Bid

What is a Bid?

A bid is an offer made by an investor, trader, or dealer in an effort to buy a security, commodity, or currency. A bid stipulates the price the potential buyer is willing to pay, as well as the quantity he or she will purchase, for that proposed price. A bid also refers to the price at which a market maker is willing to buy a security. But unlike retail buyers, market makers must also display an ask price.

Other popular definitins of bid are:

  • General: Indication of willingness to buy or sell goods or services or to undertake a task, at a specific price and within a specific timeframe.
  • Contracting: Complete proposal (submitted in competition with other bidders) to execute specified job(s) within prescribed time, and not exceeding a proposed amount (that usually includes labor, equipment, and materials). The bid-receiving party may reject the bid, make a counter offer, or turn it into a binding contract by accepting it. See also offer and proposal.
  • Financial markets: Highest price at which prospective buyers are willing to buy commodities, foreign exchange, or securities.

The Basics of Bids

The bid is the price of a stock for a buyer, while the ask represents the price a seller is willing to accept on the trade. The mathematical difference between the bid and the ask is known as the “spread.” When completing a purchase at the bid price, both the bid and the ask may rise to significantly higher levels for subsequent transactions, if the seller perceives a strong demand.

A bid is a tender, proposal or quotation submitted in response to a solicitation from a contracting authority. By law, government agencies are required to issue bids publicly whenever they are in need of a specific product or service. This is standard policy in order to prevent “insider bidding”, where companies are being awarded contracts secretively. It is also beneficial for the government agency itself because it creates competition, resulting in lower prices for them.

What Does Bid Mean in Business?

Bidding processes are very common in government procurement. They are often used to improve transparency and guarantee better quality. However, a bid solicitor can be any private or public institution or even an individual that requires a product or a service. The solicitor commonly notifies about the specific procurement requirements to potential suppliers and provides bid terms, which are minimum requisites to participate in the selection process.

The bidders are interested companies that present their bids according to conditions and time previously defined by the solicitor. A typical bid should include evidence about past successful jobs performed, past and current clients, available resources to execute the required work and any other information proving that requisites are not only met but even exceeded.

Example

Efficient Services Inc. is a company that has been operating for five years. It primarily provides maintenance services to roads and highways with an up-to-date technique that minimizes time while achieving excellent results. Efficient Services read in the local newspaper that the municipality would open a bidding process in a month in order to sign a one-year contract for road maintenance.

The company was very interested because there was a large amount of money involved in the contract. It therefore prepared a document where their best qualifications were presented and sent the file to the municipality two days before the deadline. Although other four companies were competing in the process, Efficient Services was the selected one. The employees in charge of the selection admitted that the winner company was the smallest and the youngest within the group.

In cost terms it was in line with the average. However, the company had the best service time because every maintenance work is planned to last 25% less than its competitors. Because of the shorter time, citizens’ daily routines will be less affected. Indeed, the time criterion was the key to grant the contract to Efficient Services.

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