While in the tendering process, we often come across words such as tender or contract. If you are confused about their meaning, you must know that tender and contract are completely two different documents. They have different purposes and objectives. This article takes a deep dive into key differences between a tender and a contract along with an example.
Difference between tender and contract
Here are the main differences between tender and contract.
Definition: tender and contract
Tender: A tender is a formal notification of procurement needs and invitation of bids from potential suppliers, contractors or sellers. In other words, it is a request for quotation made by the buyer organisation. Tenders are released to give an outline of the scope of work and invite quotes from suppliers or contractors so that they can share a competitive quote.
Contract: It is a legal document that binds the two organisations under specified terms and conditions. In the context of a tendering process, the contract is drawn after the tendering process is complete and the supplier is selected. It outlines terms, timelines, payment terms, etc., for a specified work, project or goods delivery.
Purpose: tender and contract
Purpose of a tender: The main purpose of a tender is to get competitive quotations for the specified work or project from different suppliers and contractors. It helps the buyer to find a suitable vendor to enter into a contract with.
Purpose of a contract: As mentioned earlier, a contract is a legal document binding the buyer and seller in the context of the tendering process. The purpose of the contract is to establish terms and conditions under which the work will be performed.
Contents of the document
Here is what each document contains.
Contents of a tender
As mentioned above tender is an invitation to bid for the project mentioned. Hence tender document involves the following contents:
- Project details: A tender involves details of the project, its purpose, location, scope of work, timelines, and so on.
- Technical requirements: The tender also includes quality, quantity and also other technical requirements of the project. For example, if a public utility company is looking to establish a water treatment plant, specifications such as technology, civil work specifications, material details and so on will be included so that bidders can submit a detailed quote.
- Eligibility criteria: The tender will also include the eligibility criteria for bidders. Financial eligibility such as minimum turnover, technical eligibility like plant capability and capacity, prior work experience, etc. are mentioned in the tender document.
- Contract conditions: The tender document also includes details of conditions that the contract may include later. So that bidders are informed about the contractual terms.
- Tender evaluation process: The Tender document also includes the tender evaluation process that would be followed. Most times, bids not meeting the eligibility criteria are eliminated followed by the technical evaluation. However, the evaluation process may vary depending on the tender needs.
Contents of a contract
The content of a contract differs from a tender’s contents. Here is what the contract usually includes:
- Acceptance: The contract includes acceptance of both parties to abide by the terms and conditions mentioned in the document.
- General conditions: A contract includes general conditions such as scope of work, timeframe, delays, extension, contract termination terms, and so on. It also includes the rights and obligations of each party.
- Specific conditions: Apart from general conditions, the contract also includes a set of specific conditions if any. For example, additional instructions or any other specifications of the project.
- Withdrawal conditions: he contract includes withdrawal conditions in case any of the parties wish to exit the contract.
- Payment terms: The contract also includes payment terms. For example, a certain amount will be paid to the vendor as advance while the next part of the pay will be released after completion of a certain stage of the work. The final payment would be done within 30 days of completion of work.
- Performance bonds and guarantees: A contract that is drawn after winning a tender may include rules for Ernest money deposit (EMD). For example, EMD is generally not refunded by the buyer but there can be cases where it is. If the details in the response tenders are modified by the bidder which is not acceptable to the buyer or the bidder is not in a position to start the project on time, etc.
Explained with an example: Difference between tender and contract:
Let’s understand the difference between a contract and a tender in the context of civil engineering work. A municipal corporation of the city releases a tender for road construction. Firstly a tender is released on an e-procurement portal such as the Central Public Procurement Portal (CPPP). The tender notification gives an overview of the scope of work. The tender document also includes other details like expectations from contractors, timelines, eligibility criteria, and so on.
Suppliers then bid and submit their quotes. After the tender evaluation process, a contractor is selected, and a contract is drawn. The contract includes how supervision and construction procedure would be, permissions to be sought after, inspections to be done, payment terms, measures to be taken in case any of the parties defaults, rights and obligations of each party and so on.
In a nutshell: Difference between a tender and a contract
|Legal status||A tender is usually an invitation to submit quotes and is legally not binding.||The contract is a legal document.|
|Stage in the procurement process||Tenders occur in the pre-contractual stage and help the vendor selection.||Contracts are signed after vendor selection between the buyer and vendor|
|Parties involved||Tender involves multiple stakeholders. It’s a notice released by the buyer to potential suppliers.||It generally involves two parties – buyer and supplier.|
The tender and contract are two separate documents of the same tendering process. However, their purpose, content in the documents, and legal standing of both documents differ. As a bidder or vendor, it is important to read both documents carefully. Careful perusal of tenders can help you win a contract, while understanding the contract’s terms and conditions can help you to deliver the project accordingly.