MM/U3 Topic 8 Buying through Tenders
With competition growing as ever, Information technology replacing the arduous manual mode of purchasing and transparency in dealings more required than ever, many professionally managed firms have started looking for more sources of supplies, beyond their normal boundaries. Not that tender buying did not exist earlier. Rather, it has always been considered the only way of buying materials / services in the government and quasi government procurement’s.
As the word suggests, tender buying is selecting a supply source (supplier) out of many sources available. That is, many tenderers are invited to participate in the tendering process and then one or more than one tender is selected for order placement. Such tenders are also called the Accepted tender/s (A/Ts).
The main focus through tender buying is on competition of price and quality. Usually, the best quality (T1 or Q1) is selected after assessment of the technical offers and then the lowest offered price (L1) tender is selected for order placement.
Process of tender buying
A typical purchase function starts with the raising of a requisition (Indent / Material Procurement Requisition) for an item which is required for a stated purpose. This requisition is then converted into an enquiry form which is issued to the probable vendors who are asked to respond within a given date and time (called Tender opening date) as mentioned in the enquiry issued to them. The interested vendors respond to the tender enquiry by giving their tenders. Tenders thus received are opened on the Tender opening date at the fixed time.
The tenders are then subjected to evaluation with respect to a tenderer’s capability, Financial as well as Technical and other criteria as laid down in the tender enquiry. This step also witnesses series of discussions, clarifications and negotiation with the tenderers. Some tenders can be rejected at this stage as they might not meet the requirement of the purchaser. Finally, the tenders which are found suitable are subjected to price comparision and usually the tenderer offering the lowest price (L1) is selected for placement of order.
The process explained above shows a great deal of variations depending upon a company’s procurement policy. In some places, the best quality offering tenders are accepted for subsequent price comparison whereas in some other place all the tenderers who meet the minimum requirement are considered accepted for price comparison and order placement. Similarly, in some places the order is placed only on L1 (lowest offered price) whereas in some other places it may not be rigidly followed so.
Types of Tenders:
Since the tenders are sent to the probable vendors, knowledge of vendors for the item in question is a necessity. It’s based on this concept that the types or mode of tendering is decided against a particular purchase requisition.
Most commonly used Types of tendering / tender buying are as below:
1) Global Tender
As the name suggests a global tender is floated with a view to elicit offers / response from any vendor situated anywhere in the world. The need for a global tender arises when the purchaser either does not know about the vendors for a particular item in question or when he thinks that a wider choice of vendor is possible through it, irrespective of his nation’s boundaries. A few clear reasons are:
- Lack of information on vendors
- Only a few vendors known
- When there are chances of cartel formation among known vendors
- Anticipation that more response may come
What is of importance in this popular mode is the way a global tender is floated. With internet becoming the most powerful tool transcending the national boundaries, a wide range of applications are now possible. There are tender portals (www.tendertiger.com, http://www.indiatenders.com etc.) on which one can upload the whole tender enquiry and then ask the interested vendors to make offers. Besides, this increasingly popular way of inviting tenders, listing the tender in international trade journals, leading world newspapers etc. are other ways of putting up a global tender enquiry. The idea is to give wide publicity of the tender, worldwide and circumstances permitting, to place the order on a foreign supplier too.
2) Open Tender
An Open tender too like a Global tender tends to invite tender from any interested vendor. The basic difference assumed between an open tender and a global tender enquiry is essentially the range of its applicability. While a global tender gets the worldwide publicity, an open tender is limited only within a country. Otherwise, the concept remains the same as it also seeks to elicit better or wider response.
Since the Open tender enquiry is limited within the country itself, besides the internet mode, the enquiry is also printed in the national dailies, internal trade bulletins etc. for ensuring its wide publicity, within the country. Any vendor who meets the tender requirements can make an offer.
Now a days, since e-procurement is replacing the old manual mode of working, one of the most commonly used mode for Open tendering is uploading the tender on the internet. What is of interest now is the narrowing down of differences between the global tender and an open tender. Any content published on the internet is expected to be available to anybody located anywhere in the world unless due to some mechanism such as firewall etc. the reach of internet is restricted.
3) Limited Tender
When the issue of tender enquiry is limited only to a selected few vendors, it is called Limited Tender Enquiry (LTE). LTE is issued when the capabilities of the vendors is well known to the purchaser. It is considered better than Global and Open tender modes as there is always an element of uncertainty in those two modes with respect to the capabilities of the vendors.
For issuing LTE, a purchaser maintains a list of approved /registered vendors whose capabilities are checked periodically.
4) Single Tender Enquiry
An STE is issued only when either the item is proprietary in nature, that is only one supplier produces that item or where there may be more vendors but due to certain exigencies it is not possible to devote time on evaluating the vendors’ offers / one supplier can, for sure, fulfill the needs.
Which mode to use and when depends on many factors as well a company’s procurement policy. For example, for a small value purchase, if the policy does not prohibit, Single tender enquiry or Limited tender enquiry is considered ideal. These are also ideal for high value and frequently bought items.
On the other hand, for high value and non frequently bought items / systems , Open / Global tenders are suited.
In many government organisations, whose procurements are also called public procurements for the reason that they spend public money for the public cause ,all the tenders are to be invited only through Open / Global tenders.