If you are new to business, the word “tender” may confuse you when you hear it. Or perhaps, you are a small business owner who already knows what this word means but would like to learn more about it. Regardless of what your situation is, you are in the right place. It does not matter whether you run a small, new, or very big business; as a business owner, you should not just be able to answer the question “what is a tender in business” but you should also know certain important things when it comes to this business concept.
Luckily, this article has been written for the sole purpose of helping you know more about tenders and what it means in the business world.
Meaning of a Tender in Business – What is a Tender in Business
In the business world, the word “tender” describes an invitation or written request that companies send out to suppliers, service providers, or vendors, asking them to submit bids that would enable them to deliver goods or services to the company that sent out the invitation.
Therefore, a tender, in this sense, is the document that a buyer sends out to potential suppliers to submit their bids and offer the goods/services that the buyer is looking for.
When the word “tender” is used to describe the above process, then it can also be called “Request for Tender (RFT)” or “Invitation to Tender (ITT).
However, “tender” was originally used to refer to the response that suppliers give to buyers after getting the buyer’s RFT.
That is to say, the buyer sends out the Request to Tender, and the supplier replies with a tender.
The difference between these two documents has significantly blurred, and most companies use the word “tender” for both.
So, you may hear a buyer say they want to “publish a tender”.
In this case, you should know that what the buyer means to say is that they want to publish an RFT.
Tenders are crucial for a company’s procurement process, especially for large organizations.
It is one of the best ways to aid a company’s sourcing process and help them get the best-qualified supplier for the goods or services they seek.
The tendering process is through which a company publishes an RFT, receives tenders from different suppliers, and selects the best supplier among them.
This article will still take a closer look at the tendering process.
But before then, let’s see how tenders in business work.
How Tenders Work – What is a Tender in Business
Nobody in life exists in a bubble.
Everyone needs people now and then to help out in certain areas of their lives.
The same goes for the business world.
A business cannot be so independent that it would conveniently carry out all its processes by itself.
From time to time, a business would need to work with another company or supplier to get certain services or goods it cannot get on its own.
When this happens, the business would want to ensure that they get the right vendor for the job and that the entire process is straightforward and transparent.
There are several options that a company can explore to achieve this and one of them is floating a tender.
This is what initiates the tendering process.
The company looking for a service or product would need to publish a request for tender.
Potential suppliers, upon seeing the RFT, would then submit their bids to get the job.
RFTs are most times announced publicly.
Therefore, any supplier who thinks they can handle the job can send their bid (tender) to the publisher of the RFT.
Suppliers would show how they intend to meet the company’s needs in their tenders that published the RFT.
Suppliers typically include their pricing plans, delivery information, work processes, and every other necessary information that the buyer needs to decide.
Once the buyer goes through all the tenders they get from prospective suppliers, they can select the supplier that would meet their needs from the many applicants.
Different Stages in a Successful Tendering Process – What is a Tender in Business
There are different stages in any tender process.
For things to go smoothly, the company floating the tender need to follow these stages properly.
To help you better understand the different stages involved in this process, let’s look at them below.
This is the initial stage where the buyer identifies and evaluates their needs.
At this stage, the buyer has to properly consider their needs and requirements for the service or goods they want to procure.
It is these requirements that will be drafted and used to create the RFT that they would publish to attract potential suppliers.
So, the buyer has to ensure they fully understand what they are looking for at this stage.
It may not seem like it initially, but this stage sets the tone for the rest of the process.
It can determine the success or failure of the entire process.
This is why buyers have to take their time to ensure that their evaluations in this stage are clear and cover all aspects of their needs.
In this stage, the buyer would go through the list of potential suppliers to whom they would like to submit their tenders and then filter those they think aren’t qualified.
Then, after writing their RFT, the buyer would send it out to only the suppliers that made their list.
But the pre-qualification stage is an optional stage that buyers may not find necessary.
A lot of companies publish their RFT publicly.
In this case, they do not need to go through this stage.
However, while this stage is optional, it often ensures that everything goes smoothly throughout the process.
This stage can be quite beneficial to both buyers and suppliers.
It can save both parties a lot of time.
The buyer won’t have to go through several tenders from unqualified suppliers.
And suppliers, on the other hand, won’t spend their time making a tender and bidding for a project they aren’t qualified for.
If you go through this stage in your tendering process, then you’d have a closed tendering process.
However, if you skip this stage and bidders can start bidding when they accept your RFT, you’d have an open tendering process.
Publishing Request for Tender
Once the buyer has identified and evaluated their needs, they would find the best idea to meet them.
This is what their RFT would cover.
The RFT is often not just an invitation but also a guide.
It would typically tell potential suppliers what the buyer wants, the project’s scope, other important specifications, and even the technical parts of the project.
The buyer’s RFT has to contain every necessary information that potential suppliers need to create a tender that would reflect the buyer’s needs.
Once the buyer writes the RFT, they can then go ahead to publish it.
This can be done online, in magazines, or on any platform where potential suppliers can find it.
The buyer must include important details such as the project’s title, tender requirements, bidding fee, types of vendors or contractors they need, location, and the deadline for suppliers to submit their bids when publishing the RFT.
Receiving Tenders from Interested Suppliers – What is a Tender in Business
Once the buyer publishes the RFT, they should start getting supplier tenders.
The whole reason for going through this process is to get the best supplier or vendor.
And this means someone offering the best quality goods or services at a fair price.
Therefore, the buyer now has to go through all the tenders to get the best.
They must consider both the price and quality of each supplier’s work.
Focusing on just one of these factors won’t give the desired result.
If you focus on just the work quality, you may get superb quality but very cheaply.
