Types of procurement

From CEOpedia | Management online

Procurement is the process of acquiring goods and services to complete a project. It involves coordinating activities such as identifying needs, selecting vendors, negotiating contracts, and monitoring delivery. Different types of procurement include open tender, selective tender, negotiated tender, direct procurement, competitive dialogue, and framework agreement. Open tender is the most common type of procurement where all qualified bidders are invited to submit bids. Selective tender is the process of selecting a limited number of bidders from a pre-approved list of suppliers. Negotiated tender is when the buyer and supplier negotiate the terms and conditions of a contract. Direct procurement is when the buyer deals directly with the supplier and no competitive process is used. Competitive dialogue is when the buyer and supplier negotiate to find the best solution that meets the buyer's requirements. Framework agreement is a long-term agreement with a preselected supplier that sets out the terms and conditions for future procurements.

When to use procurement

Procurement is the process of acquiring goods and services to complete a project. Different types of procurement can be used depending on the situation. Open tender is best when the project has a large scope and a competitive price is desired. Selective tender is best when the buyer has a shortlist of pre-approved suppliers. Negotiated tender is best when the buyer and supplier can agree on the terms and conditions of a contract. Direct procurement is best when the buyer has a pre-existing relationship with the supplier. Competitive dialogue is best when the buyer and supplier want to find the best solution that meets the buyer's requirements. Framework agreement is best when the buyer wants to enter into a long-term agreement with a preselected supplier.

Example of types of procurement

  • Open Tender: Open tender is a process where all qualified bidders are invited to submit bids. An example of this is when a government agency puts out a request for proposals (RFP) for a project. All qualified bidders are invited to submit bids, and the lowest price from the bids is accepted.
  • Selective Tender: Selective tender is the process of selecting a limited number of bidders from a pre-approved list of suppliers. An example of this is when a company is looking for a specific type of product and only invites a few select suppliers to bid on the job.
  • Negotiated Tender: Negotiated tender is when the buyer and supplier negotiate the terms and conditions of a contract. An example of this is when a company is looking for a specific type of product and they negotiate with the supplier to get the best price and terms of delivery.
  • Direct Procurement: Direct procurement is when the buyer deals directly with the supplier and no competitive process is used. An example of this is when a company directly orders goods or services from a supplier without going through a bidding process.
  • Competitive Dialogue: Competitive dialogue is when the buyer and supplier negotiate to find the best solution that meets the buyer's requirements. An example of this is when a company is looking for a specific type of product and they negotiate with several suppliers to get the best deal and the product that best meets their needs.
  • Framework Agreement: Framework agreement is a long-term agreement with a preselected supplier that sets out the terms and conditions for future procurements. An example of this is when a company signs a contract with a supplier that outlines the terms of their future business relationship, such as pricing, delivery, and quality standards.

Advantages of various types of procurement

The different types of procurement have their own advantages. Below are some of the benefits associated with each type:

  • Open tender allows for a competitive process and can result in lower prices due to healthy competition.
  • Selective tender allows the buyer to maintain quality control over the suppliers, resulting in reliable quality and delivery.
  • Negotiated tender is flexible, as it allows the buyer and supplier to negotiate better terms and conditions.
  • Direct procurement enables the buyer to bypass the competitive process, allowing for quicker delivery.
  • Competitive dialogue offers the buyer the opportunity to find the best solution that meets their needs.
  • Framework agreement offers the buyer a long-term relationship with a preselected supplier, allowing for the negotiation of better prices and terms over time.

Limitations of various types of procurement

The limitations of the different types of procurement include:

  • Open tender can be costly and time consuming, as all qualified bidders must be invited to submit bids.
  • Selective tender can limit competition and lead to higher costs.
  • Negotiated tender can be more expensive as the buyer and supplier negotiate over the terms and conditions of a contract.
  • Direct procurement can limit the buyer’s choice of suppliers.
  • Competitive dialogue can be complex and may not result in the best value for money.
  • Framework agreements can be inflexible, as the terms and conditions of the agreement cannot be changed.


Types of procurement — recommended articles
Open tender — Design and build contract — Forms of contract — Supply management — Government procurement — Sole distributor — Offtake Agreement — Low-ball technique — Bid documents

References

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