Standing offer is a prearranged method of procurement by the purchasing agency with a supplier to supply goods and services. Offers are placed to give customers direct access to the supplier subject to the negotiated prices, and to all terms and conditions previously set. A requisition or call-up made against the standing offer is an acceptance of the offer, making it official to form part of the contract. The central purchasing agency, wherever it is located( head office) initiates national standing offers, as well the purchasing agency in each district may initiate regional standing offers in thhat district. Standing offers enable the purchasing department and the customer to:
- save time and labour by not raising as many procurement documents- reducing administrative costs
- reduce lead- times by knowing the supplier up front and,
- provides lower cost because of bulk buying- reducing or eliminating warehouse costs.
Types of standing offers
There are two types of standing offers:
- Master standing offers: Authorized for use by all government departments and funded by each individual customer. Arrangements are made for use,
- National - Nationally
- Regional - Within the purchasing agency's regional supply area
- Individual standing offers: Authorized for use by all departments of the company and funded by each individual customer. Arrangements are made for use,
- National - Nationally
- Regional - Within the purchasing agency's regional supply centres or district supplied offices.
- Departmental - Call up issued anly by purchasing agency since the may have to decide the method of supply because there may be multiple suppliers.
Meaning of standing offer
An offer of a continuous nature is known as 'standing offer'. A standing offer is in the nature of a tender. It is the same thing as an invitation to an offer. A contract is said to have been entered into only when an order is placed on the basis of the tender. Example: X Ltd. requires a large quantity of certain goods during the 12 months period and gives an advertisement inviting tender in the leading newspaper. Z submitted the tender to supply those goods at a specific rate. Z's tender is accepted or approved. Now, Z's tender becomes a standing offer. Each order given by X Ltd. will be an acceptance of the offer.
Revocation of standing offer
Where a person offers to another to supply specific goods, up to a stated quantity or in any quantity wchich may be required, at a certain rate, during a fixed period, he makes a standing offer. A standing offer is in the nature of an open or continuing offer. An acceptance of such an offer merely amounts to an intimation that the offer will be considered to remain open during the period specified, and that it will be accepted from time to time by placing order of specified quantities. Each successive order given, while the offer remains in force, is an acceptace of the standing offer as to the quantity ordered and creates a separate contract. In view of this legal position, the offeror is free to revoke the standing offer with regard to further supply, at any time, by giving a notice to the offerce, except where consideration is given for it.
Main advantage and disadvantage of standing offer
The advantage of standing offers is:
- simplicity and minimum transaction costs, since there id no negotiation over price and the potential sellers merely need to decide whether the posted price is adequate.
The key disadvantage of standing offers is:
- correctly setting the offer price and specifying which types of offer rigths will be accepted for acquisition. If the offer price too low, this will be become appparent as few takers will come forward and the price will need to be adjusted and re-advertised. If the price is set too high, more offers will be received than are needed and the purchaser will have determine which a offer rights to acquire, and which to reject inaddition to paying more than was necessary to acquire the quantity needed.
- Paula Mackie 2014, p. 177
- P. C. Tulsian 2000, page. 2.6
- M. C. Kuchhal, Vivek Kuchhal 2017, p. 25
- D.E. Agthe, R.B. Billings, N.Buras 2003, p. 93
- Agthe D.E., Billings R.B., Buras N., (2003). Managing Urban Water Supply , Springer Science & Business Media, Dordrecht.
- Kuchhal M.C., Kuchhal V., (2017). Business Laws,Vikas Publishing House , New Delhi.
- Mackie P., (2014). Materials Management Techniques: Second Edition: Essentials of Supply Chain Management , Productive Publications, Toronto.
- Tulsian P.C., (2000). Business Law, Tata McGraw-Hill Education , New Delhi.
Author: Dominika Grzyb