What is Competitive Bidding? A Comprehensive Construction Guide

Written by Bridget Cooper

DateJan 18, 2024
Reading time5 min read

Are you looking for goods or services for your construction project at the best price? If so, competitive bidding is the best way to go about it. You can come across this term, especially in public work procurement.

So, what's competitive bidding all about? In this process, companies solicit bids from vendors, suppliers, and contractors to get the equipment, raw materials, and other requirements needed to complete the project.

If you are considering this bidding process, this article will teach you how competitive bidding works and its benefits.

What is Competitive Bidding?

Competitive bidding is a process used by companies and organizations to obtain goods and services for the best value. This bidding is a procurement process where organizations can solicit bids from qualified vendors, suppliers, and contractors.

After bid submission, the successful bidder is selected based on specific criteria such as quality, competitive pricing, delivery, and compliance with other requirements. Multiple vendors bid against each other to win the contract in this bid process.

Why do buyers choose competitive bidding? Buyers use competitive bidding to ensure there is fairness, transparency, and competition among the vendors. They then award the project to the lowest bidder, who meets all the requirements and specifications in the RFP form. Also, the company can obtain the best possible price from a qualified service provider and achieve cost-saving opportunities.

Now, there are two types of bidding processes in procurement bidding. That is competitive and non-competitive bidding. In this article, we will look at what competitive bidding process looks like. For now, we can compare the two processes. Competitive or open bidding uses the RFx (such as RFP) process to find possible suppliers.

Non-competitive bidding, also known as closed bidding, entails the procurement team choosing a specific company to buy or restricting the bidding process to pre-selected suppliers.

How Does Competitive Bidding Work?

If a company needs products delivered on a large scale basis for their construction project, they must issue a form of solicitation. This is known as a Request for Proposal, RFP.

This form includes details of all the products they need the vendor to show their interest as a supplier through the competitive bidding process.

The RFP contains details on how the bidding process works, the contract terms, and a guide on how to present the proposals.

Also, it will include a Statement of Work stating how bids will be evaluated, the method used in grading the proposal, and the deadline for bid submission.

This process is common for government agencies and companies that need products or services delivered on a large scale to minimize cost.

The Competitive Bidding Process

Once the interested parties submit construction bids for consideration in the agreed duration, the bids get sealed. This is for the confidentiality purposes of each vendor's proposal. When the bid submission period elapses, the procurement team chooses the winning bid with the lowest and best value through either competitive bidding process.

For a vendor to stand out from potential bidders, they have to execute proposals that they are confident they can perform successfully. They must demonstrate their capabilities based on past performance and readiness to commit to the project successfully.

Here is a workable competitive bidding example in action. This is a public work project for road and bridge construction. This is what happens;

  • The government agency issues an RFP for the project with a detailed specification and requirements
  • Multiple vendors will try to solicit bids
  • The submitted bids are then evaluated based on past experience, costs, and whether they meet all the RFP requirements
  • After evaluation, the company's selection committee awards the contract to the lowest bidder.

With that in mind, let's now look at how the competitive bidding process works.

Buyer's Perspective of Competitive Bidding

From a buyer's perspective, the competitive bidding process helps identify the most qualified vendor for goods or services. The buyer must prepare an RFP and then publish it publicly to reach potential vendors.

Sometimes, the company can decide not to publish the RFP but invite submissions from trusted vendors. Through bid proposals, the vendors must prove their credibility and ability to execute the project by detailing their past achievements, working timelines, and project costs.

After receiving all the bid proposals, the company evaluates the bid depending on the information provided by the vendor. This process can also involve having a face-to-face interview with potential suppliers. The buyer chooses the winning bid and the vendor is invited to work on the project.

Seller's Perspective of Competitive Bidding

It's the seller's responsibility to send a bid proposal in response to the RFP. Sellers must convince the buyer why they are the best for the project. Their bidding process is simple.

Have to qualify to send bid proposal

  • Review the RFP requirements and specifications to check if they qualify
  • Craft their proposal in line with the RFP
  • Wait for the response on whether or not they won the bid for the project

Cost estimation is a crucial factor that buyers use to determine whether the seller gets the job or not. This means the sellers need to conduct thorough market research to ensure their quotes meet the market rate. They also have to understand all RFP requirements and seek clarification if need be.

What are the Benefits of Competitive Bidding?

The aim of competitive bidding is to solicit bids from potential bidders for goods and services. This process is advantageous for both the buyer and the seller.

For instance, buyers will get the best price and the most qualified sellers of products or services. Also, they get to work with experts with vast experience in offering professional services in such projects.

On the other hand, sellers can execute proposals they are confident working on at their determined rates. This helps cut costs of finding buyers for their products or services.

Written by Bridget CooperUpdated on Feb 23, 2024

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