tendering process

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Process of tendering & definitions

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WELCOME TO THE PATHWAYS OF TENDERING By Virendra Sahdev

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TENDER Definitions A tender is an offer to do or perform an act which the party offering, is bound to perform to the party to whom the offer is made A written offer to contract goods or services at a specified cost or rate; a bid An offer made in writing by one party to another to execute certain work, supply certain commodities, etc., at a given cost and terms. A Tender is a term frequently used to describe the release of the requirements of goods and services. A Tender process is a process within which a project requests from the external market place proposals on the supply of goods and services to that project. The process that the project team defines to create a tender will involve a number of steps which will include releasing documents such as a statement of work, a request for information, and a request for proposal.

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Tendering Process Formal Invitation to Tender or Enquiry Tenders submitted to Client Formal Tender Assessment by Client De-briefing of Tenderers Issue Letter of Intent ( Optional ) Award Contract Goods and Services delivered Payment and statutory document realized Closure

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Types of calls for bids or Tenders Open tenders, open calls for tenders, or advertised tenders are open to all vendors or contractors who can guarantee performance. Restricted tenders, restricted calls for tenders, or invited tenders are only open to selected prequalified vendors or contractors. This may be a two-stage process, the first stage of which produces a short list of suitable vendors. The reasons for restricted tenders differ in scope and purpose. They are called because: There is essentially a few suitable suppliers of the services or product There are confidentiality issues such as military contracts There are reasons for expedience such as emergency situations There is a need to weed out tenderers who do not have the financial or technical capabilities to fulfill the requirements A call for bids or call for tenders or invitation to tender (ITT) (often called tender for short) is a special procedure for generating competing offers from different bidders looking to obtain an award of business activity in works, supply, or service contracts. They are usually sent to suitable, pre qualified suppliers of the services or product

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OFFER According to section 2(a) of ‘The Indian Contract Act, 1872’, ‘offer’ is defined as ‘when one person signifies to another person his willingness to do or abstain from doing something, to such ‘act’ or ‘abstinence’ he is said to make a ‘proposal’. The legal rules to an offer are The terms of an offer must be intended to create legal relations. The terms of an offer must be certain The offer must be communicated to the offeree The offer must be made with a view to obtain the consent of the other party. INVITATION TO OFFER An offer in the legal sense, capable of being converted into an agreement by acceptance, must consist of a definite promise to be bound if the terms are accepted. Every expression of willingness to enter into a contract may not amount to an offer in the legal sense. It may be only a preliminary step in the formation of a contract. Thus, it becomes necessary to distinguish between ‘offer’ on the one hand and ‘invitation to treat or invitation to offer’ on the other hand. Hence, publication of a catalogue advertising goods for sale is a mere attempt to induce offers and not an offer by itself.

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Double envelope system In an open bid or tender system, a double envelope system may be used. The double envelope system separates the technical proposal from the financing or cost proposal in the form of two separate and sealed envelopes. During the tender evaluation, the technical proposal would be opened and evaluated first followed by the financing proposal. The objective of this system is to ensure a fair evaluation of the proposal. The technical proposal would be evaluated purely on its technical merits and its ability to meet the requirements set forth in the Invitation without being unduly skewed by the financing proposal.

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LETTER OF INTENT (LOI) is a document that describes the preliminary understanding between parties who intend to make a contract or join together in another action.

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CONTRACT OR PURCHASE ORDER A contract is a legally binding agreement, ‘A promise or a set of promises which the law will enforce’ - Sir Fredrick Pollock. The essential elements are: ♦ an offer by one party and an unqualified acceptance by the other = the agreement; ♦ ‘consideration’, something of value, normally money, which is given in return for goods and services received = the bargain; ♦ an intention by both parties that the agreement should have legal consequences; ♦ ‘proper consent’ (i.e. neither party should force the other into signing a contract - it must involve ‘a meeting of minds’); and ♦ the purpose of the agreement must not be illegal or contrary to public policy.

