Open tender vs. closed tender: What’s the difference?

When you're looking to select suppliers or contractors for your business needs, tendering is a go-to strategy. It ensures you get the best deal by encouraging competition and maintaining transparency. Tendering comes in two main types: open and closed. Understanding these methods is crucial for choosing the approach that best fits your specific needs and circumstances.

In this article, we'll take a closer look into both the types, explore their advantages and drawbacks, and learn how to select the right method for procurement needs.

What is open tendering?

It’s widely used by government agencies and public institutions to promote transparency and ensure all vendors have equal access to compete for contracts.

The process typically begins with a formal announcement outlining project requirements, followed by the submission of bids. Proposals are then evaluated against pre-established criteria, and the contract is awarded to the bidder offering the best overall value in terms of price, quality, and delivery capability.

What is the purpose of open tendering?

Open tendering fosters equity and openness by giving all qualified vendors the same chance to participate in a transparent bidding environment where selections are determined by objective criteria rather than personal preference or connections.

It serves a few important purposes:

• Transparency: Makes the entire procurement process visible to all stakeholders by publicly advertising opportunities and following clear procedures
• Fairness: Allows all qualified suppliers to participate, creating a level playing field where every bidder has an equal chance to win
• Initiation of evaluation: Marks the beginning of a structured assessment process where submissions are examined against predetermined requirements
• Cost-effectiveness: Results in better value as suppliers strive to offer optimal solutions at competitive prices

Example of open tendering

A city government needs a new community center and publishes a tender notice online. Any licensed construction company can submit a bid. After the deadline, proposals are opened in a public forum and reviewed based on cost, experience, and timeline. The contract goes to the company offering the best overall value, ensuring accountability and efficient use of public funds.

The open tendering process

The tendering process serves as the backbone of effective procurement, ensuring resources are allocated efficiently and transparently. An open tender welcomes all qualified suppliers to participate, beginning with a public invitation that encourages broad competition and diverse bid submissions from across the market.

1. Invitation: Business issues a public invitation to tender through advertisements in newspapers, online platforms, or industry journals. The invitation includes detailed information about the project or goods required, including specifications and terms.
2. Submission: Interested parties submit their bids by the specified deadline. Each bid must include detailed information about how they will meet the requirements, their pricing, and any other necessary documentation.
3. Evaluation: Once the submission period closes, a team of experts review all received bids and assess each bid based on criteria such as cost, quality, and compliance with requirements.
4. Selection: The contract is awarded to the bidder who offers the best value. This decision is usually based on a combination of price and other factors like experience and capability.
5. Contract signing: The selected supplier or contractor signs a contract with the business, outlining the terms and conditions of the agreement.

Open tendering offers transparency and competitive advantages when handled properly. By following these structured steps, organizations can secure quality suppliers at fair market prices while maintaining accountability throughout the procurement journey. This approach benefits both buyers and sellers in the long run.

Benefits and drawbacks of open tendering

Open tendering presents organizations with several advantages and challenges to consider before choosing this procurement method. It's important to determine how open tendering might align with your business's needs and capabilities.

Benefits of open tendering

• Equal chance to bid: Allowing any qualified supplier to participate promotes a competitive environment where every bidder is given a fair opportunity to secure the contract
• More competitive pricing: The high level of competition among bidders helps a business obtain the best possible price for the project, ensuring maximum value for investment
• Transparent procurement process: All stages of the tendering process are visible, which builds trust among stakeholders and reduces the risk of favoritism or corruption
• Innovative solutions: By opening the tender to a wide range of suppliers, the likelihood of securing better terms or unique expertise increases

Drawbacks of open tendering

• Lengthy process: This is due to the high number of bids that need to be evaluated
• Bids from suppliers with less experience: While this inclusivity promotes fairness, it also increases the risk of engaging with suppliers who may not meet the necessary standards, potentially impacting the project's quality and timely completion
• Administrative burden: Handling a high volume of bids and the need for detailed evaluations and adherence to procedural guidelines can slow down the decision-making process.

Why is open tendering used widely in construction?

The construction industry uses open tendering to promote fairness, transparency, and competition—especially for large public projects. For specifically:

• Fair competition: Open tendering invites a wide pool of contractors to bid, helping clients secure better pricing and more diverse proposals
• Transparency: With significant public and private funds at stake, open tenders provide accountability and reduce the risk of favoritism or corruption
• Broader expertise: Access to more bidders often results in innovative construction methods and better project outcomes

For contractors, open tenders offer opportunities to compete for new projects, expand into new sectors, and build reputation—even against more established firms.

How to succeed in open tendering in construction

Winning open tenders requires more than just offering the lowest price. Key strategies include:

• Understanding project requirements: Carefully review tender documents and conduct site visits when possible
• Emphasizing value: Highlight your company’s strengths, relevant project experience, and risk management approach
• Submitting professional bids: Ensure proposals are well-organized, clear, and address sustainability expectations if required

What is closed tendering?

This approach is often used when businesses want to work with trusted or specialized vendors.

The closed tendering process

Understanding how closed tendering works helps you navigate the entire procurement journey. While standard tendering begins with preparation and planning, the closed tendering process specifically starts at the invitation stage, where you select a limited group of qualified vendors to participate.

• Invitation: Business invites a select group of suppliers or contractors to submit their bids. These invitations are usually extended to pre-qualified or trusted vendors who have been vetted based on their expertise or past performance.
• Submission: The invited suppliers or contractors prepare and submit their bids according to the requirements specified in the tender document. Unlike open tendering, the list of potential bidders is not publicly disclosed.
• Evaluation: The bids are reviewed and evaluated based on the criteria outlined in the tender document. This process is typically conducted by a panel or committee within the organization.
• Selection: The contract is awarded to the bidder who best meets the evaluation criteria. The decision may be less transparent than open tendering, as fewer participants are involved.

