NEGOTIATION OR COMPETITIVE BIDDING?

When to use NEGOTIATION OR COMPETITIVE BIDDING?

At some point in your procurement carrier you are faced with a choice between negotiation or competitive bidding. This is assuming that the company policy, if you are employed, isn’t clear about this sort of thing.

Practically all you are doing is making a choice about the method you will use to select a supplier(s) to award contract.

While both choices will give you what you need, if properly used, here are things you need to consider in your choice.

Use competitive bidding if:

1. The value of whatever is being purchased (subject matter of the contract) is enough to justify the whole bidding process
2. The specification of the contract is clear to the parties involved
3. There exist enough suppliers in the market
4. The existing suppliers are actually competent enough and actively want the contract
5. Time allows for this process to take place

Use negotiation if:

1. It is possible to understand and accurately estimate production cost of the subject matter of the contract, or whatever it is you want to purchase
2. Price is not the most important variable, for instance, quality schedules and services, may well be negotiable variables of equal importance
3. There is likelihood for specifications to change as the contract proceeds
4. The set up costs and special tooling are major factors and such issues are best resolved through negotiation
5. The terms of sale include many and varied clauses, or as a buyer you suspect that the seller has quoted a price that is unreasonably high

REMEMBER

Then again in most organizations there is always a policy in place regarding when to use these two. In most governmental institution, for example, competitive bidding is used to bring about fairness, which may not necessarily be the case with small organizations where entrepreneurs don’t have time to sort through the bids