MODERN CATEGORIES OF CONTRACT

Tenders

Tender and Its Types

Notice Inviting Tender (NIT) is not an offer but it is an invitation to offer. However, a tender
may be either specific or definite. A specific tender is the offer to supply a definite quantity
of goods. In the case of a definite tender, the suppliers submit their offers for the supply of
specified goods and services. The offeree may accept any tender (generally the lowest one)
and this will result in a contract. A tender may also be standing tender, where the offer is to
supply goods periodically or in accordance with the requirements of the offeree.

Tendering is of following types;

1. Open Tendering: An open tendering process is an invitation to tender by public

advertisement. There are no restrictions placed on who can submit a tender, however,
suppliers are required to submit all required information and are evaluated against the
stated selection criteria.
2. Select Tendering: A select tender is only open to a select number of suppliers. The
suppliers may be a short list sourced from an open tender or be a compilation of
businesses that the organization has worked with previously.
3. Multi-stage Tendering: Multi-stage tendering is used when there are a large number of
respondents. At each stage in the process, the suppliers are culled to those who are most
suited to the specific contract requirements.
4. Invited Tendering: An organization contacts a select number of suppliers directly and
requests them to perform the contract, it is generally used for specialist work,
emergency situations or for low value, low risk and off the shelf options.

Tenders can be issued through:

 Expressions of interest (EOI) - used to shortlist potential suppliers before seeking

detailed offers.
 Request for information (RFI) - used in the planning stage to assist in defining the
project, however, not used to select suppliers.
 Request for proposal (RFP) - used where the project requirements have been
defined, but an innovative or flexible solution is needed.
 Request for quotation (RFQ) - invites businesses to provide a quote for the
provision of specific goods or services.
 Request for tender (RFT) - an invitation to tender by public advertisement open to
all suppliers.

Tender Process

1. Tender process is determined: The organization requesting the tender will determine the
type of tender that will be used, as well as what will be involved in the tender process.

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2. Request for tender is prepared: The request for tender outlines what is required, the
contractual requirements and how you should respond.

3. Tenders are invited: The value, complexity and business category determine how tenders
are invited.

4. Suppliers respond: Suppliers are required to obtain all relevant documentation. Then,
they must:
a. attend any pre tender briefing sessions being conducted
b. clarify any uncertainties
c. plan and prepare their response
d. submit their response in the right format, on time and at the right location

5. Evaluation and selection: Each tender will be checked for compliance, and if compliant,
then evaluated against the criteria specified in the tender documentation. The tender that
offers best value for money will win the business.

6. Notification and debriefing: When a contract has been awarded, the successful tender
will be advised in writing of the outcome. Unsuccessful tenders are also advised and offered a
debriefing interview.

7. Contracts established and managed:

Generally a formal agreement will be required between the successful tender and the relevant
agency.

Swiss Challenge Method of Tendering

The Swiss Challenge Method is an innovative method adopted by governments for awarding
contracts, wherein a private participant can submit a project proposal and even draft contract
terms for undertaking a project initiated by a government. The government then invites
competitive bids from other interested parties. If the government finds a competing counter
proposals more acceptable, the original project proposer will be given an opportunity to
match the competing counter proposal and win the project. In case the original project
proposer is not able to match the more attractive counter proposal, the project will be
awarded to the competitor. In other words as per the Swiss Challenge Method the developer
who has given the original proposal has the right of refusal, provided the said developer has
matched or raised his bid (rate) when the highest proposal is tendered. The original proposer
shall have the opportunity to take up the project on highest offer, and in the event he refuses,
the highest bidder shall have right to implement the project. Swiss challenge methods have
increasingly gained popularity in all parts of the world.

Thus there are following two parties in this method

1. Original Proponent
2. Challengers

In countries such as Philippines and South Korea, most of the public projects are executed
using this method. In India too, the governments both at the Centre and the States have begun
to embrace the concept albeit with certain reservations, which though are likely to be

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dispelled with the recent Supreme Court’s validation on this method of awarding public
contracts.

Legality of Awarding Contracts Using the Swiss Challenge Method

The Supreme Court provided broad parameters to be followed by the state/authority for
smooth implementation of SCM or any other similar method while awarding contracts to
ensure there are no allegations of arbitrariness or ambiguity. These were:

a. the state/authority should publish in advance the nature of SCM and particulars;
b. publish the nature of projects that can come under such method;
c. mention/notify the authorities to be approached with respect to the project plans;
d. mention/notify the various fields of the projects that can be considered under the
method;
e. set rules regarding time limits on the approval of the project and respective bidding;
f. the rules should be followed after a project has been approved by the respective
authorities;
g. all persons interested in such developmental activities should be given equal and
sufficient opportunity to participate in such venture and there should be healthy inter-
se competition amongst such developers.

The Apex Court further went on to say, “Though the government cannot arbitrarily choose
any person it likes for entering into such a relationship or to discriminate between persons
similarly situate, it is open to the government to reject even the highest bid at a tender where
such rejection is not arbitrary or unreasonable or such rejection is in public interest for valid
and good reasons.”

Bid Security/ Earnest Money Deposits (EMD)

A bid security is an amount of money that may be calculated as a percentage of the budget
estimate of a procurement requirement or a percentage of a bidder’s bid price. It is used by
the client as a protection against bidders withdrawing their bids prior to the end of their bid
validity period, or for refusing to sign the contract.

The bid security is intended to deter bidders from withdrawing their bids, because they would
otherwise forfeit the bid security amount to the client. It gives the client some assurance that
the selected bidder will sign the contract or otherwise forfeit their bid security.

A bid security may be required of firms that submit offers in response to an invitation for
bids. It is commonly used when procuring goods, works and non-consultant services.
Although uncommon for consultant services, it could be applied if stipulated in the bidding
documents and in the public procurement rules.

The bid security must be surrendered to the client if the bidder:

i. withdraws their bid before the end of the bid validity period,
ii. fails to sign the contract after the notification of award, or
iii. fails to provide a performance security, if required.

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Bid security of the unsuccessful bidders is refunded after the expiry of the bid validity period
while of the successful bidder is also refunded after the deposit of requisite amount of
performance security.

To ensure that a Bidder does not submit a Dummy Bid or back out at time of tender opening,
Government Department or the company inviting the tenders collects some refundable fee
from each bidder, which is called EMD. EMD is always in form of a Demand Draft &
cheques or cash are strictly not allowed. EMD is returned when all Bids are opened & tender
is awarded. In case Tender is cancelled, the EMD is returned. Most of the time the EMD is
not credited into Government Bank but is kept with Buyers in as it is form. After Tender
opening the same is returned. After Bid is opened, if a bidder refuses to take the contract,
then his EMD is forfeited.