Tender 101

A tender can be defined as a written invitation for the potential suppliers of goods or services, to gather information required for the buyer, so as to choose among them. A request for tender (RFT) is a structured, formal invitation sent to suppliers from a government, private or a financial institution. Using the information provided in the tender, the buyer chooses the best from the offers among the bidding companies. Price, delivery terms, availability, and quality are major factors that will be considered by the buyer while weighing options. In the public sector, an interested company pays a prescribed fee and secures the required documents needed for a bidding process. The types of bids are as follows –

• Technical bid – The availability of technical goods is prioritized over price bidding.
• Financial bid – Refers to the highest price the buyer is willing to pay for the asset.
• Commercial bid – A competitive process in which each vendor strives to offer the best of products and services at the least of prices.

Process Outline

The government usually publishes an invitation for companies to make proposals for any upcoming or ongoing project, in order to ensure that the entire process is fair, open to all participants, and free from nepotism and bribery. After the completion of deadline of the submission, an evaluation committee will then critically evaluate all proposed biddings and then decide which firm is the best option to work on the project.

In a tender, the buyer lists down the conditions that need to be met while competing the project, general information regarding the company and its capabilities, costs of raw materials and labour, milestones to be adhered to, and the previous clients of the firm. As a tender is usually for long-term projects, bidding companies may have to incur additional costs and commitments, such as Performance Bank Guarantee (PBG), Bid Bond, etc. A Performance Bank Guarantee is an assurance by a bank, stating that if the vendor fails to abide by the terms in the contract, the bank will reimburse a pre-determined amount of money to the buyer. The purpose of a PBG is to offer a secure promise of compensation to the buyer, in the form of an irrevocable surety from a bank. On the other hand, a bid bond is a proof that the vendor can comply with the terms of the contract and complete the project, if the vendor is chosen in the bidding process. It indicates that the vendor has sufficient monetary resources to work on the project.

Firms could also invite proposals for Empanelment of Contractors, wherein the buyer seeks the services of a firm for activities, such as civil, electrical, and interior works for a stipulated period of time.

Types of Proposals

A few related types of proposals include

• Request for Information – An open enquiry that seeks broad data and understanding
• Request for Quotation – An opportunity for the bidder to quote competitive prices for its offerings.
• Request for Tender – An opportunity for companies to submit bids against a detailed tender.

Types of Tenders

Broadly, tenders can be categorized into single tender, limited tender, open tender, and global tender.

• In a single tender, when only one supplier is available, the tender is addressed to the selected firm.
• A limited or closed tender is open to a prescribed set of companies, which are chosen as the reliable suppliers.
• An open tender, on the other hand, is open to all participating firms in the country.
• In a global tender, any organization from any part of the world can submit a bid to the buyer.

Bidders and Relevant Documents

In the oil and gas industry, governments and organizations call for bids for various intents, including oil drilling services, onshore services, offshore services, oil and gas pipe laying, well testing services, etc. Generally, each tender document specifies the eligibility to bid, as receiving proposals from Original Equipment Manufacturers (OEMs), authorized dealers and supply houses, sole agents, authorized distributors, etc. For firms with foreign collaboration or joint ventures, governmental clearances may be required. For most limited tenders, tender fees will not be charged. Depending on governmental regulations, there could also be provisions for the exemption of tender fees, for small-scale industries, public sector units, and other organizations.

A part of the tender document, called General Conditions of Contract (GCC) lists down the standard terms and conditions generally applicable for all contracts, irrespective of the type of supplier, nature of work, etc. In addition, a part called the Special Conditions of Contract (SCC) describes the terms and conditions that are specifically applicable for the said tender. Although most bids are prepared and submitted in English, if supporting documents are in other languages, accurate translation also needs to be provided. The bidding company also needs to furnish other requisite documents, unambiguous price schedule, duly signed prescribed proforma, check list, discounted prices, relevant technical literature, etc. It is to be noted that the firm may reserve the right to modify the quantity after the bid gets accepted, and the winner will then be obliged to supply the ordered quantity at the offered rates. The buyer might also require third-party inspection of the supplied material.

The bid proposal should also include details of personnel training and associated costs, including to and fro fare and accommodation charges, provision for local transport, etc. The buyer would also need the specifications of installation and commissioning charges, with the specified details. Care should also be taken to study the details of the process, including terms pertaining to service or income tax, bid security, delivery terms, validity of the contract, performance security, etc. All in all, the bidding process is exhaustive and elaborate. Therefore, bidders need to be careful and calculative while preparing and submitting the bids. The processes and documentations associated with tenders are varied and complex.

This blog covers only the fundamentals of tenders. Watch this space, to gather more information and gain an in-depth understanding about the vital role of tenders in the oil and gas industry.