Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy
Open and Closed Tendering — A Guide to Procurement Tenders
Key takeaways
- Open and closed tendering represent two distinct approaches to procurement. Open tendering invites broad participation in competition, while closed tendering involves soliciting bids only from pre-selected, qualified suppliers.
- Open tendering offers the benefit of increased competition, potentially leading to lower costs and a wider range of innovative solutions.
- Closed tendering is advantageous for projects requiring confidentiality as only a select group of qualified bidders have access to sensitive information.
Open and closed tendering are two processes that streamline a company’s procurement. It can help a company decide on a partner supplier for a project.
Knowing this process is crucial in maintaining a smooth and efficient operation. This article discusses the two tendering processes.
Moreover, we’ll flesh out its importance in procurement. We’ll provide tables to clarify its differences and its pros and cons.
To top that, we’ll have insights from a procurement professional to ensure learning.
Before you read the whole article, I want to share that I have created a free-to-download, editable request for information (RFI) template. It’s a set that includes a PowerPoint file and a Word file.
You can use and tailor them to your needs when asking for information about the materials you want to buy. I even created a video explaining how to use the templates.
Why is Tendering Important?
The importance of tendering shines through its value in ensuring fairness and transparency. It helps a company establish a robust and efficient procurement process.
The company secures the best value through bidding while achieving its needs.
Incorporating a competitive aspect pushes suppliers to offer better. Competitive and favorable terms for the contractor help the business’s continuity.
The tendering process also establishes accountability and transparency. This process happens through clear criteria and definite evaluation. It builds trust and reputation for those involved. It ensures minimal risk and avoids potential concerns like corruption.
Robust tendering processes enable procurement professionals to establish better selection criteria. It is possible because factors for consideration become available to build it. The tendering process provides reliability, material quality, timeliness, and financial capability.
Implementing the tendering in procurement is crucial for continuous operations. Moreover, it provides the necessary procurement data. It enables better reliability and operationality of the company.
What is Open Tendering?
Open tendering is a company’s process of public bidding invitation issuance. It allows interested suppliers to submit their offers based on their qualifications. Typically, it involves transparent regulations and procurement outlines matching company objectives.
Companies publish notices that detail objective specifications and contract conditions. This process enables suppliers to see if they can prepare for the bidding. Furthermore, companies evaluate them based on predetermined criteria. These criteria include price, quality, and regulatory compliance.
It’s an open competition fostering a dynamic environment and procurement growth. It’s a method ensuring efficiency and swiftness in achieving procurement goals.
However, let the business go with the procurement managers. These leaders are in charge of applying for open tendering. If the procurement team requests quotations, let these pros seal the deal.
This procedure-focused method tackles simple procurement deals. So, if you’ll target comprehensive and complex ones, check for another approach. Open tendering emphasizes simplicity and ease of business deals.
Of course, we should also know how open tendering works. Below are its requirements to maximize its full effect:
Open Tendering Requirements
- It must be open to all qualified bidders
- The tendering criteria must have clear and fair evaluations
- The awarding goes to the supplier who offers the best price-quality
- There must be a local advertisement for this tendering. An international one can work if there’s a need for it
Duration of Open Tendering
The open tendering duration varies depending on various factors. It can involve the project’s scope and complexity. Additionally, it also tackles procurement requirements to ensure stability.
Depending on the processing period, it can take months at best. This period provides suppliers enough time to optimize their bids and proposals.
What is Closed Tendering?
Closed tendering is an exclusive bidding process of an organization. They invite a select supplier group to meet a specific company project. Unlike open tendering, this process focuses on setting qualifications to control quality.
The organization screens bidders through various factors. These factors include experience, technical capacity, financial position, and reliability.
Organizations issue closed tenders through a predetermined list. It can also be through direct contact with the selected suppliers.
When it comes to closed tendering, an organization has greater selection control. Moreover, the competitor reduction makes the stakes higher for the remaining ones. The process also provides better-quality proposals.
It occurs through a closed and strict screening process. Closed tendering ensures the organization can achieve its goals and objectives.
It’s possible by having narrower and more definite criteria in supplier selection. It maintains quality control and operationality within the organization’s procurement process.
Dealing with Closed Tendering
In my experience as a procurement manager at Ahold Delhaize, I have dealt with closed tenders on multiple occasions. We primarily used this approach in the sourcing process of our private-label products.
Throughout the year, we would seek potential suppliers who could participate in the tender. Key criteria included quality, capacity to meet quantity demands, and ensuring all certifications were in order.
If these criteria were met, suppliers could participate in the tender. Following this process allowed us to have control over the participating suppliers and ensured that we did not waste unnecessary time on suppliers who could have otherwise come forward, as is the case with an open tender.
Below are the requirements of the exclusive closed tendering process:
Closed Tendering Requirements
- The selection process involves specific criteria to ensure quality in the tendering process.
- Closed tendering requires only a select group to ensure quality and project optimization.
- The documents in the tendering process are access-only. The organization requires bidders to sign confidentiality agreements as added security.
- Moreover, the organization encourages the selected suppliers to compete actively with the bid.
When to Use Open and Closed Tenders?
Companies use these tendering processes to obtain quality goods and services from suppliers. Using each type varies from scenario to scenario.
