Procurement is a support activity performed by both public sector and private sector Company in order to acquire goods and services for organizational needs. Typically, procurement of goods and services is carried out sequentially as per the following process:
Issue of requirement / Enquiry → submission of bid → Bid evaluation → Award of order
Bid systemi.e. method in which vendors submit their bids which is part of ‘submission of bid’ stage of the procurement process is one of the important factors of procurement process affecting order timeline, bid control, resources to be involved, negotiation, etc. Thus, the selection of the best type of bid system is one of the vital factors for the success of the procurement process.
The key driver for the adoption of the type of bid system for procurement activities is Company’s inclination towards the procurement principles. Importantly, procurement principles form the building block for the Company’s Procurement strategy, processes and SOPs (standard operating procedures). Broad fundamental procurement principles are:
- Best Interest for a company: Adding value to the company to achieve stated vision, mission& goals.
- Effective competition: Involving a sufficient number of independent potential vendors from wide geographical locations to achieve economies of scale.
- Best value for money: Trade-off between price, quality & performance that provides the greatest overall benefit of the purchased goods/services.
- Fairness, Transparency, Integrity: Conduct each procurement process based on fair, clear, transparent, appropriate regulations, rules and standards that apply consistently to all potential vendors by maintaining integrity.
In general, the below Figure dictates the inclination of the public sector and private sector Company toward the procurement principle-based the way they operate.
| Sr. No. | Procurement Principle | Pulic Sector | Private Sector |
|---|---|---|---|
| 1. | Fairness, Transparency, Integrity | Carryout public opening of bids. Carryout public disclosure of successful bidders. Subject to regulations such as vigilance commissions, state& central ministry rules, etc. |
To better control the procurement process, it does not involve vendors in bid opening. Subject to their in-house developed SOPs. |
| 2. | The best interest for Company | Effective utilization of public money to serve the citizen of the country. Since the money involved is collected from the public through various direct and indirect taxes, such money is spent in a more fair, competitive and transparent way favoring public. |
Effective utilization of company money to increase bottom-line / profit. Since the money involved is of Owners and shareholders, spending money more focuses on getting the maximum benefit in a faster and controlled manner favoring company. |
| 3. | Effective Competition | Publish open inquiry with maximum advertisement to involve maximum vendors from across the globe. | To better control the procurement process, limit vendor’s participation by pre-selecting potential vendor and issue limited vendor inquiry. |
| 4. | Best Value for Money | Adopt the lowest vendor selection model for an award of order. | Focuses on the lowest vendor selection model for an award of a job; however, pre-dominantly selects other than lowest vendor based on quality, relation, budget, reputation, etc. |
Based on the critical review on traits described in the above table, below Figure describes the dominating parameters in the procurement method followed by the public sector and private sector.
Based on various traits, parameters and factors elaborated in para III, bid system options typically available for procurement activities (hard/soft form) are as follows:
- No requirement of Sealed Bids: Bid system in which formal submission of bids is not required. Procurement happens over the counter i.e. specifying the requirements → selection of the goods/services → payment to vendor & receipt of goods/service. This bidding system is similar to shopping.
- Single Stage Single Bid System: Bid system in which goods/service requirements are issued to vendors in forms of tender/enquiry and vendors to submit both their technical and commercial bid together. Both technical and commercial bids are opened together for the purpose of evaluation and award.
- Single Stage Two Bid System: Bid system in which requirements are issued to vendors in forms of tender/enquiry and vendors to submit both their technical and commercial Bid together. Initially, the only technical bid is opened and evaluated. Later commercial bids are opened for technically acceptable vendors only for the purpose of evaluation and award.
- Single Stage Three Bid System: Bid system in which requirements are issued to vendors in forms of tender/enquiry and vendors to submit their pre-qualification, technical and commercial bid together. Initially, under the 1st step, only pre-qualification bids are opened and evaluated. Under the 2nd step, technical bids are opened for pre-qualified bids only and evaluated. Under the 3rd step, commercial bids are opened for technically acceptable vendors only for the purpose of evaluation and award.
- Two-Stage Bid System: Bid system in which requirements are issued to vendors in form of tender/enquiry and vendors to submit their technical and commercial bid sequentially separately. Initially under stage I, only technical bids are called for, opened and evaluated. Under stage II, commercial bids are called for, opened for technically acceptable vendors only for the purpose of evaluation and award.
- Two stages Single Bid System: Bid system in which requirements are issued to vendors in the form of enquiry and vendors to submit their pre-qualification bid separately followed by technical and commercial bid together separately. Initially under stage I, only pre-qualification bids are called for, opened and evaluated. Under stage II, technical & commercial bids are called for, opened for pre-qualified vendors only for the purpose of evaluation and award.
- Two-stage Two Bid System: Bid system in which requirements are issued to vendors in the form of enquiry and vendors to submit their pre-qualification bid separately followed by technical and commercial bid together separately. Initially under stage I, only pre-qualification bids are called for, opened and evaluated. Under stage II, Initially, only technical bidis opened and evaluated. Later commercial bids are opened for technically acceptable vendors only for the purpose of evaluation and award.
- Three-stage Bid System: Bid system in which requirements are issued to vendors in the form of enquiry and vendors to submit their pre-qualification, technical and commercial bid sequentially separately. Initially under stage I, only pre-qualification bids are called for, opened and evaluated. Under stage II, technical bids are called for, opened for pre-qualified vendors only, and evaluated. Under stage III, commercial bids are called for, opened for technically acceptable vendors only for the purpose of evaluation and award.
Below Figure describes the bid system selection recommendation graphically against key parameters:
Below Figure indicates perceptive on bid system adopted by public sector & private sector priority wise i.e. in order maximum followed for various goods/services enquiries:
Bid system adopted by both public sector and private sector is influenced by procurement principle and various traits, parameters and factors elaborated above. Adopted bid system by public sector & private sector companies affects order timeline, bid control, resources to be involved, negotiation, etc. and is an important consideration for the success of the procurement process.
Written By: Sarjeevan Sainbhi