The term tender refers to an invitation to bid for a project. Tendering usually involves the process where governments and financial institutions invite bids for large projects that must be submitted within a specific deadline. The word tender can also mean the acceptance of a formal offer, such as a takeover bid, where shareholders submit their shares or securities in response.
Key Takeaways
- Tender typically involves submitting bids for large projects invited by governments and financial institutions.
- A tender offer solicits all shareholders to tender their stock for sale at a specified price during a certain period.
- A request for tender (RFT) is a structured invitation to suppliers to submit competitive bids for supplying raw materials, products, or services.
- Tender processes ensure fairness and transparency in the selection of vendors.
- Large institutional investors buy government securities through competitive tenders, while smaller investors use non-competitive tenders.
How a Tender Works
A tender is an invitation by governments and other entities to submit bids for contracts. Most institutions have well-defined tender processes for projects or procurements. This includes procedures for opening, evaluating, and selecting vendors to ensure fairness and transparency.
A response to a tender invitation, known as a request for tender (RFT), is a formal and structured submission from suppliers. These submissions must comply with specific laws designed to prevent bribery and nepotism, ensuring fair competition among bidders.
Example: Without such laws, illicit practices like bribery could thrive. Tender services help potential bidders by offering support in crafting bids, ensuring deadlines are met, and maintaining compliance with legal standards.
In the private sector, requests for tenders are often referred to as requests for proposals (RFPs), giving potential bidders a clearer idea of the issuer’s needs.
Tender vs. Tender Offer
Don’t mix up tender with a tender offer. A tender offer is a public solicitation addressed to all shareholders, inviting them to sell their stock at a specific price for a certain period. This offer is generally higher than the market price to entice shareholders.
Example: On December 13, 2021, Dell announced a tender offer to repurchase shares. The company used cash and proceeds from the sale of senior notes to fund the stock buyback.
When targeting shareholders directly, this process bypasses upper management unless they own significant shares. An acquiring company may only need a minority of remaining shares, especially if it already holds a significant share of the target company.
Failing to meet the share submission deadline invalidates the offer, allowing shareholders to block the deal.
Competitive Tender vs. Non-Competitive Tender
Governments use competitive and non-competitive tenders to sell government securities. In the U.S., these securities include treasury bonds, bills, and notes.
Competitive Tender: Institutional investors bid on newly issued government securities. The highest bidder wins the auction and buys the securities at the bid price.
Non-Competitive Tender: Smaller investors buy securities at a price set by the competitive tender. The U.S. Treasury determines the fair market value based on the winning competitive bid and sets this price for smaller buyers.
The U.S. Treasury issues bonds with terms of 20 or 30 years, paying a fixed interest rate until maturity.
Examples of Tender
In the U.S., businesses often expand by becoming government contractors, selling services or goods to federal, state, or local governments.
Federal agencies like the Defense Contract Management Agency and the Department of Homeland Security purchase from contractors who compete by submitting proposals based on tender requirements.
Example: The U.S. federal government lists contract opportunities in a searchable database, making it easier for businesses to match opportunities with their services.
What Does Tender Mean in Business and Finance?
Tender can refer to an invitation to bid for a project or the acceptance of a formal offer, such as a takeover bid where shareholders offer their shares.
What Are Some Examples of Tendering?
Common examples include contractors submitting proposals to various government levels. Government agencies like the Department of Energy and Homeland Security often issue calls for proposals.
What Are the Steps to Take in the Tender Process?
The tender process involves the following steps:
- Call for submissions
- Bid submission
- Selection process
- Contract formation
Once these steps are completed, the contractor starts and completes the project.
What’s the Difference Between Tender and Tender Offer?
Tender is an invitation to bid for projects, usually from governments or institutions. A tender offer is a public solicitation by a company or third party to purchase shares from another company’s shareholders.
The Bottom Line
Tender has multiple meanings in business, finance, and investing. In business, it refers to the invitation for vendors to bid on projects. In investing, it means the bidding process for government securities or a corporation’s solicitation to repurchase its stock. Other forms include short tender and hedged tender.
Related Terms: Request for Tender, Competitive Tender, Non-Competitive Tender, Tender Offer, Government Securities.
References
- Legal Information Institute, Cornell Law School. “22 CFR Sec. 201.22 - Procurement Under Public Sector Procedures”.
- U.S. Department of Justice. “Price Fixing, Bid Rigging, and Market Allocation Schemes: What They Are and What to Look For”.
- U.S. Securities and Exchange Commission. “Tender Offer”.
- Treasury Direct. “Treasury Bonds”.
- USAGov. “Get Help with Government Contracting”.