Open tenders are for large-scale projects, prioritizing fairness and transparency. It allows various suppliers to compete for a proposal, in hopes of achieving an optimal price. Organizations focus on who can provide the lowest price possible.
On the other hand, companies use closed tenders to ensure selection assurance. It helps them optimize the objective’s direction and meet goals efficiently. Organizations push this tendering with their trusted suppliers. Usually, specialized industries require closed tendering for their complex and comprehensive needs.
Difference Between Open and Closed Tenders
Understanding the difference between open and closed tendering streamlines your procurement approach.
Knowing it can help a company improve operations. All while achieving the best procurement value.
For this reason, it’s best to learn it by having a clear comparison. Below is a table defining these differences. It allows you to maximize your approach in engaging a tendering process:
Pros and Cons of Open Tenders
Open tenders, as stated above, are most common in various industries. It enables ease of business. Additionally, it provides accessibility and a quick way to meet simple procurement demands.
Below is a table defining the pros and cons of Open tendering. It can help you understand how to maximize its benefits in your operations. It can also clarify its procurement value:
Pros and Cons of Closed Tenders
On the other hand, closed tenders focus on driving quality projects into effect. Organizations engage in this tendering process to ensure suppliers meet their specifications.
Below is a table for understanding the pros and cons of closed tendering. This table can help you understand why companies prefer it over open tendering. Use it to its best effect:
Procurement Expert’s Advice on Open Tendering
For this article, we asked a seasoned procurement professional to share his insights regarding open tendering.
Sjoerd Goedhart
Owner, Goedhart Interim Management & Consultancy
LinkedIn Profile: https://www.linkedin.com/in/sjoerdgoedhart/
1. What should readers know about open tendering?
“A tender is a transparent process that enables fair competition between providers. There are several types of tenders and the choice of the type depends on the type of product and the choice of the contracting authority concerning the type of supplier that may participate in the tender.”
Follow-up Question: What factors should procurement professionals consider when determining the most appropriate type of tender for a particular procurement?
“When determining the most appropriate type of tender for a procurement, procurement professionals should consider various factors specific to each tender. There is no one-size-fits-all answer as each tender has its own specifications and requirements.”
2. What is the biggest misconception about open tendering? What do most people get wrong about it?
“That only large companies have the resources and expertise to win tenders which is not true. In fact, small and medium companies are increasingly winning contracts in both the public and private sectors.
Another one is that the tendering process is too complex to navigate. While it is true that certain requirements must be met to submit a successful bid, with the right knowledge and preparation, anyone can participate in the process.”
Follow-up Question: How do small or medium-sized companies typically overcome challenges such as limited resources or perceived lack of expertise when bidding for tenders?
“To overcome challenges like limited resources or a perceived lack of expertise when bidding for tenders, small or medium-sized companies can consider investing in necessary resources for that specific tender. However, it’s crucial to evaluate the importance of the tender for the company, as investing in resources entails a financial risk, especially if the tender is not won.”
3. What are the benefits and challenges of open tendering in procurement?
“The advantage is that all providers can participate in the tender, but this is also the biggest disadvantage. Ensuring that the suppliers who participate, and certainly the ones who win the tender, meet the requirements set for the winning supplier.
Besides this, this type of tendering costs a lot of time to complete, it limits the possibility of long-term relationships, it reduces innovation, it limits suppliers because of its excessive formalism and it requires strict adherence and compliance with procedures.”
4. In practice, is there genuinely no discrimination in open tenders?
“Certainly not. While open tenders allow more parties to participate, it doesn’t guarantee a discrimination-free process. Existing suppliers may have an advantage, leading to pressure on prices and conditions. However, it doesn’t ensure equal opportunities for new participants. In some cases, open tenders may primarily focus on achieving a price effect.”
5. Is open tender the best to utilize in procurement among the other tenders?
“No, the choice of which sort of tender depends on several factors and should be defined for each new tender. There is no one-size-fits-all solution.”
Conclusion
In conclusion, open and closed tendering streamlines a company’s procurement approach. Each tendering process matches a company’s goal when procuring goods and services. Whether for the financial value or the quality, tendering makes it possible.
In this article, we learned about what tendering (both open and closed) is all about. Moreover, we discussed its importance in making procurement more efficient. The tendering process is vital, as it can make the goods acquisition smooth and efficient.
Additionally, we learned about the difference between these two tendering processes in action. It can further help us address the specific scenario to apply it. Knowing each tendering’s pros and cons helps us weigh its procurement value.
With that, a procurement expert’s insight helps us maximize tendering in procurement.
Open and closed tendering are two processes that prove invaluable in procurement. It boosts a company’s operation and motivates its professionals. Thus, resulting in a step closer to procurement success!
Frequentlyasked questions
What is an open tender?
It is a common type of tender that aims to purchase goods or services at the lowest possible price and gives equal footing to suppliers.
What is a closed tender?
It is a type of tender that is open to only those who are specifically invited to bid.
What is the difference between open and closed tenders?
Like what the name implies, open tenders are open for all suppliers and contractors to bids. On the other hand, you can only bid on closed tenders if you are invited.
About the author
My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.