Benefits and drawbacks of closed tendering

Closed tendering offers both advantages and challenges for project owners. Understanding these trade-offs will help you determine whether this selective procurement approach aligns with your specific project requirements and organizational goals.

Benefits of closed tendering

• More manageable and less time-consuming: Limiting the number of bidders streamlines the evaluation process, focusing only on bids from suppliers meeting the criteria
• Reduced risk of underqualified bidders: By inviting only pre-qualified suppliers, closed tendering ensures that the bidders have the necessary expertise and experience, increasing the likelihood of a successful project outcome
• More control over sensitive information: By restricting the number of participants, you can control the dissemination of sensitive project information.

Drawbacks of closed tendering

• Less competition: As the pool of potential suppliers is limited, this might lead to higher prices or less innovative solutions
• Concerns about bias or favoritism: The perception that certain suppliers are given preferential treatment can undermine trust in the procurement process
• Less innovation: Not opening the tender to a wider audience could limit your access to fresh ideas and cost-effective solutions
• Reduced exposure to the broader supplier market: Closed tendering may hinder your ability to stay updated on industry trends and advancements

Differences between open and closed tendering

Open tendering invites all eligible suppliers to bid on a contract through a public advertisement, while closed tendering restricts participation to a select group of pre-qualified or invited suppliers. Each offers different benefits for transparency and efficiency.

Here’s a comparison of the two approaches:

As an example, a tech company needs a new research and development facility. They choose open tendering and publish bid invitations on industry websites, trade journals, and their corporate portal. Any qualified construction firm can access these specifications and submit proposals. The process attracts bids from across the country, giving the company diverse options in design approaches, timelines, and budget.

Conversely, a hotel company plans to build a boutique property on a prime beachfront location. Their development team uses closed tendering and invites just four construction companies previously vetted by the hotel company's procurement team. This selective approach helps the company maintain confidentiality about their expansion plans while ensuring all bidders have the specialized expertise needed for their premium brand standards.

Methods other than open and closed tendering

While open and closed tendering are common procurement approaches, several alternative methods offer flexibility for specific project requirements. These options provide tailored solutions when standard tendering processes may not be optimal for your particular situation.

• Restricted tendering: A two-step process where potential suppliers are first pre-qualified based on capabilities, then only qualified suppliers are invited to submit full bids
• Negotiated tendering: Direct discussions with selected suppliers without formal competitive bidding, typically used for specialized projects requiring unique expertise or when time constraints exist
• Two-stage tendering: Initial submission of technical proposals without prices, followed by refinement of requirements and submission of complete proposals including pricing

These alternative tendering methods can be valuable tools in your procurement toolkit. Consider your project's unique needs, timeline constraints, and complexity when selecting the approach that will deliver the best value and outcomes for your business.

Choosing the right tendering method

Deciding between open and closed tendering depends on various factors, including the nature of the project, business goals, and regulatory requirements. Taking time to carefully evaluate each option will help ensure you select the approach that best aligns with your specific procurement needs and delivers optimal results.

When to use open tendering

• Large projects: For projects that require significant investment or have broad specifications, open tendering ensures a wide range of bids and competitive pricing.
• Public sector: Government and public sector projects often use open tendering to comply with regulations and promote transparency.
• High transparency needs: When the business needs to demonstrate fairness and transparency to stakeholders or the public.

When to use closed tendering

• Specialized projects: For projects requiring specific expertise or technology, closed tendering allows the business to select vendors with the necessary qualifications.
• Confidential projects: When the details of the project need to be kept confidential, closed tendering provides a controlled environment.
• Established relationships: When working with trusted partners or suppliers with a proven track record, closed tendering can streamline the process.

Factors to consider

• Project scope: Consider the size and complexity of the project to determine the most suitable tendering method.
• Regulatory requirements: Be aware of any legal or regulatory requirements that may dictate the type of tendering process to use.
• Desired outcomes: Reflect on whether the priority is to maximize competition, ensure quality, or maintain confidentiality.

Understanding tender regulations in the U.S.

Whether at the federal, state, or local level, tendering in the U.S. is guided by rules designed to promote fairness, transparency, and competition.

• Federal rules: The Federal Acquisition Regulation (FAR) governs how federal agencies run tenders, ensuring consistency and ethical standards
• State and local rules: Each state and city may have its own procurement codes, often based on FAR but customized for local needs
• Small business opportunities: Many tenders are set aside for small businesses to support economic diversity, with eligibility determined by SBA guidelines
• Fair evaluation: Bids are reviewed based on clear criteria like cost, technical capability, and past performance, following strict ethical standards

If a bidder believes a decision was unfair, formal appeals processes exist through government review bodies like the Government Accountability Office (GAO).

Streamline procurement operations with Ramp

While formal tendering processes—especially public sector tenders—have their own specialized requirements, strong procurement management remains critical for businesses of all sizes.

Ramp’s procurement software helps you simplify procurement, vendor communication, and purchase approvals by offering:

• Centralized management: Store supplier information, purchasing documents, and communications in one secure platform for easy access and better visibility
• Automated workflows: Streamline purchase requests, approvals, and vendor onboarding with customizable workflows and real-time notifications
• Regulatory compliance support: Strengthen internal controls with features like three-way matching, audit trails, and customizable approval policies
• Real-time analytics: Gain insights into supplier performance, spending patterns, and purchasing activity to improve decision-making

Ramp helps your business manage procurement efficiently—whether you’re sourcing suppliers through a tender process or using other procurement methods.

Learn how Ramp’s procurement software can help you manage procurement with greater speed, visibility, and control.