Estimated reading time: 5 minutes
A tender is a submission made by a prospective supplier in response to an invitation to tender. There are 4 types of tenders, mainly open tender, selective tender, negotiated tender and single-stage and two-stage tender. With proper preparation and understanding, any business can master its bid management and tender evaluation approach. Once the project has been evaluated to be a good opportunity for the business, there are various factors one should consider before entering the tender process. These factors mainly are project requirements, project costings, manpower capabilities, fit of business capabilities and bid management team.
After receiving all the tenders, the supplier then undergoes a tender evaluation process to identify which bid offer is best. The best bid offer is the one that offers the most economically advantageous proposal based on the criteria specified in the invitation to tender or quote document.
Choosing an Evaluation Model
- Lowest Price Conforming
- Price Quality
The two most commonly used evaluation models are the Lowest Price Conforming or Price Quality. The Lowest Price Conforming model is generally used for simple or small projects, while Price Quality model is used for bigger, complex projects. The latter requires more information to evaluate and decide the best bidder in terms of their capabilities that meets the projects requirements. The main disadvantage of using the Lowest Price Conforming model is that entries would mainly focus on providing the cheapest price when submitting the bid. The Price Quality model consists of more factors when doing the evaluation. The factors consist of non-price attributes such as relevant experience, track record, relevant skills, management systems and methodology used.
Applying the Quality/Cost Ratio
However, it is important to note that the key underlying principle to both these models is the Quality/Cost Ratio. Tenders should be evaluated on the value for money they offer the supplier throughout the whole-life cost of the contract awarded and the benefits gained. To achieve this, the Quality/Cost ratio should be applied to the evaluation methodology. When running a competitive tender however, the Quality/Cost ratio may have been pre-determined by the issuing authority.
Quality Criteria should represent the key issues for consideration when assessing the suitability of a bid proposal. Here are some examples on the types of criteria possible. These will vary dependent on the goods, services or works being procured. Different weightages are given to the criteria based on importance and relevance to the project.
- Technical merit
- Aesthetic and functional characteristics
- Environmental characteristics
- After sales services
- Technical assistance
- Delivery date, delivery period and period of completion
Costs should always be based on the whole life cost (WLC) involved with the goods, works or services to be procured. WLCs comprise all costs of acquiring, owning, maintaining and disposing of goods, services or works. If the duration of a contract is unknown, the value of the contract is assumed to be at 48 months (4 years) and the cost is structured for this period accordingly.
Bid Management & Tender Evaluation is a 3-day training course 7-9 October 2019 (Kuala Lumpur) designed to fully equip delegates with the necessary understanding, skills, tools and templates to swiftly and effectively implement world-class tendered procurement strategies and processes. Gain an understanding and leverage the relationships between commercial requirements and contractual frameworks in supplier negotiation. Ensure your organisation is able to capitalise on the many opportunities available when utilising a class leading approach to a well-structured and thought out, tender process.