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Tendering process in Public Sector procurement

Public sector procurement differs from the usual procurement processes of private sectors in many ways, especially in areas of compliance and transparency. This article focuses to underline, at a beginner level, some of the key differences in the area of tendering.


When the purchasing department has to meet a demand and decides to initiate a tendering process to identify the source of supply, they create a Request for Information (RFI). This can be a public or a private RFI depending on whether it is open to all bidders or only a selected group. It may be noted that throughout this article, the term RFx is used to denote Request for Information (RFI) or Request for Quotation (RFQ).


Pre-Qualification Questionnaire (PQQ):

After the RFx is published, there is usually a pre-qualification stage where the interested bidders would have to fill and submit a questionnaire before a specified date. The intention is to shortlist bidders who are competent from technical, financial and other aspects to compete for business. After the submission deadline, the responses can be evaluated by an expert team and a selected group of bidders qualify for the next stage.


Tender Fee:

This is a small amount which the bidder has to pay in order to participate in the tendering event. Some purchasing organizations might want to collect it even before allowing the bidders to participate in the PQQ process. Another variation is that some companies would like to allow the bidders to view the RFx before paying the tender fee while others prefer to collect it before providing the access to the RFx document.


Earnest Money Deposit (EMD):

After viewing the RFx, when the bidder decides to participate and submit his/her bid, many purchasing organizations also insist on collecting some money from them called as EMD. This amount is usually about 5%-20% of the bid value. The idea here is to get a commitment from the bidder about their seriousness on their participation. The bidders may usually submit a bank guarantee to cover this amount.


Once the tendering process is over, the bidders who are not awarded are refunded the EMD amount. Many a times, this amount is set differently for different bidders by the purchasing organization. For example, if the buying company has a policy to encourage certain category of suppliers like minority, domestic, etc., they can reduce the EMD amount for them.


Two-envelope bidding and evaluation:

Usually, purchasing organizations in public sector want the bidders to submit two different bids, viz. technical and commercial which can then be evaluated individually. As the name suggests, technical bid would comprise of design document, technical specifications about the project, etc. whereas the commercial bid would contain price information. In normal bidding process, only one bid (commercial) is sought which may contain some technical information attached, however, the evaluation is done in one step only.


After the bidder has submitted both the bids, the evaluation is done in two steps. It is usually a practice to do the technical bid evaluation before the commercial bid. This would ensure that the technical soundness is not compromised in effort to reduce price. However, while some purchase organizations prefer to filter out the bidders rejected in the technical evaluation phase others prefer to conduct both evaluations before rejecting any bidder.


To start the evaluation, In the presence of all the stakeholders, the technical bid opener opens the technical bid and then hands it over to a group of evaluators who provide their comments on each bid and rank them from technical aspect. This is then used to decide whether a bidder is viable technically or not. After that, the price bid opener opens the commercial bid in presence of all stakeholders wherein the prices quoted by the bidder are compared and a separate ranking is prepared.



Once the evaluations are done, the award is given to a bidder or a set of bidders based on the evaluation ranking and the strategy followed by the purchasing department. Also, it may result in a purchase order or a contract. In some cases, if the participation from bidders is not good or the quality is not satisfactory, the purchaser may decide to scrap the tendering event and conduct a new one. For some specific tendering events, purchase organizations may also prefer to conduct an auction among selected bidders after the two-envelope bid evaluation to get further reduced prices.


All the features mentioned above and many more are available with SAP SRM Procurement for Public Sector (PPS).

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  • the PSU procurement process as detailed is o.k fine. but how the ppds is going to take care of the various intricacies involved in it. like the EMD and others.alswo interested ti know how the combination of techniocal bid and reverse auction can be configured in SAP.
    • Not sure I understoodf the PPDS part. PPDS is a component from APO (SCM)!
      Regarding the other part of the question, EMD payment is possible and it can be recorded in the system. However there is no strong FI integration available. BADI implementation is required for that.
      After conducting the technical bid evaluation, the purchaser can take the qualified bidders and conduct a reverse auction.
  • Hi Madhur,

    Nice Blog, detaled all the subprocesses exist in govt procurement process.

    But, I certainly dis agree on the deployment mode – its been addressed in SRM Std document also MUST BE extended classic. But, if you look at indian implementations – upgrades, are in classic mode only – not extended classic.

    Why so?

    Knowingly SAP Saying “MUST” or any road map for future releases …?

    what could be the reason?