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OFFER AND ACCEPTANCE A contract comes into effect when an OFFER is ACCEPTED. ♦ An offer is an expression of willingness to contract on certain terms with the intention that it should become binding upon acceptance. ♦ Acceptance is the unqualified assent to the terms of an offer. ♦ Unqualified acceptance of an offer will create a contract. ♦ Qualified acceptance of an offer is a counter-offer that will act as a rejection of the original offer. A counter-offer will not create a contract unless the counter-offer itself is accepted, without qualification. ♦ An offer can usually be withdrawn at any time prior to acceptance. ♦ An offer may contain a promise to keep the offer open for a specified period. Such a promise is not binding unless the offeree (the party accepting the offer) provides consideration

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Definitions of Normal Terms used in Tendering FIXED COST is a cost that does not vary depending on production or sales levels, such as rent, property tax, insurance, or interest expense. FIXED COSTS are operating expenses that are incurred to provide facilities and organization that are kept in readiness to do business without regard to actual volumes of production and sales. Fixed costs remain relatively constant until changed by managerial decision. Within general limits they do not vary with business volume. Examples of fixed costs consist of rent, property taxes, and interest expense. FIXED OVERHEAD is those costs like rent, utilities, basic telephone, loan payments, etc., that stay the same whether sales go up or down. Variable overhead, on the other hand, are those costs which vary directly with production. FIXED EXPENSES in the operation of a business are those expenses that remain the same regardless of production or sales volume, i.e. do not fluctuate with sales volume. Contrast with VARIABLE EXPENSES. DIRECT COST is that portion of cost that is directly expended in providing a product or service for sale and is included in the calculation of COST OF GOODS SOLD, e.g. labor and inventory (it can be traced to a given cost object in an economically feasible manner). Opposite of indirect cost. INDIRECT COST is that portion of cost that is indirectly expended in providing a product or service for sale (cannot be traced to a given cost object in an economically feasible manner) and is included in the calculation of COST OF GOODS SOLD, e.g. rent, utilities, equipment maintenance, etc. Opposite of direct cost.

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Definitions of Normal Terms used in Tendering GROSS is: a. the entire amount of income before any deductions are made; or, b. any total amount before any deductions (examples: gross income or gross labor). GROSS MARGIN is the ratio of gross profit to sales revenue. (sometimes used as a synonym for gross profit). For a manufacturer, gross margin is a measure of a company's efficiency in turning raw materials into income; for a retailer it measures their markup over wholesale. GROSS MARGIN is gross income divided by net sales, expressed as a percentage. GROSS PROFIT MARGIN ON SALES (GPM) is one of the key performance indicators. The gross profit margin gives an indication on whether the average markup on goods and services is sufficient to cover expenses and make a profit. GPM shows the relationship between sales and the direct cost of products/services sold. It measures the ability of both to control costs and to pass along price increases through sales to customers. The gross profit margin should be stable over time. A persistent gradual decrease is likely to indicate that productivity needs to be increased to return profitability back to previous levels.

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Definitions of Normal Terms used in Tendering NET PROFIT is the company's total earnings, reflecting revenues adjusted for costs of doing business, depreciation, interest, taxes and other expenses. Same as Net Income. NET PROFIT MARGIN (NPM After Tax) measures profitability as a percentage of revenues after consideration of all revenue and expense, including interest expenses, non-operating items, and income taxes. For a business to be viable in the long term profits must be generated; making the net profit margin ratio one of the key performance indicators for any business. It is important to analyze the ratio over time. A variation in the ratio from year-to-year may be due to abnormal conditions or expenses which need to be addressed. A decline in the ratio over time may indicate a margin squeeze suggesting that productivity improvements may need to be initiated. In some cases, the costs of such improvements may lead to a further drop in the ratio or even losses before increased profitability is achieved. NET PROFIT MARGIN (NPM Pre-Tax) incorporates all of the expenses associated with ordinary business (excluding taxes) thus is a measure of the overall operating efficiency of the firm prior to any tax considerations which may mask performance. For a business to be viable in the long term profits must be generated; making the net profit margin ratio one of the key performance indicators for any business. It is important to analyze the ratio over time. A variation in the ratio from year-to-year may be due to abnormal conditions or expenses which need to be addressed. A decline in the ratio over time may indicate a margin squeeze suggesting that productivity improvements may need to be initiated. In some cases, the costs of such improvements may lead to a further drop in the ratio or even losses before increased profitability is achieved.

