Posted in Finance, Accounting and Economics Terms, Total Reads: 236
Definition: Competitive Bids
Competitive bidding is a process by which procurement of goods and services takes place in different sectors as well as governmental organizations. In this transparent procurement method, bids are invited from competing contractors, vendors or suppliers by advertising openly the specifications, scope and terms and conditions of the contract proposed as well as the criteria of evaluation of bids.
This type of bidding is aimed at procuring goods and services at lowest prices by preventing favoritism and by stimulating competition.
In Open Competitive Bidding, the sealed bids are opened in presence of all who want to witness the bid opening. In Closed Competitive Bidding, the sealed bids are opened only in presence of authorized persons.
To explain it further it’s a step in the process of initial public offering whereby an underwriter submits sealed bids to an organization or a company which is issuing its stock. After collecting such competitive bids from different underwriters, the issuer looks for the best price and terms of contract and awards the contract. The negotiated bidding is a more common method than the competitive bidding by which the companies contract with the underwriters. But competitive bidding is more common with the bonds issued by municipal companies. For example- municipal bonds.