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

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.

Procurement Bidding Example

Amazon HQ2 Procurement Bidding

In 2017, Amazon launched a procurement bidding process for its second headquarters, “HQ2,” planning to invest $5 billion and create up to 50,000 new jobs. Amazon issued a Request for Proposal (RFP) that specified requirements like access to a skilled workforce, a population of over 1 million, and local tax incentives. Over 200 cities across North America submitted proposals, each showcasing unique incentives, from tax breaks to infrastructure support.

Cities like Newark, New Jersey, offered up to $7 billion in incentives, while Atlanta, Georgia, proposed transit expansions to improve connectivity for Amazon employees. After a rigorous review, Amazon selected Arlington, Virginia, and New York City (Long Island City) as the winning locations, attracted by their government support and alignment with Amazon’s growth objectives.

Although New York later withdrew due to local opposition, Arlington proceeded with the project, which brought substantial economic growth and infrastructure investment to the area. This process highlighted the benefits of competitive bidding, fostering transparency and yielding long-term economic rewards.

Bad Procurement Bidding Example

Petrobras Scandal (Operation Car Wash)

The Petrobras scandal, part of Brazil’s Operation Car Wash, involved systematic corruption and rigged procurement bidding within Brazil’s state-owned oil giant, Petrobras. From 2004 to 2014, Petrobras awarded lucrative construction and infrastructure contracts worth billions through a rigged bidding process orchestrated by a cartel of construction companies.

These companies colluded to pre-determine bid winners, rotating contracts among themselves. In exchange for securing these contracts, they paid bribes and kickbacks to Petrobras executives and government officials overseeing procurement.

As part of the scheme, companies inflated project costs far beyond market rates, which led to major financial losses for Petrobras and increased the public debt, as Petrobras is a state-owned entity. Bribes also funded political campaigns, creating a cycle of corruption with high-ranking officials.

The scandal was exposed in 2014, resulting in multiple arrests, financial penalties, and damaged public trust. It serves as a cautionary tale on the dangers of procurement fraud, illustrating how rigged processes lead to financial mismanagement and undermine government credibility.

Conclusion

In conclusion, this guide provides a clear understanding of procurement bidding, its importance, and the structured steps that help organizations secure the best suppliers for their needs. By following these guidelines, companies can foster transparency and fairness, achieving optimal value for their projects.

The real-life examples highlight both successful and flawed bidding processes, emphasizing the impact of proper procedures. With this knowledge, organizations are better equipped to conduct efficient, ethical procurement that meets their goals.