Government tenders

Government tenders are a formal process in which a government office or public institution publishes what it needs, companies send bids, and fixed rules decide the winner. It is also called public procurement. Tenders are used to buy roads, trains, power equipment, software, hospital machines and almost everything else that public money pays for.

Here is how it works in general. The buyer publishes a document that describes the need, the quality required and the date by which it must be delivered. Companies that qualify send sealed price and technical bids. The buyer first checks that each bid meets the conditions, then compares prices, and in most cases awards the contract to the lowest bidder that qualifies. In India, central government offices must publish their tenders on the Central Public Procurement Portal, and states use their own tender portals. Many standard goods and services are bought on the Government e-Marketplace (GeM). The rules exist so that public money is spent fairly and in the open.

The buyer states its technical conditions first, and bids that fail them are dropped before any price is opened. The conditions often ask for past experience and a minimum turnover, which helps established companies and makes entry hard for new ones. Central government rules let buyers relax these two conditions for startups and for micro and small enterprises. Such a firm must still meet the quality and technical conditions. Things can go wrong. A very low bid may lead to poor quality or delay. A losing bidder may object, and an objection can hold up the award for months. The winner is often also asked to maintain the system for years, which creates income of the kind described under aftermarket services. Preference for goods made in India also applies in many tenders.

Take, for example, a state electricity company that needs two lakh smart meters. It issues a tender, several makers bid, and the winner supplies and installs the meters over three years. Consider a metro rail corporation buying a fare-collection system; see automatic fare collection. Say a city wants a new complaints and permits system. It issues a tender for permits and licensing software.

Because the process includes bid preparation, evaluation, objections and approvals, a sale can take a year or more. The system that wins is often used for decades, which links tenders to installed base and to lock-in. Open standards are encouraged under digital public infrastructure.

How is it different from a private company's purchase? A private company can pick a supplier by negotiation. A government office must follow published rules and compare bids on stated terms.