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Invitation To Tender

Updated on March 26, 2024
Article byNanditha Saravanakumar
Edited byNanditha Saravanakumar
Reviewed byDheeraj Vaidya, CFA, FRM

Invitation To Tender (ITT) Meaning

An invitation to tender (ITT) is an official document formally soliciting bids from potential suppliers, vendors, contractors, or service providers. It asks them to provide their proposals, including pricing details and contract terms. This letter is a significant and fundamental step in the procurement process within the supply chain.

Invitation To Tender

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ITTs are commonly sent through email and traditional postal letters. Additionally, they are often publicly disseminated to attract a wider pool of suppliers and increase the likelihood of obtaining more favorable options. In such instances, issuers like company websites and newspapers may publish the invitation online.

Key Takeaways

  • An invitation to tender letter is a formal document in procurement where prospective vendors are requested to bid for a particular service contract. The company issues the invitation.
  • It lays the foundation of a contractual relationship between the company and a contractor. ITTs are prominent in the construction and public sector.
  • Tenders and proposals undergo heavy evaluation as the company inspects the best offer regarding price, terms and conditions, vendor’s track record, and reputation. Thus, the vendor has to make an impression.

Invitation To Tender Explained

Invitation to tender documents are also known as a call for bids or request for tenders. Public and private sector companies usually send ITTs to procure goods and services. ITTs are especially prominent in the service sector. Examples include construction, data management, security, cleaning, etc.

Usually, this is the first step in tendering, where prospects are invited. However, some companies conduct a pre-qualification process to analyze and shortlist selected vendors based on their reputation, performance, physical proximity, and past relationships.

The screening process begins once all the vendors respond to the tender by the stipulated time. The company weeds out those bids whose terms and conditions are unacceptable, whose price is unfavorable, or whose reputation in the market is not worth mentioning. Some companies directly select a vendor, while some further shortlist two or three and hold negotiations to get the best offer.

Vendors can make the most out of it by providing the best offer to the company. They should not be rigid and open to talks. The price should be flexible and negotiable. The firm should have a good reputation and be innovative in the market. They should be catchy and communicate their morals through words and activities.

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Contents

The following information is mandatory in an invitation to tender document:

  1. Introduction – The introduction can include the title (organization’s name and address), phone number, and date.
  2. Receiver’s address – This section is only present in a selective or negotiated tender.
  3. Tender background – This part allows the vendor to understand the project and its expectations.
  4. Terms and Conditions – Here, the company informs the vendor about the contract terms. It will also mention if they are negotiable or non-negotiable. Based on this, the vendors will reply.
  5. Requirements – In this section, the company communicates what the vendor must do. Deadlines regarding the last day to reply, completion of work, and expected quote are also included.

The company can use the invitation to tender templates available online to make tender letters that convey all the necessary information.

Types

Let’s classify the three main types of ITTs.

  1. Open tender – In an open tender, the issuers advertise publicly (websites, newspapers, etc.). The tender is open to whoever wants to make an offer to the issuer. It will provide a variety of options to the company and give them better terms and quotes. The public sector usually gives out open tenders.
  2. Selective tender – Selective or restricted tendering involves the company inviting only a few shortlisted vendors. It will save time and effort as the company only considers the most qualified and reliable vendors. The company will send official emails or letters to the selected vendors. It is often based on pre-qualification or past relationships. Private companies usually follow this method.
  3. Negotiated tender – This tendering involves the company selecting and negotiating terms with a single supplier. The process is divided into pre-contract and post-contract negotiations. Again, the supplier can be chosen based on a pre-qualification or past relationships. Negotiated tendering is expected in the construction sector.

Examples

Consider the examples given here to understand ITTs.

Example #1

Suppose Concrete360 is a hypothetical construction company. The company wants to experiment with balcony gardening to attract environmentally conscious homebuyers who wish to be greener in their homes. It invited companies specializing in green home décor to tender. Concrete360 had already researched a few prospective contractors, making it a selective tendering process to save time and effort.

This example demonstrates selective tendering based on pre-qualification or prior knowledge of potential contractors, which aligns with selectively inviting specific vendors to submit bids.

Example #2

Due to privacy concerns, the UK’s National Health Service (NHS) broke up its £400 million data contract. The company hopes that the move will ensure that the service is safeguarded. In response to the call to bid, the most prominent bidder for the NHS central data platform at £360 million, Palantir, is yet to respond post-breakup.

The tender invitation barred the bidders from participating in all the parts. The company said that while safety is the prime concern, the move had nothing to do with limiting Palantir, an American company’s role.

Invitation To Tender vs Request For Proposal vs Request For Quotation

In procurement and contracting, various methods are used to engage suppliers and obtain the desired goods or services. ITT, Request for Proposal, and Request for Quotation are three commonly employed approaches.

Although they aim to secure external resources, each method possesses distinct characteristics and focuses on different aspects of the procurement process.

BasisInvitation to TenderRequest for ProposalRequest for Quotation
PurposeTo solicit competitive bids for a specific project or contract.Invite potential vendors or suppliers to propose a solution or approach for a project.To obtain pricing information or quotes for specific goods or services.
ScopeFocused on the procurement of a specific project or contract.Broadly addresses the requirements and objectives of a project or initiative.Primarily focuses on obtaining pricing information for specific goods or services.
CompetitionUsually involves multiple prequalified bidders competing for the contract.It can include both prequalified and non-prequalified bidders.Generally open to all potential vendors or suppliers.
DocumentationTypically includes detailed technical specifications, project requirements, and evaluation criteria.It may include high-level project information, goals, and evaluation criteria.It requires minimal documentation, often limited to describing the goods or services required.

Frequently Asked Questions (FAQs)

1. How to write an invitation to tender?

The main goal of writing an ITT is to make prospects reply to the letter with their best offers. The structure and quality of the content will communicate the company’s reputation and values. Thus, the company should include all the necessary information the bidder would want to know – the scope of the work, requirements, price, and deadlines.

2. Is an invitation to tender an offer?

An ITT is not an offer that creates a binding contract. Instead, it invites prospective bidders to express their interest and engage in further discussions. The final agreement is typically negotiated and entered into with the selected bidder(s). However, there may be some exceptions, such as in the case of a negotiated tender where vendors are directly contracted.

3. How do you respond to an invitation to tender?

When responding to an ITT, bidders typically have options. Some may reply with a simple acceptance or rejection along with the proposal submission date. Others may respond with approval, terms and conditions, and a quote or proposal for consideration. The response should aim to make a positive impression and provide the information requested in the tender invitation.

This article has been a guide to Invitation To Tender & its Meaning. We explain its examples, types, contents, comparison with request for proposal & quotation. You may also find some useful articles here –

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