And if you focus on just the price, you may be getting poor quality at a low price.
Therefore, do not just select the bidder with the lowest price.
Read through the tenders you get and remove those that do not match your project requirements.
Also, you should not consider or accept any tender after the submission deadline.
Selecting the Best Supplier – What is a Tender in Business
The buyer would likely have a handful of potential suppliers at this stage.
These would have made it past the previous stage.
This means that you would be left with very qualified suppliers at this stage.
And selecting the best from among them would even be more difficult.
However, you should still be able to streamline your options until you find the best among them.
Once the buyer has found the best bidder, they would need to contact the bidder.
They would tell the selected bidder the news and then offer them the contract.
Once they accept, the buyer would also need to send an official notice stating the results of the entire process.
Features a Good Request for Tender Should Contain – What is a Tender in Business
To successfully float your tender, you have to carefully prepare your RFT.
This document must contain certain important features to ensure it reaches and attract the right suppliers and also prevent the need for unnecessary communication between buyers and bidders.
With that said, the following are important features to add to ensure the success of any tendering process.
Floating a tender that does not carry the company’s details that published the document would be pointless.
That being said, you have to ensure that your RFT contains your company’s name, contact information, email, address, and any other important detail that will make you reachable to bidders.
If your RFT lacks these details, the bidders won’t know who is floating the tender and it would be next to impossible for them to respond to the RFT.
This part of your request should list the criteria a bidder must meet to qualify to send a bid.
This would make the screening and selection process much easier and faster as those who do not meet your requirements would know better than to make a bid.
You can also ask bidders to attach documents validating their claims of having the criteria you listed.
Invitation Letter – What is a Tender in Business
This is a formal invitation to potential suppliers.
This would inform them about your tendering process and also ask for their participation.
You may need the goods or services you seek to meet some standards.
This is especially true for some industries.
In this case, you should include your standard expectations in your tender.
You can list standards and accreditations in this part of your RFT.
This would also help screen out suppliers that cannot match your standard.
Other Important Details that Potential Suppliers Should Know
Your company’s needs and peculiar situation may make you have some unique conditions for the project.
Therefore, you should make sure you communicate them with your potential bidders.
Your RFT must include any conditions or factors bidders should know before responding to it.
You should also include the responsibilities and roles a supplier would fulfil if they get selected and accept your tender.
Also, the duration of the project should be in the RFT.
The RFT should include whether the contract will be long-term or short-term.
The section of the document detailing this must be as clear as possible.
This way, every bidder would clearly know what they are getting into if selected.
So they won’t commit to a project they do not have the time to fulfil.
Important Factors to Note When Floating Tenders – What is a Tender in Business
Floating a tender is not as easy as you think when looking at the surface.
If you want everything to go smoothly, you need to make sure you do everything properly.
There are several important things that you should note and evaluate before sending out your RFT.
This section will consider some important factors below to help you get the best results when floating a tender.
Before you float a tender, you should take time to consider your needs properly.
While you may think you need to carry out a project in your business ASAP, careful consideration may show you there are other pressing issues or that you do not even need to do the project at all.
So, do not just jump into the tendering process until you confirm that procurement is necessary at that particular time.
Make sure you take your time to consider your needs, how urgent the project is, your available budget, and every other important factor before you float your tender.
Your RFT must be as straightforward as possible.
Any bidder should understand what you expect from them from your RFT.
And they should know what their response tender should look like from your RFT.
Avoid ambiguity; bidders should not have to contact you to ask questions or clarify any part of the RFT.
Bid Confidentiality – What is a Tender in Business
Bid confidentiality is very important when attracting bids from potential suppliers.
You should be able to ensure that another bidder’s tender is confidential and not accessible by other bidders.
This way, the need to adjust their prices based on the tenders of other bidders won’t be there.
You should not just practice this but also ensure that your bidders know you practice confidentiality.
Tender Submission Deadline – What is a Tender in Business
While suppliers should have a deadline to submit their tenders, you should ensure this deadline isn’t unrealistic.
Suppliers would typically have to prepare the tenders they’d use to respond to your RFT.
They need to evaluate your RFT properly before they can start preparing their tenders.
This may take them a while.
You want to be sure that the opening period is long enough to give your bidders the time they need to submit their bids.
However, you should also not make the opening period too long.
A long opening period can lead to procrastination on the suppliers’ end.
You should have metrics that you would use to select the best supplier at the end.
Not only should you have these metrics, but you should also communicate them with your bidders.
They should know the steps and factors you would consider in the selection process.
Advantages of Tendering – What is a Tender in Business
Why go through the stress of tendering?
Well, the following are some important advantages your business can get from this process:
Encourages Competition Among Suppliers
When suppliers bid for a contract, they know they have to give it their best shot.
They know that the only way they can only get the contract is if they do their best.
Therefore, this competition will help the company get the best result.
Makes it Easier for a Company to Compare Different Offers
Comparing different offers is typically the best way to get the best.
But doing this may not always be so easy.
But tendering removes this issue by bringing the suppliers straight to the company’s doorstep.
Eliminates The Chances of Going into A Verbal Contract
Verbal contracts sometimes do not end well.
But with tendering, this can’t be an issue.
This is because, regardless of the type of tender used, there would always be a written document to back up the contract.
Conclusion on What is a Tender in Business
Tenders are important in business and can significantly aid a company’s procurement process.
However, before you decide to use the tendering process in your business, you must be sure it is necessary.
Many small businesses do not often need to float tenders, as sourcing can be easy.
However, if you need to use this process in your business, this article should have armed you with enough knowledge to carry out the process successfully.