What Is Competitive Bidding?

When a company, organization, region or educational facility is looking for investment services, such as accounting, actuarial services or asset management, there often is a competitive bidding process that unfolds. Especially for public institutions such as a pension fund or university endowment, there is a level of accountability that must be reached for decisions that are made. On a corporate level, this holds true as well because a board of directors will hold the management responsible for decisions made. The competitive bidding process is one way to maintain a transparent method for procuring third-party service providers that remains fair and that, when done successfully, will lead to the selection of the appropriate vendor.

Competitive bidding often begins with a request for proposal (RFP), which is issued by the entity seeking financial services or by an outside consultant who is managing the search process. A document is released either to the public or on an invitation-only basis. Qualifications for the contract are outlined in the RFP, and as a result, mostly qualified firms reply to the invitation in the competitive bidding process. In order for service providers to respond efficiently, a question-and-answer (Q&A) period will be established between the bidders and the issuer or consultant. Following that Q&A period, a deadline for submissions is enforced.

In an open competitive bidding process, the service provider entries that are received are available for others to view. A closed competitive bidding process is less public, and only certain individuals gain access to entries in this type of process. Often, the Q&A results are posted for other bidders to view if they are facing similar questions.

After the submission deadline, all of the entries are reviewed. Based on the pool of submissions, the length of time it takes to review will vary. A short list is created of the qualifying firms that best meet the criteria in the RFP, narrowing down the competitive bidding process. Firms that appear on a short list might be invited to the issuer's meetings to better explain the products and services being offered and to respond to any concerns or questions that the issuer might have regarding strategy, fees or other concerns.

The competitive bidding process is over when a service provider is awarded the contract. Often, even after the winner is selected, there are some negotiations that must be finalized. In the event that final negotiations fail, an issuer often will select a runner-up bidder to get the contract instead.