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Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy

Procurement Bids — Everything You Should Know

Key take-aways

  • Bids can refer to offers made by individuals or organizations to purchase assets or participate in auctions.
  • Procurement bids involve suppliers competing for a contract by submitting offers in response to an organization’s solicitation.
  • The procurement bidding process is essential for transparency and fair competition.

So you are here because you want to know indirect procurement bids? Well, do not worry, you are in the right place.

For this article, we will discuss what procurement bids are. We will check why it is important for companies to have a bidding process. Additionally, we will discuss the 5 steps of the bidding process. 

Once you finish reading this article, you will have a deeper understanding of procurement bids. This will allow you to use it in your profession or your company to better judge the best suppliers for you. 

What are Bids?

There are a lot of bids when it comes to business. Bids may refer to an offer made by a person or an organization to purchase an asset. It may also refer to making bids at an auction. 

However, the closest meaning that we are finding today is about the bids made by companies or suppliers to compete for contracts such as purchasing goods or services.

What are Procurement Bids?

When the organization needs materials or services in order to undertake a project, it starts by finding suppliers. Then, after the assessment, they will let the suppliers compete with each other through bidding. 

Bidding is an offer made by the supplier to compete for a contract. With this, we can say that procurement bids refer to the suppliers vying for the contract. The organization sends a solicitation to suppliers to select the best partner among all the bidders.  

This is important for the organization to select the best supplier that fits its budget and requirements. This is a cost-effective process that allows the suppliers to compete fairly.

The Procurement Bidding Process

The procurement process is crucial for the organization. It allows transparency and fair competition among the suppliers. Additionally, it creates a benefit for the organization by selecting the best supplier for the lowest price possible. 

The procurement bidding process is utilized to choose the most suitable supplier to deliver the required goods or services. For the public sector, the tender process is a must to establish transparency and fair access for all. 

Procurement bids allow the company to fairly evaluate all the supplier’s potential. Usually, the evaluation set by the organization is based on quality and the pricing of the products or services. 

You should take note that companies do not always base their prices on the lowest prices. It also includes quality, timeliness of the delivery, technical ability, social value, and innovation. 

The bidding process is done by the organization that promotes the best value for money through transparency and fair procedures.

    5 Stepsof the Bidding Process

    The bidding process is like a job interview for suppliers as they showcase their capabilities to the organization. If your first impression is great, then you have the chance to move to the negotiation phase.

    The bidding process for public projects requires high regulation compared to private projects. However, they usually follow the same procedure. 

    The following are the necessary steps in the bidding process:

    1. Bid solicitation

    Bid solicitation is where the organization sends out a request for proposals (RFP) or invitations to potential suppliers. The invitations are usually large and open for public projects. 

    Here, the organization lays out its project requirements, the specific contract type, and the delivery method. 

    The bid solicitation phase needs more information such as the request for quotation (RFQ). It is the method utilized to acquire more information necessary to check the supplier’s credibility.

    2. Bid submission

    The bid submission includes all the relevant company information. It has the company’s history of projects, a track record for completing tasks on time, and a management plan. 

    The bid submission must include a cost estimate based on the materials’ quantity and the plan for the project. It needs to have accurate costs to ensure cost-effective methods. Of course, the best price heavily influences the bid. 

    3. Bid selection

    There are rules for public sectors, especially the government, where the lowest bidder wins the contract. This somehow helps the public sector to rule out any manner of fraud or biases as the price is the greatest equalizer. 

    On the other hand, the private sector considers some factors apart from the lowest prices. The price acts as the tie-breaker when both suppliers have comparable bids. 

    4. Formation of the contract

    Of course, after the organization selects a supplier, both parties must form and sign a contract. The contract will legally bind them to do their obligations.

    The contract is a safeguard for both parties if one of them becomes non-compliant with the agreement. 

    This phase is the final opportunity for the organization to negotiate the final price of the bids. Additionally, any other stipulations can be discussed for both parties to mutually benefit. 

    5. Project delivery

    After the contract phase, the project is now ready to roll. The project delivery is based on the project delivery method that both parties agreed on. 

    Whatis Competitive Bidding?

    Competitive bidding is a form of solicitation that is utilized in the acquisition of goods or services. 

    It is used by government agencies and private organizations that need the delivery of materials or services on a large-scale basis. 

    Both the public and private sectors must issue a form of solicitation which is usually called the request for proposal (RFP). It highlights the materials or services that the suppliers need to show interest in supplying through the competitive bidding process. 

    The CompetitiveBidding Process

    Interested suppliers or vendors send their bids for the organization to consider within a specific period. Usually, the bids are sealed to promote the confidentiality of each proposal sent by the vendors or suppliers. 

    After the expiration of the bid, the organization selects the bidder with the lowest or best terms for the request for proposal (RFP). The selection of the suppliers or vendors can be done through an open or closed bidding process. 

    The competitive bidding process aims at increasing the efficiency of the bids, avoiding biased treatments, and enabling the organization to get the best offer.

    An Exampleof a Successful Bidding

    A spaceship ride with Jeff Bezos

    On June 12, 2021, a seat on a spaceship ride with Amazon’s founder, Jeff Bezos, went for $28 million during a live auction that concluded the month-long bidding process for the sightseeing trip on Blue Origin’s space trip. 

    Within four minutes after the opening of the live auction, the bids reached beyond $20 million. After just 7 minutes, the bidding was concluded. However, the identity of the person who won the bid was not immediately disclosed. 

    According to an analyst of the financial services company, Morgan Stanley, putting Jeff Bezos, the world’s richest man, into space is a huge advertisement for space as a domain for industrialization, investment, and exploration. 

    An Exampleof Rigged Biddings

    Construction of International Agency Headquarters in Europe

    An international agency carried out a special audit to know if there was any fraudulent act in awarding a contract in constructing a new 300-euro headquarters building for the agency. 

    The audit showed that only three firms submitted their bids for the project. The two bidders who submitted their bids are two large companies well-known in the region. On the other hand, the third bidder is a small private firm that appeared to be unqualified for the contract. 

    The third bidder also submitted an incomplete bid at a much higher price compared to the other bidders. The higher price was due to the inflated quote to provide fire safety equipment. The private firm was given an opportunity to defend its bid but refused to do so. 

    Furthermore, the investigation revealed that the international agency had already hired the firm to renovate the other properties it occupied and that the firm paid kickbacks to agency management in exchange for both contracts. 

    The international agency has rewritten its audit report to exclude the above finding to conclude that there was no evidence of collusion in the construction of the project. 

    Conclusion

    This comprehensive guide on procurement bids explores the concept, importance, and key steps involved in the bidding process. By understanding procurement bids, readers gain insights into the mechanisms that organizations use to select suppliers and secure the best value for their projects.

    The inclusion of real-life examples, both successful and problematic, further illustrates the dynamics and challenges associated with the bidding process.

    Frequentlyasked questions

    What are procurement bids?

    The procurement bids refer to the process of selecting the best suitable supplier for the organization.

    What is competitive bidding?

    Competitive bidding is a form of solicitation used in the acquisition of goods or services.

    Do all organizations need a bidding process?

    Yes. The bidding process creates a transparent and equal footing for all the suppliers wanting to win the contract.

    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.

    Marijn Overvest Procurement Tactics