Tender in Finance: Definition, How It Works, and Examples

What is a tender?

A tender broadly refers to:
– An invitation—typically by a government or large institution—for suppliers or contractors to submit bids for a project, supply contract, or service.
– The acceptance or submission of an offer in financial markets, such as shareholders submitting shares in response to a takeover bid (a “tender offer”).

Key takeaways

• Tendering is a formal, structured procurement process designed to promote fair, transparent competition.
• A tender offer is a distinct concept: a public solicitation to shareholders to sell their stock at a specified price and within a limited timeframe.
• Governments sell securities via competitive and non‑competitive tenders (auctions) that serve different types of investors.

How a procurement tender works

1. Issuer publishes a request for tender (often called an RFP or “call for bids”) detailing scope, specifications, deadlines, and evaluation criteria.
2. Suppliers prepare and submit bids that respond to the requirements.
3. Bids are opened and evaluated according to predetermined rules to ensure fairness and compliance with procurement law.
4. A contract is awarded to the winning bidder(s).
5. Contractor performs the work or supplies the goods under contract terms.

Procurement rules exist to prevent favoritism, bribery, and bid rigging. Tendering services and consultants can help bidders prepare compliant proposals and meet deadlines.

Competitive vs. non‑competitive tenders (government securities)

When governments auction securities (e.g., Treasury bills, notes, bonds), they commonly use two tender methods:

• Competitive tender:
• Used by institutional investors.
• Bidders specify the yield or price they want; the highest (or lowest yield, depending on format) winning bids determine allocation and market price.
• Non‑competitive tender:
• Available to smaller or individual investors.
• Investors agree to accept the accepted auction price; they are guaranteed allocation up to a set limit without specifying yield.

The competitive auction establishes the market price, which non‑competitive bidders accept.

Tender vs. tender offer

• Tender (procurement): an invitation to bid for projects or contracts.
• Tender offer: a public offer to shareholders to buy shares (or debt) at a specified price within a set period. Tender offers are typically priced above market to encourage shareholder participation and are subject to regulatory scrutiny. If shareholders don’t tender enough shares by the deadline, the offer may fail.

Example: Corporations sometimes use tender offers to repurchase shares or buy back debt to restructure capital.

Common examples

• Government contracting: Agencies publish solicitations for construction, IT systems, supplies, or services; private firms compete by submitting proposals.
• Treasury auctions: Governments sell bonds via competitive and non‑competitive tenders.
• Corporate tender offers: Companies make public offers to buy back outstanding shares or purchase bonds from holders.

Typical tender process steps

1. Call for submissions (RFP/solicitation)
2. Bid preparation and submission
3. Bid opening and evaluation
4. Award decision and contract formation
5. Contract execution and project completion

FAQs

Q: Does “tender” always mean the same thing?
A: No. It can mean a procurement invitation or, in securities, the act of submitting shares in response to a takeover or buyback offer.

Q: Who participates in competitive vs. non‑competitive tenders for government securities?
A: Large institutional investors participate competitively; smaller investors usually use non‑competitive bids and accept the auction’s established price.

Q: Can shareholders block a tender offer?
A: Yes. If insufficient shares are tendered by the deadline, the offer may fail or be adjusted by the bidder.

Bottom line

“Tender” covers different but related concepts in business and finance: formal solicitation of bids for contracts, auction-based sales of government securities, and shareholder responses to takeover or repurchase offers. The term’s exact meaning depends on context—procurement, securities auctions, or corporate buybacks—each governed by specific rules to ensure transparency and fairness.