The terms ‘Tender’ and ‘Contract’ are often used interchangeably. While using them during a tendering process, one has to be very careful as they are two very different documents and one cannot afford to be confused between them at such crucial stages of doing a business. Tenders and Contracts serve different purposes and have distinct objectives. Read on to know more about a tender and a contract, and how they differ from each other.
How is a contract different from a tender?
A tender is a type of transaction model used by organisations, businesses, government bodies and NGOs. It is an offer or a formal notification through which they put forward invitation bids for specific projects or procurements to find potential suppliers, contractors or sellers with the best bids. Thus, tenders are basically a request for quotation by a buyer organisation.
A contract, on the other hand, is a legal document between the two parties (buyers and sellers) under specified terms and conditions. A contract is made only after a tendering process is completely finalised between the organisation and the selected supplier. A contract includes timelines, payment terms and other details for the specific project and delivery of their goods. A contract thus, binds the contractor to complete the work as per the agreement.
Tender vs Contract – Let’s delve in!
Tenders are released in the precontractual stage and help in selecting a suitable vendor. Contracts on the contrary, are signed after vendor selection, between the buyer and the seller. The contents in the documents naturally differ based on that.
Essential Details Included in a Tender
A tender contains the BOQ (Bill of Quantities), specifications of work that has to be carried out, the time frame for completion of work, conditions of the contract, plans and drawings. The contractor or bidder has to pay a certain fee to get these documents. The bidder who offers the most relevant bid at lowest rates is offered the contract to execute the desired work. A tender generally comprises of the following specifications:
- Bidders’ Eligibility Criteria – It includes the bidder’s financial eligibility like its minimum turnover, technical eligibility, accreditation, previous projects with their completion details, and so on.
- Scope of Work – It includes the purpose, location, scope of work, budget, timelines and other details related to the project.
- Technical Specifications – It includes quality, quantity and other technical requirements of the project. For example, if a company is looking to build an auditorium, the tender will include technical specifications, civil work specifications, details of the materials and so on for bidders to submit a detailed quotation.
- Appendices, Site Information, Drawings and Contract Details – It includes details of the conditions that may be included in the contract later.
- Assessment Process – The tender also includes the tender assessment process that is followed by the organisation to give a direction to the bidder.
Essential Details Included in a Contract
A contract is an agreement between the owner/department/party/organisation and the contractor/supplier, to execute the works as specified in the tender documents as per the terms and conditions of contract on the quotes by the contractor. The content of a contract includes –
- General and Specific Details – The contract will include details like scope, timeline, rights and obligations of each party. Depending on the project, specific instructions/conditions may be added in the contract.
- Delays/Extension/Contract Termination/Withdrawal Terms – Clauses pertaining to delays, extension and contract termination are added in the contract for transparency. Terms and conditions are also added in case of a withdrawal or if any of the parties wishes to exit the contract.
- Transparency in Payments Schedules– The terms of payments are included in the contract like advanced payments, instalments, and final payments after completion of a project.
- Bonds and Guarantees – A contract includes the rules for Earnest Money Deposit (EMD). EMD is generally not refunded by the organisation unless the bidder modifies the details in the response tenders which is not acceptable by the bidder.
- Contract Acceptance – It is an agreement to an offer involving specific duties, obligations or benefits of both the parties involved in the contract.
Let’s build a park while learning about tenders vs contracts!
Let’s say the Municipal Corporation in Bangalore releases a tender for construction of a children’s park in the city. They will publish the tender on an e-procurement portal such as eProc Karnataka. How does one come to know about such tenders?
You can simply log on to Bidassist.com to look for any tender related to your business in any part of the country using relevant filters. In the case of this project for a children’s park, once you find the tender, you will get a gist of the work you are looking for. The tender document will include details like the location, area, percentage of green area, walkways and play area planned, timelines, eligibility criteria and so on. Suppliers can bid and submit their bids based on these criteria.
After the tender evaluation process, a contractor is chosen and once both parties agree to the terms and conditions, a contract will be drawn. The contract will include the payment details, rights and obligations of each party, inspections to be done, permissions to be sought for the park, supervision and construction procedure and also the measures that would be taken in case either of the parties defaults.
To cut a long story short
Tenders and Contracts are not the same, although both these documents are a part of the same tendering process. The purpose, content and legalities of these two documents are different. The objective of a tender is to receive competitive quotations for a specific work from suppliers and contractors for a project. The objective of a contract is to establish a commitment between the organisation and the vendor. Both these documents are equally significant for both parties alike for a smooth and meticulous way of doing business.
If you are still confused about tender vs contract, feel free to reach out on BidAssist support We will also help you to find relevant tenders for your businesses and also assist you in completing the mandatory paperwork and documentation for the same.