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What is Bidding?

By Sheri Cyprus
Updated May 16, 2024
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In business, bidding is a recognized way of competing with other businesses for a contract to do a project. The hiring company examines and compares bid proposals from the different businesses to choose the firm with the best overall proposal. Bidding is used for many types of business work and supplies that range from construction projects to medical equipment. Companies inviting bids from contractors or suppliers usually specify how the winning bid will be chosen.

If a company is only interested in a low price for products or services, it will often ask for competitive bidding. This term indicates that the winning bid will be selected on the lowest price quote only. A price quote is the fee for which a contractor or vendor will provide the requested goods or services. Knowing upfront that the bidding is competitive saves bid writers a lot of work, since other details aren't going to be as important in the proposal as the price quote.

Open competitive bidding is a business term that means all who want to view the opening of the sealed bids may do so. Closed bidding proposal situations are those in which only selected individuals in the bid receiving company view the bids. A bid is also called a tender. Invitations to tender may be placed on a company's website or in ads in trade journals or newspapers.

When bid requests aren't specified as competitive, other factors besides financial ones will be considered. For these types of tender proposals, a company may use a bid form or template. This kind of request for proposal (RFP) requires bidding vendors or contractors to fill in information on a standard form the company uses for all its bid requests. Non-competitive RFPs typically ask for details such as turnaround time and product specifications. The company then compares each bid proposal sheet to choose the best overall product or service offer.

Sometimes, the bid requesting firm doesn't decide the winning proposal from the bids alone. Instead, it creates a short list of possible contractors or vendors. This procedure is much like a job interview process in which the interviewer narrows down the search for a candidate to fill the position to a short list of candidates. In a RFP bidding process, companies on the short list usually prepare an in-person presentation. The winning business is often the one that shows visual evidence such as testimonials or photographs to prove why it's the best choice for the project.

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Discussion Comments
By kylee07drg — On Apr 13, 2012

My friend opened up a party supply store last year, and at first, she simply bought all her inventory from one source. After attending a business owner's convention, she learned that she could be accepting bids instead, and this sounded like a much better idea.

Once she opened up the floor for bids from supply companies, she was able to save so much money. She had never dreamed that companies would be competing to sell her some party merchandise, but now, that is the only way she does business.

It always pays to look further into your options when starting a business. Accept bids on anything that people are willing to compete to sell to you.

By cloudel — On Apr 12, 2012

If you are looking to buy a hard-to-find item online, then bidding is often the best option. You could pay far less for it on a site that accepts bids than you would elsewhere.

The rarer an item is, the more likely it is to have high bids placed on it. However, if you happen to be the only person interested in the item, it is possible that you could walk away with it at an extremely cheap price. I recently bid on an old video game that is no longer manufactured, and I got it for only $11, simply because no one else wanted it, and the time had run out for anyone to make another bid.

By shell4life — On Apr 11, 2012

@OeKc05 – I agree with you that in certain situations, competitive bidding should be avoided. Construction is definitely one of the areas that would be best handled with request for proposals.

I know that when my dad's company was looking to build a new facility, he ran ads in the newspaper for requests for proposals from construction firms. He took his time with the interviews, and he had a couple of his workers sit in with him and give him their opinion of each presentation.

However, when it comes to things like buying medical supplies, competitive bidding might be the best option. I would think that most syringes and things like that are basically the same, and if a hospital could find one company willing to sell them cheaper than another, there should be nothing wrong with choosing the less expensive option.

By OeKc05 — On Apr 11, 2012

It's strange to me that some businesses simply choose the lowest bid without considering the overall quality of their choice. This could get them into sticky situations, it seems.

What if they chose the cheapest bidder to build their new office, only to find out that the construction crew was lazy and inefficient? What if they got stuck waiting for a whole year for the project to be complete, when they had only planned for it to take a couple of months?

It just seems to me that accepting the lowest bid is a bad idea. They should always consider other factors, because cheapest can often be bad news.

By anon145141 — On Jan 22, 2011

Compare the use of bidding in the private and public sector of the economy.

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