A call for tenders is the process whereby a government or private organization invites service contractors and suppliers to make an offer to execute a proposed project. This could include the supply of parts (e.g. in aerospace sectors) or the provision of services (e.g. marketing initiatives for an education department). Procurement notices are not only used by government or public sector authorities but are also frequently employed by private companies and individuals. However, contrary to private companies, public sector entities are legally required to tender, and procurement is heavily regulated.
Tendering for state-funded projects must be accessible to all companies. Calls for tenders are therefore usually published in specialist journals or online in dedicated portals. Authorities or companies may first release a request for proposals that allow service providers to discuss the methods and tools they would use to fulfill a contract. Pricing can also be discussed at this point. A tender is the procedure of bidding on the proposed project once the specifications and price ranges are established.
In many countries, government departments who receive tax or federal funding are legally required to publicly tender service projects. That’s because legislation states that public money should be used as efficiently and economically as possible. Strict procurement procedures also serve to minimize corruption and nepotism when awarding public contracts.
Increasingly, private companies are using tenders to obtain the most economical offer for their projects. This allows them to minimize costs and increase their profitability.
Contrary to public clients, commercial organizations aren’t required to adhere to strict procurement regulations set out in the Code of Federal Regulations. The Federal Acquisition Regulation is the main document outlining government procurement legislation.
There are four types of procurement procedures in the tendering process:
- Open tender: The majority of public tenders are procured via open procedures. This means that anyone can bid on a contract to supply services or goods in line with the contractual requirements. Open tenders are used where there are no special circumstances or requirements. The number of bids received is not restricted in an open tender. It provides the best opportunity for new companies and start-ups to secure government work.
- Restricted or selective tender: In a restricted procedure, a shortlist of suppliers is created. This may include a pre-qualification survey to determine suitable contractors. Selected companies are then invited to tender. Departments and companies use selective tendering to reduce the administrative costs that a large number of bids could burden them with, and to ensure that contractors match their requirements. Highly complex or secretive projects often involve restricted procedures.
- Negotiated tender: This type of procurement procedure is mostly used within the engineering and construction industry. A negotiated tender occurs once a company has selected one or two suppliers and negotiates with them on certain aspects of a contract. This may involve fee negotiations or could concern specific contractual obligations.
- Competitive dialog tender: Sometimes, a client may specify the desired outcome of a contract, but remain unsure as to how to reach their goal. For example, a public authority may require new software, but not know how to implement it. That’s where a competitive dialog can be useful. A hybrid of a restricted and negotiated tender, the first stage of a competitive dialog enables companies to discuss and negotiate individual aspects of a project. During the second stage, an invitation for tenders is extended.