Competitive bidding is a common practice for procurement that involves inviting multiple vendors to bid for the same material, product, or service per the business's requirements. It is usually opted by companies engaged in the large-scale delivery of products or services.
Competitive bidding is done by way of tenders, request for proposal (RFP), request for quotation (RFQ), etc., by the organization. The tender, RFP, or RFQ is a document that details the business's requirements and invites vendors to participate in the competitive bidding process. The interested parties must submit their proposals in response to the tender, RFP, or RFQ within a specified timeframe.
The interested parties must submit sealed or password-protected proposals in response to the tender. After the due date of the tender, the business is expected to evaluate the received proposals and select the proposal with the best terms and/or the lowest cost per the business's needs.
If a vendor is interested in meeting the business's requirement for specific goods or services, it is expected that the vendor will be able to display their capability, readiness, and history to execute the process. It is done to ensure that there are enough checks in place to select the right vendor through competitive bidding.
In addition to the procurement of goods and services, competitive bidding is also used in selling companies by investment bankers. The process is designed to increase the competitiveness of the bids to ensure that the business can get the best possible offer.
Competitive bidding allows transparency, equality of opportunity and the ability to demonstrate that the outcomes represent the best value.