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What is the sealed bid pricing method?
It is a competitive pricing method, in which prices are decided based on quotation/estimated price or in sealed bids. This method is generally used in construction/contract business.
In this, a tender notice is printed in the newspaper. Work proposals, type of job, quality, duration of project etc. are printed in the newspaper. In reply to the notice, interested parties send their sealed bid stating their price, particulars before deadline.
On the due date, submitted sealed bids are opened and allocated to bid at a lower price with satisfaction conditions. Company sets the price based on how competitors' costs the product.
Advantages
The advantages of the sealed bid pricing method are as follows −
- Quick processes.
- Evaluation time is less.
- Several bidders.
- Clear product specifications.
Disadvantages
The disadvantages of the sealed bid pricing method are as follows −
- Suppliers are given less preferences.
- Less clarification about suppliers to meet specifications.
- Lack of flexibility.
- Sometimes the speed of the process can prove costlier.
Let us understand sealed bid pricing
- This method is widely used in construction companies or in contract business.
- Price is selected based on sealed bids for the jobs.
Steps
The steps for the sealed bid pricing method are as follows −
- Firm sets the price and product price is set by looking at competitors in the market.
- Lower price is quoted and whole quoting the price cost and profits are considered and below the price is not submitted because below that firm will encounter losses.
- Quoted price is called tender pricing.
- Firms fill the tenders (in response to jobs or works) and price and conditions for each work (if it has more than one job) are stated in sealed bids.
- Method of tender is known as tender notice.
- These tender notices are published in printed media or in circulars. It has a proposal of work, type of work, time to complete work, quality and other conditions.
- Interested parties will send their sealed bids.
- Customer − Party inviting sealed bids, marketers: customer who bid by sealed quotations.
- On the due date, sealed bids are opened.
- Then, bids with lower prices with favorable conditions are selected.
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