bidding process.
This also increases competition, which often results in the best value for the business.
For example, in the construction industry, a local government may extend an open tender to construction firms to complete infrastructure work on a new school or building, upon which all firms are eligible to bid.
What Is the Typical Process for Open Tendering?
Open tendering typically follows the same steps as any other tendering process – simply with fewer restrictions on who is invited to bid. Below are some of the key procedures businesses must follow to ensure an effective and successful tendering process:
It’s important to first understand the requirements for a vendor, the evaluation criteria and the specifications of the project. This also includes the preparation of any tender documentation – including invitations to tender, bid forms, contract terms and any supporting documentation.
The procurement team advertises the open tender through various channels – these include public notices, online portals, newspapers, and dedicated procurement platforms. The advertisement provides details about the project, submission deadlines and instructions on accessing tender documentation.
Interested bidders register their intent to participate in a tender bid. This part of the process involves bidders providing basic company information and contact details – and sometimes paying a contract fee.
Bidders prepare to submit their documents within the specified deadline. These documents typically include technical proposals, commercial bids, supporting documents and any required bond guarantees.
Using evaluation criteria predetermined in the preparation phase, the procurement team reviews each vendor’s bid. This involves technical assessments, financial reviews, compliance checks and further clarification from bidders if needed.
Selection & Award:
The procurement team then select a winning bid that matches the required criteria. Contact is made with the winning bidder and plans are made to transition into the contract signing stage.
A final bid meeting is held between the client and vendor, in which the contract terms are finalised and each party signs on the dotted line.
What Are the Other Types of Tenders?
Aside from open tenders, there are several other types of tenders that a procurement team may adopt depending on their needs:
In a restricted tender, an invitation is only open to a restricted number of pre-qualified suppliers and contractors. Other interested parties must apply to bid or complete a core competency questionnaire to prove they are qualified for the contract.
In a negotiated tender, the buyer enters direct negotiation with one or more of the suppliers. This type of tender is used for complex projects, where clients have specific requirements that can only be fulfilled by a handful of suppliers.
Single-stage tenders involve one round of bidding. Vendors submit their bids in direct response to the buyer’s proposal. The buyers then review the bids and select the vendors based solely on those bids.
In this type of tender, the procurement process is divided into two stages. In the first stage, suppliers submit initial proposals and qualifications. In the second stage, the shortlisted vendors are invited to submit their final, more detailed bids.
Request For Proposal (RFP):
In an RFP, a buyer describes their specific requirements for a project. Vendors are then invited to submit proposals that detail how they will fit those requirements. This type of tender is more direct and best for companies that know the specific project that needs to be completed.
Request For Quotation (RFQ):
An RFQ is a simplified type of tender used for procuring standardised goods and services. The buyer requests quotations from vendors for specific products or services – the contract is then awarded to the vendor with the most competitive price.
How Are Open and Closed Tenders Different?
The major difference between open and closed tenders is that open tenders are accessible to all interested suppliers.
In an open tender, vendors can submit bids and enter the supplier selection process without any additional vetting. There are no restrictions on entry with open tenders, and bidding is transparent and competitive.
Closed tenders are invite-only and often focus on a smaller, defined pool of suppliers that are chosen due to their specific qualifications.
While closed tenders restrict some competition, they’re still useful for buyers that require a specific project to be carried out and already have an indication of a few vendors they want to use.
What Are the Benefits of Open Tendering?
Open tendering offers several key benefits that can improve the procurement process for both buyer and supplier:
Open tendering encourages a larger supplier pool to put forward bids. This increases competition between suppliers and results in an overall reduction in cost for the buyer.
All suppliers have equal access to the tender documents – improving bid transparency. This ensures fairness and prevents favouritism, corruption or other types of procurement fraud.
Level Playing Field for Suppliers:
Open tendering allows small-scale suppliers to compete alongside larger suppliers. The best prices get the contract – this encourages inclusivity and supports the growth of small businesses.
With increased tender transparency, the accountability of suppliers and buyers to meet their contract requirements is also increased. This extends to following proper procurement rules and regulations.
What Are the Difficulties Faced with Open Tendering?
The open tender process can be derailed by several factors. To avoid an ineffective open tender process, it’s important to understand the potential challenges and mitigate them before they occur:
High Bid Volume:
Open tenders can attract many bids. This can make the process time-consuming, and truly great bid offers may be lost in the large wave of requests. To mitigate this issue, follow these steps:
o Establish clear evaluation criteria.
o Implement prerequisite criteria to filter out unnecessary applications.
o Use e-auction management software to automate the process.
Lack of Supplier Diversity:
While variety may be wide, there may be a lack of diversity in business location, scale, and capabilities. To address these issues, it’s important to:
o Implement supplier development programs.
o Conduct outreach activities to smaller suppliers.
Bid rigging is the collaboration of suppliers and buyers to tactically bring down the asking price for contracts. Bid rigging and other forms of corruption compromise the fairness and competitive nature of the open tender process. Bid rigging can be prevented by:
o Implementing strict anti-collusion policies and regulations – clearly outlining the consequences of engaging in such activities.
o Conducting thorough background checks on suppliers.
o Encouraging whistle-blowing mechanisms and anonymous reporting channels within the open tender process.
What Are the Best Tender Management Tools?
The most effective tender management tools are those that make the process quick and efficient without compromising on any of the key steps in the source-to-contract process.
Digital tools allow businesses to align all tendering information – including bid invites and bids, supplier communications and even live e-auction software – in a single intuitive platform for effortless evaluation and reporting and a comprehensive audit trail.
This streamlines the process for both business and supplier, saving time and reducing delays, while providing complete visibility over every stage of the tender for all parties.
DeepStream’s e-procurement software is the perfect place to digitally centralize all documents relating to open tender, from contracts to RFQs, RFPs and RFIs.
Frequently Asked Questions (FAQs)
Q: What Is an Open Bid in Procurement?
A: An open bid refers to the process in which interested suppliers or contractors submit proposals or bids in response to a public invitation by the buyer. It allows any qualified supplier to participate and offer competitive rates – then allows the buyer to choose the vendor with the best balance of quality and cost-efficiency.
Q: What Is the Difference Between Open Tender and Restricted Tender?
A: The main difference between an open tender and a restricted tender is that open tenders are open to all suppliers to submit their bid offers. Restricted tender is invite-only and open to just a select pool of suppliers that the buyer deems appropriate for the contracted work. Selecting suppliers to invite is carried out through a strict pre-requisite process.
Q: How Long Is an Open Tender?
A: The duration of open tender varies depending on the scope and complexity of the project – including the specific requirements of the procurement process. It can range from a few weeks to several months. This provides sufficient time for suppliers to prepare and submit their bid proposals to the buyer.