Which tendering process is right for what you’re trying to source? Choose wisely – the wrong path can put you in bed with the wrong supplier, which always leads to unwanted ramifications for the broader business. There are, obviously, many steps to the procurement process, but none more important than choosing whether to use open or closed tenders.
Several determining factors are involved, such as what you’re sourcing, the supplier landscape, and what vendors you already know. For government, there are also tight regulations regarding which process is to be followed. But before we delve deeper, let’s take a brief look at exactly what these two processes look like.
What is an open tender?
The name says it all – an open tender is open to anyone. Any potential supplier can view the tender, sometimes known as a Request for Proposal (RFP), and submit a response. No one is excluded; a previous or existing relationship is not required to submit a tender.
This type of tender is typical within government departments and agencies that have strict regulations regarding tenders and supplier relationships. An open tender is one way of emphasising a fair tender process where everyone has a chance to bid.
What is a closed tender?
A closed tender, also known as a limited tender, is open to only those who are specifically invited to bid. Those who aren’t on the invitation list but submit a proposal anyway are likely to be ignored.
A closed tender isn’t as common within government departments and agencies as it excludes potential suppliers; there are, however, circumstances under which it is allowed.
Closed tenders are more popular among for-profit organisations, particularly when they know the supplier landscape well, have done their research, and narrowed the field down to a select number of vendors.
Open vs Closed Tenders: Pros & Cons
- Open tenders don’t exclude any potential suppliers, which means your organisation gets a great overall view of the supplier market and the deals on offer.
- By not excluding any suppliers, you take an unbiased approach to the supplier market – an important factor for government departments and agencies.
- Open tenders can be a more expensive process, simply because they are more time consuming; accepting all comers means there are more bids to analyse and decide upon.
- If you aren’t excluding anyone, you’re potentially dealing with suppliers you know nothing about. This can expose you to some unscrupulous operators and generally leaves you more vulnerable to a bad deal.
- With open tenders, there is sometimes too much focus on lowest price at the expense (pardon the pun) of quality and other important considerations.
- It can be a cheaper process. Inviting only a select few to submit bids means there is less time you have to spend on analysing them and deciding their potential. Less time equals less money.
- You have the opportunity to invite only those suppliers you know to be reputable and professional. This avoids any bad eggs.
- With fewer bids, there is a chance to embark upon more substantial communication and a more collaborative approach. Not only can this lead to a better deal for both sides, it also lays the foundations for a positive, long-term business relationship.
- Obviously, a lot of potential suppliers are excluded. Dealing only with those you know can reduce the chance of dealing with bad eggs, but it also means you miss out on the good ones you don’t know about. Somewhere out there, the right supplier for you is waiting; a closed tender reduces your chance of meeting them.
- There’s a level of bias with closed tenders that can make them inappropriate for government departments and agencies.
- If you’re new to the supplier landscape, or have worked with an incumbent for many years, it’s difficult to identify a shortlist of the best vendors out there.
Open vs closed tenders – make the right choice with the right advice
As you can see, each style of tender has its strengths and weaknesses, which are exaggerated depending on the market you’re in. Making the right call on the style of tender you choose is pivotal to landing the best deal available, and Comprara can help you do just that.
As procurement consultants, we’ve not only advised countless organisations – both public and private – on the most suitable process, we’ve also facilitated many auctions. We know what parameters to set, the questions to ask, and what aspects of a potential supplier’s reputation matter to you.
If you want the contracts that can transform your organisation for the better, get in touch with the team today.