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Definitions of Normal Terms used in Tendering FORCE MAJEURE An unpredictable event or occurrence beyond the control of the contracting parties, and which is not attributable to any act or failure to take preventive action by the party concerned. A Force Majeure condition allows an extension to the contract duration or completion/delivery date should a Force Majeure event occur. Earnest Money Deposit The earnest money is given at the time of contract and it constitutes a guarantee for performance of the contract. If the transaction is carried out the earnest money is adjusted towards the sale price. If the buyer defaults it is forfeited, unless there is a contract to the contrary. Security Deposit A security deposit, on the other hand, serves as a guarantee for the due performance of the contract. Therefore, the forfeiture of security deposits as such is not allowed.

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Definitions of Normal Terms used in Tendering Liquidated damages : When the damages are uncertain and not capable of being ascertained by any satisfactory or known rule - whether the uncertainty lies in the nature of the subject itself or in the particular circumstances of the case; are damages whose amount the parties designate during the formation of a contract for the injured party to collect as compensation upon a specific breach (e.g., late performance). Letter of Credit (L/C):A letter of credit(L/C or LC) is a document issued by a financial institution which provides an irrevocable payment undertaking to a beneficiary against complying documents as stated in the credit. Bank Guarantee : It is a document issued by a financial institution which guarantees a sum of money to a beneficiary. The sum is paid if the opposing party does not fulfill the stipulated obligations under the contract. This can be used to essentially insure a buyer or seller from loss or damage due to nonperformance by the other party in a contract. What's the difference between a bank guarantee and a letter of credit? A bank guarantee and a letter of credit are similar in many ways but they're two different things. Letters of credit ensure that a transaction proceeds as planned, while bank guarantees reduce the loss if the transaction doesn't go as planned.

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Definitions of Normal Terms used in Tendering Delivery The main ways in which delivery may be effected are: a. by the physical transfer of the goods; b. by the transfer of the means of control of the goods, (e.g. handing over the keys to a warehouse); c. by attornment, that is acknowledgement by the person in possession that he holds the goods on behalf of someone else; d. by transfer of a document of title (e.g. a bill of lading) representing the goods; and e. by the completion of the work in contracts for services. EX-WORKS A method of delivery. Goods are collected from the seller’s premises by the buyer or his agent or authorised representative at the time stated in the contract. Title to the goods delivered ex-works will usually pass at the time of collection. F.O.R. (FREE ON RAIL / ROAD) is where goods will be delivered by the client to a railway station/ on road. The purchaser is responsible from this point on. ( Includes packing, loading, transportation expenses but unloading expenses excluded) FIRM PRICE A price agreed for goods or services which is not subject to variation.

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F.O.B. (FREE ON BOARD) is a transportation term that indicates that the price for goods includes delivery at the seller’s expense to a specified point and no further. The FOB term is used with an identified physical location to determine 1) the responsibility and basis for payment of freight charges, and 2) the point at which title for the shipment passes from seller to buyer.The FOB location terms, Origin and Destination, may be qualified by modifiers. The modifier determines the payment of the transportation charges. Modifiers denote nothing about the title of the goods or filing of claims. The most three common modifiers are: Collect, Prepaid & Add, and Prepaid & Allow. Collect: The carrier collects the transportation charges from the buyer. Prepaid & Add: The seller prepays the transportation charges, but adds the charges to the invoice for reimbursement from the buyer .Prepaid & Allow: The seller prepays the transportation charges and they are already included in the contract price. F.O.B. DESTINATION is where the seller retains title and control of goods until they are delivered and the contract of carriage has been completed. The seller selects the carrier and is responsible for the risk of transportation. FOB POINT OF ORIGIN is where the supplier is responsible for all shipping costs to the point of having the goods loaded unto the vessel for shipment to its destination. The purchaser, from that point forward, is responsible for all further shipping costs to the point of destination, e.g., insurance, transportation, etc.

