Competitive Bidding – Definition and Concept

A Auction Competitive is one where investors submit their proposals to the issuer. Thus, they indicate, among other details, the price they are willing to pay.

Competitive auctions are usually related to public tenders where bidders seek, for example, to develop an infrastructure project or provide a public service to the State.

It should be noted that, unlike the competitive auction, in that non-competitive bidders only indicate the desired amount. That is, they do not indicate the price they are willing to pay or charge.

Characteristics of the Competitive Auction

Among the characteristics of the public auction are:

  • Not only the price is evaluated, but the capacity (operational and financial) of the business contestant to fulfill the activity for which he seeks to be hired.
  • Competitive auctions usually offer contracts with a set period of duration. After this deadline, the contracted firm must renew the agreement if it wishes to continue with its operation.
  • To participate in these auctions, a proposal that includes operational and financial details must be submitted. That is, the company must explain, for example, how it will build the road that the government is tendering. Thus, you must specify the technology you will use, the number of employees you will need, the deadlines you agree to meet, how it will be funded, among other details.
  • Not only the government can organize this type of contest, but also companies or private institutions. Some mergers or acquisitions, for example, can be achieved through competitive auctions. Thus, the purchasing firm must specify the price it is willing to pay to become a majority partner of the acquired company, as well as the terms in which both organizations will join their operations.

Example of Competitive Auction

An example of a competitive auction can be, for example, when the State seeks to tender the construction of a new suburban train.

Then, you will receive proposals from different companies, national and foreign. Each of them will be thoroughly evaluated, giving the concession not necessarily to the company that offers to develop the work at a lower cost, but that which has, for example, sufficient experience and good reputation to ensure a quality project.