New to tendering? We've got you covered with all the basics and frequently asked questions.
What is tendering?
In its simplest form, tendering is the process by which an organisation who is in need of goods/services invites other parties to submit a proposal or bid to provide these goods/services. This invitation is formally referred to as a Request for Tender (RFT).
Looking for a more detailed description? Check out our blog Demystifying the Tender Process.
The organisation who publishes the request and needs the goods/services is called the Buyer, while the organisation who responds to the request and provides the goods and/or services is called the Supplier.
Example: Due to a population increase a new school is being built, called Happy Kids High School. They need someone to maintain the classrooms and bathrooms, so they publish an RFT for cleaning services, and Carl’s Cool Cleaning Company submits a response. In this example, the school is the Buyer and the cleaning company is the Supplier.
What is a tender? Is it different from an RFT?
The short answer is yes, a tender is different from an RFT. Here’s how…
RFT: As mentioned, RFT is an abbreviation of Request For Tender. This is the document(s) the Buyer releases, inviting Suppliers to submit their responses. An RFT will typically include documents outlining the following:
- Conditions of tender – rules of the tendering process and response
- Form of tender – schedules and details Suppliers need to include in their response
- Scope of tender – details of the good/services the Buyer requires
- Evaluation criteria – specifics of how the Buyer will assess responses
- Conditions of contract – particulars of the legal contract to be awarded to the successful Supplier
Tender: On the other hand, a tender is the document the Supplier submits in response to the RFT – essentially an offer to supply the goods/services the Buyer requires.
However, the terminology can be a bit confusing because both words are often used interchangeably, so you might hear a Buyer say that they “published a tender”. What they really mean is that they’ve published a Request for Tender, or a similar request related to the supply of goods/services (see different types of tenders below).
Example: As part of a city expansion project, your local council needs to build a new bridge, so they publish an RFT which outlines their requirements, inviting Suppliers to respond. You run a Civil Construction company capable of doing the work they want, so you submit a tender (also referred to as a tender response, bid, or proposal) which outlines how you would meet their requirements and how much it would cost. Your local council then evaluates your tender alongside the other Suppliers’ submissions, and awards the contract for building the bridge to the Supplier who best meets their budget and criteria (hopefully you!). This is the process of tendering.
Are there different types of tenders?
Just as the word 'tender' is sometimes used to refer to either the Request for Tender or the response itself, it can also be used to refer to a range of different types of requests from Buyers.
Terms can change across different industries and locations, but some of the common types of tenders/requests in Australasia are:
- Request for Quote (RFQ)
- Request for Proposal (RFP)
- Request for Information (RFI)
- Invitation to Offer (ITO)
- Invitation to Respond (ITR)
There are lots of other types of opportunities (e.g. EOI – Expression of Interest) and alternative terms (e.g. Purchasers instead of Buyers) used across the tendering industry, but don’t let this put you off - check out our handy glossary to learn the lingo!
Basically, any time a Buyer publishes a request for goods/services and invites Suppliers to respond – whether they’re offering a formal contract, asking for pricing, or just wanting information on what can be supplied – then this might be referred to as a tender. However, note that each type of request can differ in terms of the documents required and the outcome of the request.
Different forms of the tendering process are used by varying types of organisations, in lots of different industries, across all sectors (public, private and non-profit).
While different forms of the tendering process are used by varying types of organisations in lots of different industries and across all sectors (public, private and non-profit), tendering is more common in certain areas.
It’s particularly common for governments, councils and non-profit organisations. In most cases they’re actually required by legislation or procurement policies to use the public tendering process for contracts over a defined value threshold, in order to ensure the process is fair and unbiased.
Tendering is also more common in certain industries, like construction, engineering, information technology, and business consulting. In general, the tendering process is likely to be used any time the dollar value of the contract is high, or there is significant risk.
Why do people tender?
Buyers may decide to put a project ‘out to tender’ for a number of reasons, some of which are:
- To get the best value for money through healthy competition
- To ensure valuable contracts are awarded in a way that is fair and unbiased
- To minimise risk by using a rigorous screening process
Similarly, there are a lot of reasons for Suppliers to tender, including:
- To build a pipeline of work in advance in order to gain long-term financial stability
- To grow revenue – tendering is a lucrative industry, worth approx. $60 billion annually
- To expand their business by building long term relationships with Buyers
Now that you’ve got an understanding of what tendering is and some other foundational knowledge, you’re probably wondering whether it’s right for you and your business – don’t worry, we’ll cover this in our next article, so keep an eye out here on the website, or sign up to our mailing list!
Still got questions?
Have a chat to our friendly team on 1800 233 533 (AU) / 0800 698 363 (NZ) or ask us here.