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EXPORT PROMOTION CAPITAL GOODS (EPCG) SCHEME MANUFACTURE & SUPPLY OF ELECTRICAL PANEL BOARDS TO EPCG LICENCE HOLDER REG. ISSUE OF NECESSARY DOCUMENTS FOR AVAILING CUSTOMS DUTY EXEMPTION & EXCISE DUTY REIMBURSEMENT (TERMINAL EXCISE DUTY REFUND) AS PROVIDED IN PARA 8.3 (C) FTP 2004-2009 Documents needed for procurement of Electrical Equipment & materials: Copy of EPCG Licence issued by JDGFT duly notarized Original Invalidation letter (Advanced Released Order) issued by JDGFT to individual manufacturer (Elins Switch Boards Pvt Ltd ) for supply of Panel Boards. Copy of the Purchase Order. Non availment of CENVAT credit Certificate. Any other Forms / Declarations as required by Customs/Central Excise Authorities at the time of dispatch of materials. Documents needed after receipt of the materials at project site: Two copies of invoice (including the Original) duly signed & stamped by client, specifying the date of receipt of goods.

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SEZ UNITS AT KARNATAKA. SUPPLY OF LT PANEL TO SEZ UNIT AT KARNATAKA REG. ISSUE OF NECESSARY DOCUMENTS, DELCARATIONS AND EXEMPTION CERTIFICATES FOR AVAILING CUSTOMS DUTY, EXCISE DUTY, SERVICE TAX,CST, BENEFIT FOR ELECTRICAL EQUIPMENTS. Documents needed for procurement of Electrical Equipment & materials: Proof as an SEZ unit issued by the Development Commissioner, Govt of India. Copy of Bond (LUT) executed with SEZ Customs Authority Procurement Certificate attested by Development Commissioner for the materials & equipments as per BOQ Service Tax Exemption Certificate U/s 65 of SEZ Rule-31 2006 Documents needed after receipt of the materials at project site: ARE-1 Form (Application for removal of excisable goods for export by (air / sea / port / land), duly signed & stamped by you & your Customs SEZ authorities for having received the excisable materials with in 45 days of the date of Invoice. Supply of goods under Bill of Export duly signed & stamped by your Customs SEZ authorities for having received the excisable materials at SEZ unit.

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SEZ UNITS AT OUTSIDE KARNATAKA SUPPLY OF LT PANEL TO SEZ UNIT REG. ISSUE OF NECESSARY DOCUMENTS, DELCARATIONS AND EXEMPTION CERTIFICATES FOR AVAILING CUSTOMS DUTY, EXCISE DUTY, SERVICE TAX,CST. Documents needed for procurement of Electrical Equipment & materials: Proof as an SEZ unit issued by the Development Commissioner, Govt of India. Copy of Bond (LUT) executed with SEZ Customs Authority Procurement Certificate attested by Development Commissioner for the materials & equipments as per BOQ Service Tax Exemption Certificate U/s 65 of SEZ Rule-31 2006 Tax exemption Certificates especially VAT Documents needed after receipt of the materials at project site: ARE-1 Form (Application for removal of excisable goods for export by (air / sea / port / land), duly signed & stamped by you & your Customs SEZ authorities for having received the excisable materials with in 45 days of the date of Invoice. Supply of goods under Bill of Export duly signed & stamped by your Customs SEZ authorities for having received the excisable materials at SEZ unit. “ Form I” U/s 8(8)and Rule 12(11) of CST Rules 1957 to be issued us (quarterly) for Central Sales Tax Exemption by SEZ Authorities.

Customs Duty for Switchgear and Bus-ducts : 

Customs Duty for Switchgear and Bus-ducts

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THANKS FOR TRAVERSING THROUGH THE JOURNEY OF TENDERING

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