When it comes to selecting the right procurement method for your project, there are two popular options that often leave people confused – quotation and tender.
The quotation is a formal document provided by a seller to a buyer, stating the specific price, terms, and conditions for the goods or services offered. While a tender is an invitation by a buyer to multiple suppliers to submit formal offers, specifying the requirements, terms, and conditions for the supply of goods or services, aiming to select the best offer through a competitive bidding process.
Quotation vs. Tender
| Quotation | Tender |
|---|---|
| A formal document that states the price, terms, and conditions of the goods or services offered by a seller. | An invitation to suppliers to make a formal offer to supply goods or services as per the terms and conditions stated by the buyer. |
| To provide a specific price to the customer for the goods or services offered. | To invite competitive bids from multiple suppliers to select the best offer in terms of price, quality, and other terms. |
| Initiated by the seller in response to the buyer’s request for a specific product or service. | Initiated by the buyer, who specifies the product or service requirements and invites bids from multiple suppliers. |
| Usually, there is no competition involved as the seller provides a specific price for the goods or services offered. | It Involves competition among multiple suppliers who bid to win the contract. |
| It is provided within a short timeframe and has a limited validity period. | Generally, it takes a longer time as the buyer invites multiple suppliers to bid and evaluate the offers before selecting the best one. |
| The quotation is not legally binding on the seller until the customer accepts it and places an order. | The tender is a legally binding document and creates an obligation on the buyer and supplier to adhere to the terms and conditions of the contract. |
What is a Quotation?
A quotation is a formal offer to provide goods or services at a specified price and under specified conditions. Quotations are usually invited from a select number of suppliers, whereas tenders are open to any interested supplier.
Quotations are usually based on the buyer’s specifications, whereas tenders are based on the seller’s own specifications. This means that tenders are more flexible and can be tailored to the buyer’s needs, whereas quotations are more fixed and may not be as easily adapted.
What is a Tender?
A tender is a formal, written offer to supply goods or services at a fixed price. It is usually used in the construction industry and is submitted in response to an invitation to tender (ITT). A tender may be for a single contract or for a number of contracts.
Tenders are usually evaluated on the basis of price, quality, and delivery time. The company that makes the best offer (i.e. the lowest price with the required quality and delivery time) will usually be awarded the contract.
- The company’s financial stability
- The company’s experience in similar projects
- The company’s ability to meet deadlines
- The company’s reputation
Advantages of Quotations and Tenders
- Firstly, quotations tend to be quicker and more straightforward to obtain than tenders.
- Secondly, because they are not as formal as tenders, they can be more flexible in terms of negotiation and allow for a greater degree of customization to meet your specific project requirements.
- The use of quotations can often lead to better prices due to the increased competition among suppliers.
Disadvantages of Quotations and Tenders
- Firstly, with a quotation, there is no guarantee that the price quoted will be the final price charged. This can lead to nasty surprises further down the line if costs unexpectedly increase. With a tender, on the other hand, the price is set in stone and will not change (unless there are extenuating circumstances).
- A quotation is not a legally binding document, it can be easy for suppliers to back out of deals or make last-minute changes. This can cause major headaches for businesses that have already made plans based on the quoted prices. Tenders are legally binding documents and so suppliers are much less likely to back out or make changes at the last minute.
- Thirdly, quotations can often be vague and open to interpretation, whereas tenders must be very specific in order to avoid any ambiguity. This can make it difficult to compare different quotations side-by-side, as they may not all be covering the same thing. Tenders, on the other hand, must state very clearly what is included and what is not included in the price.
How to choose the right option for your project
- The nature of your project: Is it a one-off job or something that will need to be repeated on a regular basis? If it’s the latter, then a tender might be the more suitable option.
- The size of your project: Tenders are generally better suited to larger projects, whereas quotations can be used for smaller jobs.
- The complexity of your project: If your project is relatively simple and straightforward, then a quotation might be all you need. However, if it’s more complex, then a tender might be necessary in order to get accurate pricing from different suppliers.
- Your budget: Tenders can sometimes be more expensive than quotations, so if cost is a major concern then you might want to go down the quotation route.
Key differences between Quotation and Tender
- Purpose: A quotation is a formal document that provides a price estimate or proposal for goods or services requested by a customer. It outlines the costs, terms, and conditions of the proposed transaction. A tender, on the other hand, is a formal invitation for suppliers or contractors to submit competitive bids or proposals for a specific project or contract.
- Scope of Application: Quotations are commonly used in retail and service industries, where customers request pricing information for specific products or services. Tenders, on the other hand, are typically utilized in procurement processes for large-scale projects, government contracts, or construction works where multiple suppliers or contractors compete for the opportunity.
- Legal Implications: Quotations are often considered as offers or price proposals, but they may not always be legally binding unless explicitly stated or accepted by the customer. Tenders, on the other hand, have more legal significance, as they involve formal bidding processes that require compliance with specific rules and regulations. The selection of a tender winner is typically based on objective criteria, such as pricing, qualifications, and technical capabilities.
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Conclusion
A Quotation is a formal document provided by a seller, specifying the price and terms for goods or services. It is initiated by the seller and serves as an offer. On the other hand, a Tender is an invitation by a buyer to suppliers, seeking competitive bids to select the best offer. Tenders involve a comprehensive evaluation process.
