The sealed bidding process generally works best for RFQs, when your team knows precisely what it needs and plans to make the decision based solely on price. While traditionally required for some government procurement entities in order to prevent fraud or corruption, sealed bidding may also be beneficial to your organization.
Benefits of sealed bids
What can your organization expect to gain from using this process?
Reduced compliance risk
The biggest benefit of using a sealed bidding process is the dramatic reduction in compliance risk. Since the sealed bidding process centers on the principle that bids will not be opened until a specific date and time, and the winner will solely be chosen on price, it decreases the chance that corruption or fraud can be committed during the bidding process. This can be helpful for your organization in general but also in a few more specific instances. For example, if your organization faces maverick spending, implementing a requirement for sealed bidding can help gain control of those purchases until that spend is brought under management. It can additionally be helpful when working in emerging markets with an inherently higher risk of corruption.
Fewer process steps
Managing an RFP process involves multiple process points for receiving, evaluating, and comparing bids. The comparison component alone can be lengthy based on the information suppliers provide and what your team is trying to accomplish. Comparatively, the sealed bidding process reduces these steps by limiting the comparison point to price alone as a factor.
Fair supplier opportunity
The sealed bidding process creates an even playing field for all potential suppliers. This allows suppliers who may not have responded to your RFP otherwise the chance to compete for your organization’s business.
Impacts on the procurement process
The inherent nature of sealed bids will lead to changes in your procurement process.
As stated, the sealed bidding process requires your organization to choose a supplier based on price. While this can, in some instances, be beneficial as it opens the door for new supplier relationships, it can also bring on additional supplier management work. Since you can’t have any contact with suppliers during a sealed bidding process, you’ll need to make sure you only invite pre-qualified suppliers who are familiar with your e-sourcing tool. Should they need assistance with the tool, they would have to contact the solution’s customer support, so you’ll want to make sure you’re using software with reliable and responsive customer service.
For organizations used to managing the procurement process via email or other outdated technology, the sealed bidding method is impossible to manage. Since sealed bids should not be opened until the selection date, you really can’t use email to receive these bids. Traditional snail mail or courier services such as DHL could be used, but then you run the risk of not receiving bids on time or even losing bids in the mail. Not to mention, neither of these methods allow procurement leaders transparency to monitor these actions. An alternative method is to use an e-procurement solution which supports sealed bidding. These tools allow procurement leaders to track the number of bids received without actually seeing them and suppliers to receive bids securely. Furthermore, buyers are not able to access the bids or even see which suppliers have entered them prior to the end date.
Although sealed bids won’t work for every procurement instance your organization has, they could be great options for instances when the need is clear and price is the driving factor. Sealed bids come with a handful of benefits, but most importantly, they can dramatically reduce compliance risk.