What is a Competitive Bidding Process?
What’s a competitive bidding process, and why do they hold it with such high regard?
We’ll go with the layman’s definition and say it’s a typical procurement practice that primarily involves submitting multiple offers by suppliers, contractors, or vendors who make a living by supplying goods and services.
The ultimate goal of the competitive bidding process in procurement and any industry is to ensure opportunity equality and show transparency. And that’s the reason why you’ll find all high-value acquisitions undergo this process.
Significance of a Competitive Bidding Process to Businesses
We want to cut a long story short and go straight to the point, but we’re also aware that it’s not going to be a cakewalk if we don’t talk about the bid-hit ratio. So, we’ll take the long route instead.
What’s a Bid-Hit Ratio?
It’s the total number of bids won by a vendor or contractor after bidding in simpler terms. For the sake of clarification, let’s throw in a hypothetical competitive bidding example here:
Assuming you’re a contractor, and you’ve decided to place a bid on 8 various projects. Fortunately or unfortunately—depending on your definition of a win—you only manage to win 1 out of the 8 bids submitted. Your bid-hit ratio, in this case, will be 8:1. Meaning, you usually expect at least a win out of every eight bids that you submit.
All contractors and vendors should understand that having a low bid-hit ratio, or losing bids, is not great for business—It never is. Eventually, you’ll feel the ripple effects when calculating the average profit margin, and newsflash—no business can survive this form of economic turbulence if their margins keep on dropping.
Oh, and by the way, before we forget, there’s something else that you should know;
Mastering the skill of bidding is the only way you’ll be successful in this or any other industry. And once you win a bid, make that project your number one priority. Invest a significant chunk of your time and labor in it, and not in the jobs that you’ll inevitably lose.
Types of Competitive Bidding
Open bidding is synonymous with governments and private sectors. This type of procurement process is a tad different from the other three because there are no restrictions on who can submit a bid. The opportunities offered here do not discriminate at all.
As a new vendor or contractor, you’ll undoubtedly fall in love with open bidding. However, if you’ve not fully grasped the concept of bidding, the cutthroat level of competition among suppliers in the market will for sure crush your spirits.
What’s so different about this type of bidding? The fact that you’ll only be able to submit a bid after you’ve received an invitation from a client. Even if you spot a gig that you think is right up your alley, do not submit your bid. The chances of them not getting back to you are astronomically high.
Selective bidding is common among firms that only deal with high-value acquisitions. The contractors or vendors who usually get contacted are business owners who’ve already earned their stripes in the industry.
The construction and engineering industries have used this form of bidding for eons. And that’s probably due to the complex nature and size of the contracts. Most project managers prefer negotiated bidding to any other type of bidding process because it’s cost-effective.
Single-Stage & Two-Stage Bidding
Single-stage bidding is more appropriate when all the vital information is provided to the vendor or contractor, who’ll need to calculate a rough estimate of the total project’s costs. They’ll first receive an invitation, prepare a bid, return it, and then wait to see if they’ve been selected. That’s how that goes.
In two-stage bidding, the project information comes after the selection. First, the contractor or vendor is hired, and then the negotiations can begin right after.
The Process of Competitive Bidding
Find the Bid: You cannot place a bid if there are no bidding opportunities. Therefore, the first step is to search and learn about the available opportunities. Technological advancements have made a lot of things more accessible nowadays. Unlike before, you now don’t have to leave the comfort of your home if you have an internet connection. Just open your browser and visit any reputable procurement-bidding site of your choice. You’ll find all the information that you need there.
Strategize: Do you know how you will approach that bid after examining the Request For Proposal? Strategically. Don’t just wing it or roll the dice and hope Lady Luck will favor you.
The way we see it, you have three options:
- Decide to work alone as the prime contractor
- Partner with other vendors and contractors
- Or go in as a subcontractor
It all depends on what you think you can deliver and how you can provide it. Also, we do have companies that are all about diversity. Do your homework beforehand, and find out if they’re the type supporting Minority Business Enterprises (MBEs). If they are, send out a diversity message, and make it clear.
Be part of the pre-bid activities: Ever heard of a Request for Comment or Request for Information document?
You’ll meet project managers who’ll request you to provide them with some information about your business before submitting any bid. It’s their way of trying to figure out if you’re someone they can trust. That request is what we’re referring to as an RFC or RFI.
Pre-bid activities might also include attending conferences or events that are important to your potential clients. In case you receive the invite, try to keep time, as you’ll want to make an excellent first impression.
Submit your bid: The information collected at the pre-bid activity stage will be enough to help you draft a solid bid. Just be sure to follow all the laid-out instructions because a small mistake could cost you a million-dollar opportunity in this business.
Take part in the bid evaluation process: Once finished with the submission, keep your lines open. If they like what you’ve submitted, they’ll have follow-up questions for you.
Win the bid: Cross your fingers and wait. Calm your nerves. If you’ve won the bid, they’ll reach out with a contract. But if you didn’t, take it as a good learning experience and try your luck elsewhere.
Advantages of Competitive Bidding
The competitive bidding process is that vendors and contractors are evaluated on predetermined criteria, including the quality of goods and services supplied, pricing rates, and best ROI. These are but a few examples of some of the factors that are typically considered when reviewing bids.
Your chances of winning a bid will be great if the services or goods you supply are of a high standard and the price point falls among the lowest. Whoever ends up winning that bid won’t be selected based on the connections they have or anything. It’s purely on merit.
Thanks to competitive bidding, all contractors and vendors are often given a fair shot. It improves the quality of the products and lowers costs by eliminating redundancies and operational inefficiencies. Competitive bidding processes are beneficial to both buyers and sellers. Buyers get to spend less while catering to their various expenses, and sellers find it easier to market themselves.
For the record, we’re not saying the competitive bidding process is perfect. This system has flaws, but the positive can usually outway the negatives in the long-term. Healthy competitive markets foster diligence, execution, and innovation.
Competitive bidding in procurement has, without a doubt, made it easier for new vendors and contractors to supply their products and services in any industry. And this takes us back to what we were talking about in the first point. There’s no favoritism in this system. All you have to do to win a lucrative contract is prove yourself. You don’t need connections or even contacts.