What is a Competitive Bid?
A competitive bid can be defined as a formal bidding procedure in procuring goods or services, particularly on a large scale. During this process, multiple bidders solicit or request the required products/services at a quoted price. After all the applicants submit their bids, the service provider/s reviews, evaluates, and selects the best bid.
Competitive bidding takes place through a request for quotation (RFQ), request for proposal (RFP), tenders, etc.
Significance of Competitive Bid
A competitive bid enables buyers to work with reputable sellers with favorable prices and contract terms. Here’s a breakdown of each benefit:
- Ensures transparency and fair treatment
Buyers benefit from competitive bidding as it helps them acquire products at the best terms and cost-effective prices. Since the selection procedure is open, where bids forwarded by other applicants can also be seen, there is no scope for partial treatment or favoritism. Hence, equal opportunity prevails for all applicants.
- Specialized services
Buyers are entitled to partner with reputable sellers who offer exceptional services. These collaborations are a win-win situation for both buyers and sellers as they foster growth.
- Cost savings
Sellers have the power to select the bid that is the most profitable based on the rates determined by them. It also helps cut down on costs involved in finding potential buyers.
How Competitive Bidding Works
The objective of this bidding process is to ensure competitiveness and avoid favoritism in selection.
- Vendors interested in procuring certain goods/services fix a cost-effective price they are willing to offer and submit their bids within the proposed period. These bids are password-protected to ensure the confidentiality of each bidder.
- Once the submission term expires, the recipient of the bids/service provider evaluates them and selects the one with the best terms. This entire selection procedure is conducted via open bidding.
Use Case with Competitive Bid
Suppose a construction business owner requires raw materials like cement, clay, concrete, metal, wood, etc. Now, the owner comes across a request for a proposal issued by a reputable company offering these goods. He evaluates the proposal and communicates with the bid manager to know about relevant details. The bid is drawn accordingly and submitted within the specified time.
Meanwhile, all bids received by the company are evaluated within the tenure. Finally, the last stage of negotiation and selection is carried out. If the price quoted by the owner meets the company’s requirements, then he will be selected, and both parties will sign legal documents.