Organisations seeking new opportunities and business growth, often find themselves faced with the decision of whether to participate in tendering processes.
Tendering, a competitive bidding method, has become a prevalent means for companies to secure contracts and projects across various industries.
However, like any strategic approach, tendering comes with its share of advantages and disadvantages. In this article, we delve into the pros and cons of tendering, shedding light on the key considerations that your company should weigh before embarking on this path.
Why should you consider the pros and cons of tendering?
A comprehensive evaluation of the pros and cons of tendering empowers your business to make informed decisions that align with your long-term goals and contribute to sustained success in tendering.
This thoughtful assessment helps your company to allocate resources effectively, develop strong bid proposals, and enhance your competitiveness in the market.
What are the pros of tendering?
Tendering provides a level playing field for companies of all sizes to compete for contracts, fostering innovation and encouraging the development of creative solutions.
Let’s consider the advantages of tendering for your company to win new business:
Business Growth
Winning tenders can open doors to new opportunities and contracts, leading to business expansion and growth.
Diversification
Responding to tenders allows your company to diversify its client base and perhaps, reduce its reliance on a single customer or market.
Revenue Generation
Winning tenders can bring in steady revenue streams, providing a stable financial foundation for your company.
Enhanced Reputation
Successfully winning tenders can enhance your company’s reputation and credibility in the industry, attracting more potential clients.
Competitive Advantage
Winning tenders over your competitors can establish a competitive advantage and position your company as a market leader.
Skill Development
Preparing tender responses improves your company’s skills in proposal writing, project planning, and execution, which can be invaluable for future opportunities.
Access to Government Contracts
Responding to government tenders can provide your company with access to lucrative government contracts, which often have long-term stability.
Networking Opportunities
The tendering process may offer networking opportunities and connections with other industry players and potential business partners.
Increased Visibility
Even if your company doesn’t win a particular tender, the process can increase its visibility within the industry and potential client base.
Encourages Continuous Improvement
The tendering process can encourage your company to continuously improve its services, products, and processes to meet the requirements of potential clients.
These are all great pros, but you do need to consider the cons of tendering.
What are the cons of tendering?
On the flip side, responding to tenders can also be resource-intensive and competitive. Your company needs to carefully evaluate each tender opportunity and consider its capabilities, resources, and the potential return on investment before committing to the process.
Here are some of the disadvantages of tendering that your company may consider when deciding whether to respond to tenders:
Resource Intensive
Preparing your tender responses can be time-consuming and resource-intensive, requiring significant effort from various departments within the company.
Costs
Pursuing tenders may involve business costs associated with proposal development, legal reviews, and other expenses, especially for large and complex tenders.
How much does it cost to respond to a tender?
Relatively small value/simple tenders can cost up to $10k to respond to when you include the costs of just two people for a week.
Tenders for multi-million dollar contracts/complex tenders can easily cost your company $100k.
If you’re responding to a tender just to be ‘noticed’ by a bigger company, there are much more cost-efficient ways to do this.
Low Success Rate
The competition in tendering processes can be fierce, and there’s no guarantee of winning, which means your company may invest time and resources without a positive outcome.
Disclosure of Information
Your company may need to disclose sensitive or proprietary information during the tendering process, which could pose risks if not adequately protected.
Focus on Quantity over Quality
If your company is in a highly competitive markets, you may focus on submitting numerous tenders to increase your chances of winning, potentially sacrificing the quality of each response.
Limited Flexibility
Tenders often have specific requirements and constraints, limiting your company’s flexibility to propose innovative solutions or negotiate terms.
Long Decision-Making Process
Tendering processes can be lengthy, and your company may have to wait several months for a decision, affecting cash flow and resource allocation.
Confidentiality Concerns
If your company responds to a tender involving a sensitive project, you may face challenges in maintaining confidentiality, particularly if competitors are also bidding.
Locked into Contract Terms
Winning a tender may commit your company to contract terms that could be unfavourable in the long run or hinder your ability to pursue more lucrative opportunities.
Negative Impact on Morale
If your company consistently loses tenders, it may impact your employee morale and confidence in pursuing future opportunities.
To mitigate these cons, companies should carefully evaluate each tender opportunity, focusing on those that align with your capabilities, strategic objectives, and long-term goals.
Tips for factoring in the pros and cons of tendering
Understand the tender process.
Before you start preparing your bid, it is important to understand the tender process. This includes the timeline, the criteria that will be used to evaluate bids, and the documents that you will need to submit.
Analyse the competition.
Take some time to research the other companies that are bidding on the tender. This will help you to understand their strengths and weaknesses, and it will give you a better idea of what you need to do to win the tender.
Set realistic expectations.
It is important to set realistic expectations about your chances of winning the tender. If you are too optimistic, you may be disappointed if you do not win.
Be prepared to walk away.
If you do not feel that you have a good chance of winning the tender, it may be better to walk away. This will save you time and money, and it will also protect your reputation if you do not win.
How do you assess if you have a good chance of the winning the tender? One way to do this is, once you receive the tender documents, but before you commit to responding to it, get the Tender Evaluation team to evaluate for you what exactly you will need to demonstrate in order to be considered for the contract.
This evaluation will help you to identify gaps in your company’s capabilities, how you will address these gaps and risks/opportunities to make an informed decision on whether to respond to the tender or not.
More reading –
What truly separates the winning tenders from the rest?
Where to source and find tenders in Australia? A not-to-be missed comprehensive guide
Find out how to run a well-structured and well-executed tender management process