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Competitive bids are offers extended by businesses in which they detail proposed compensation that they will receive in exchange for executing a specific task or tasks. These tasks can range from providing a service for a set period of time to manufacturing and transporting a certain quantity of goods or materials.

Competitive bidding defers from other price strategies in that with bid pricing, a specific price is put forth for each possible job rather than a generic price that applies to all customers. The big problem in bid pricing is estimating all the costs that will apply to each job. This may sound easy, but a complicated bid may involve thousands of cost components. Further, management must include the overhead charge and a charge for profit.

Competition must be considered when adding in overhead and profit. Usually, the customer will get several bids and accept the lowest one. So unthinking addition of “typical” overhead and profit rates should be avoided. Some bidders use the same overhead and profit rates on all jobs – regardless of competition – and then are surprised when they don’t get some jobs.

Business owners should take precautions to ensure that, in their rush to secure business, they do not make bids that fail to provide them with adequate profits. While an occasion unprofitable job may be necessary – to establish inroads with a specific customer or in a specific industry niche, for instance – a steady diet of such work can irrevocably damage a business.

Competitive bidding is an especially common practice with governmental buyers, many of whom have instituted mandatory bidding procedures. Government buyers are typically required to accept the lowest bid that they receive, but it is important to note that low bids can often be disregarded if they are judged to be lacking in meeting minimum job specifications.

Steps That Business Firms Should Take When Preparing a Winning Bid On a Project

Contact the company’s procurement officer and inquire whether or not the company has a current (or possible future) need for the type of services or products that your company provides.

Request an information package on the procurement process that is in place in the company. This package will contain a supplier capacity information form, which routinely asks for information about your products or services, references, financial viability, and past track record. Fill out the forms and send them back. The exact nature of these forms will vary from industry to industry; a company seeking to outsource three months of copy-editing work will likely require somewhat different information than a company that is looking for a new supplier of electronic parts.

Once the above-mentioned supplier capability information form has been completed and returned to the company, your business may be referred to different buyers within the agency or to different corporate offices throughout the country. Your company may also be placed on a database that these buyers have access to.

Adopt a proactive business stance. Many successful businesses that secure work through the bidding process remain aggressive – though not unduly so – even after taking care of all the necessary paperwork.

It is up to the business owner to sell his business as an asset to each company or agency. That means calling constantly to inquire about opportunities and showing real evidence that your company can do the job. You must be persistent. It may take months or years to win a contract.

Factors That Differentiate Winning Bid Proposals From Unsuccessful Ones

Proposing the lowest cost solution will not guarantee success unless you have also convinced the evaluator that you can do the job.

Even if you have the best products, you might lose if the customer is concerned about your service capabilities or your ability to meet the deadlines.

Winning proposals, regardless of the product, service, or organization, have a number of characteristics in common. The unifying theme is that they all prove the case, demonstrate the wisdom of selecting a particular supplier by providing practical examples and clear evidence of a bidder’s superior capabilities.

Winning proposals begin with a strategy to provide the customer with a specific reason to select your company. A good strategy should differentiate your company from competitors, emphasize your strengths while pointing out competitors’ weaknesses, and emphasize features that the customer wants and needs.

This strategy should be translated into a proposal which demonstrates that your company:

Understands the problem at hand;

Is well-positioned to solve the problem;

Can perform the work successfully;

Provides value for the cost;

Provide the evidence that you are the best vendor with the best solution and the least risk at an acceptable price.

Not all competitive bidding situations end with the customer’s acceptance of one of the bids offered. In some instances, a subsequent negotiation step may take place. Some buying situations (including much government buying) require the use of bids – and the purchasing agent must take the lowest bid. In other cases, however, the customer asks for the bids and then singles out the company that submits the most attractive bid – not necessarily the lowest – for further bargaining.

The list price or bidding price the seller would like to charge is sometimes only the starting point for discussion with individual customers. What a customer will buy – if the customer buys at all – depends on the negotiated price, a price set based on bargaining between the buyer and the seller. The negotiated pricing, like simple bid pricing, is the most common in situations where the marketing mix is adjusted for each customer – so bargaining may involve the whole marketing mix, not just the price level.

Bernard Taiwo
I am Management strategist, Editor and Publisher.