What is a Tender?
A tender is an offer to do work or supply goods at a fixed price. Tenders usually apply to bigger jobs and public sector work in particular – ranging from the local council to government departments.
Related: How To Make A Success of Tendering
The format of a tender proposal varies widely by industry, but all have the same basic requirements. The most important part of any tender response is the deadlines.
When submitting a tender it’s important to remember that it’s a highly competitive process, so it’s imperative that you provide your best quote.
Many organisations including government agencies do not negotiate prices once the tender has closed. Firstly, the tender process is an understandably competitive one. Everyone wants the same piece of the same pie so you can be sure that your tender is up against the toughest of your eligible competitors.
And although cost is an important factor in deciding which tender is awarded the contract, it’s not always the only criterion. Obviously, it goes without saying that you have to be deemed capable of delivering the goods or services required.
- Get hold of the bid documents and analyse them.
- Make sure you can match the technical, skill and experience requirements.
- How much will it cost to prepare your bid?
- Would the work fit in with your strategy and positioning of your business?
- Estimate the costs of fulfilling the contract and whether or not you’d make enough money to justify it.
- Assess how the contract would affect your other work, staffing and ability to take on other new business.
Familiarise yourself with the ins and outs of the tender process – because it’s never as easy as it sounds.
Simply put, a tender is an offer to do a particular job or supply particular goods at a particular price. Also referred to as a bid, it is a process whereby businesses have the opportunity to put forward their goods or services at their price to the organisation that has put out the tender.
Because government is spending public money on contracts, and is committed to transparency in how this is carried out, it adopts a tender process as a way of limiting the chances that contracts are awarded on the basis of favouritism, racism, nepotism or any other unfair process.
The same applies in the private sector
A similar principle applies to companies in the private sector which need to remain transparent about their procurement process.
Once you submit a tender, it will be reviewed according to a number of criteria along with all the other tenders for the same contract, after which government or the organisation will accept the tender and award the contract to its chosen service provider.
This contract is legally binding – it requires the service provider to deliver the goods or services at the tendered price and within a particular time framework, and it requires the other party to pay for the goods or services at the price tendered and on time. Great – so where do the snags come in?
Tenders are awarded points
All government tenders are awarded points and the bidder that obtains the highest number is awarded the contract. But in line with its procurement policy, government gives preferential points to contactors that are owned and operated by previously disadvantaged individuals (PDIs).
For example, the Small Enterprise Development Agency (Seda) points out that government adjudicates 80% of tender on price and 20% on the PDI status or gender of the business owner, for tenders under R500 000.
Companies in the private sector often have a similar policy of favouring suppliers with PDI status.
Find the information
But first you have to find out what contracts have been put to tender. National and provincial government departments; municipalities; parastatals and big companies in the private sector all issue tenders.
The system is designed to make information on tenders freely available but that doesn’t mean you won’t have to go looking for it. Proactivity is the name of the game.
Establish your eligibility
Your next step is to determine whether you are eligible to tender for the contract. Seda advises that businesses that meet the following requirements are ready to tender. The business should:
- Be a registered business or be licensed with the relevant local authority;
- Have a good banking record, credit history and relationship with its suppliers and clients;
- Be able to deliver on time, on budget and according to specifications and to deliver consistent quality;
- Be registered with the South African Revenue Services;
- Have an up to date tax clearance certificate;
- Pay its bills on time;
- Have the cash flow and other resources necessary to complete the contract;
- Have qualified employees who are registered with the Department of Labour (UIF, Skills Development Levy, Workmen’s Compensation);
- Have, or can acquire, the right equipment and accessories to complete the tender; and
- Have products that comply with SABS or other relevant standard authorities;
- Be proactive
You may choose to tender with another business in a joint venture but remember to choose this partner very carefully.
Make sure you have all the contract documentation in place detailing how profits will be split and what each party is required to deliver.
Seda also suggests that you join with two or more other small businesses rather than one partner that’s considerably bigger than you are – it’s good advice.
Do the paperwork
Once you have identified a tender that you’d like to pitch for, you need to access and complete the tender documents. On this point, filling them out correctly plays a vital part in the potential success of your bid. How hard can that be, you might ask.
It’s not so much that it’s difficult, but more that it requires you to be highly specific and pay close attention to detail. Especially for government tenders. Forget to include your price and you’ll be disqualified. Deliver your tender one minute after the deadline and it won’t even be considered.
If your product or service does not comply with the specifications of the tender, your bid will be removed from the list and you’ll have wasted your time.
For national and provincial government tenders you will need to fill out standard forms. Give yourself plenty of time to complete and post, courier or hand-deliver the documents by the deadline.
Help with completing tender documents
It’s advisable to contact a Tender Advice Centre (TAC) who will help you get hold of and complete the tender documents correctly.
Get the price right
Price is a big factor in awarding tenders so you want to ensure that your price is competitive but having said this, you also need to make a profit.
Those in the know generally advise that you work on a cost plus 7.5% basis. Working out how much the contract will cost requires you to pay close attention to the specifications in the tender.
Labour, materials, equipment, insurance, the length of the contract and how assets like vehicles will depreciate during this time all need to be considered. The length of the contract and whether you will be paid in instalments will also determine if you are going to need bridging finance. Take all these things into consideration when working out your price.
Don’t give up
If you don’t succeed at your first tender attempt, put the process down to experience and remain tenacious. Once you have delivered successfully on one tender, you have a foot in the door and more success will follow.
In the meantime, keep focussing on delivery and service excellence – whether you are awarded tenders or not, these attributes make for a winning business formula.