    Classic examples : Oil and Gas sectors & Power sector.


    • Hi Sai,

      I would agree with you completely. There were historical reasons why this functionality was developed in extended classic scenario. However, later looking at the demand for the same in classic scenario, from SRM 7.0 EHP1 onwards, this functionality is retrofitted in SRM core solution.

      For that matter, the indication is that all the key PPS functionalities which make sense for classic scenarios would be retrofitted to SRM core solution.


  • Hi Mathur,

    1. What is the scenario – as I am bidder should quote before 5 pm today, I opend session and refreshing again and again from 4:59 pm onwards, after 5 pm is system allows me to quote bid or denies me to quote? the open session is live – not expired!

    Quesition might funny – but I was faced from  business owners

    2. Price Evaluation: a common quesitiom from business, always…

    Is that Price is encrypted?
    can any one see the price before opening date – with adminstrative authorisations? Table authorisations?

    is that answer is excel sheet attachment ?

    fine, if I am using an excel sheet for price details as an attachment, what about my analytical Reporting – best bid based on L1 – Least Bidder? – that case auto evaluation is not possible?

    Thank you,

    • Hi Sai,

      For the first point, it is taken care of. The cross reference against the deadline happens when the bidder submits the bid, not when he opens the screen for bidding.

      For the second point, until recently, it was not encrypted. However, currently they are working on taking care of this security issue.


  • Hello Madhur Shah,

    First of all thanks for your support around this.

    I am working since around 2001 in SAP eProcurement solutions and currently in a project with SRM 7.0 and PPS.

    I have done some work around SRM 5 and PPS before, but I am looking for some functionality and I have the doubt if is included in standard or not, this info will be useful in advance I am receiving my Sandbox. There are 2 points where it could be great if you have some information:

    1) After the Bidding Process, when all of the Quotations are received my current customer would like to accept more than one, until now this is typical, but there is a particular functionality needed, which is, Accept quotations and to each quotation assign a Ranking position.

    For example the 1st Ranked quotation will be used for Purchase Order creation, if after that there is a problem with the supplier, the Purchase should be able to go to the Quotations and pick the 2nd Ranked quotation for creating a new PO.

    I know that with some development I could do something like that, including a Z field for Ranking position, but do you know if SRM 7 & PPS has this functionality as standard?

    2) When the supplier receive the RFQ with all products, maybe the supplier would like to offer a substitute product for one of the received, it is clear that the purchaser could give the choice to the supplier to add items, where the supplier could add a new product (just free text as I see) but the problem is that after the process ends, the RFQ Comparison has not take into account this new product or really this new added product is not compared with other quotations since is a new product.
    So, we would like to allow to the supplier add a new product but replacing another one, do you know if this is possible “as standard”, I mean, include allow to the supplier assign this mapping of the new added product to the existing one in order to after that compare with other quotations with the related product?

    Thanks for your support,
    Best regards,

    • Hi Sebastián

      in your discussion 2 nd point ” When the Bidder added Suppliment items for the item which purchaser requested”
      Note 1424241 – Accept indicator disabled for item in Response.


    • Hi Sebastian,

      Sorry for the delayed response. I was not active here for quite sometime.

      1. There is no ranking of accepted quotes available as of now as standard functionality. However, this feature is on the cards for future developments.

      2. The feature you are mentioning is a standard feature of SRM 7.0 known as response modification. If allowed by the purchaser, the bidder can substitutes, alternates or supplements for a line item.

      Hope that helps.
      Best regards,

  • Hi Madhur,

    We have implemented 2 stage tendering at one of our clients covering, techincal and price bid processes.

    How do we cover the 3 part Tendering(3-stage) in SRM PPS.

    Warm Regards,
    SRM Consultant.

    • Dear Ashwin,

      The current functionality only supports 2 stage process. We may look at extending it to n-step in future, however not decided yet. So if it is important for your business process, I am afraid a custom solution is the only way.
      By the way, what is the 3rd stage you are configuring?

      Best regards,

  • Hi Madhur,

    Thanks for the details.

    I have the below queries:

    1. while you say ‘Classic’ + PPS is possible in 7.01 – Do you know any SAP link which provides this info ?

    2. Do you have the config guide(any SAP link) for PPS Functionality configuration including relevant switches ?

    3. Is there any link provided by SAP which shows the limitations of running PPS in 7.01.For example as i know PPS cannot be run with SUS in same SRM server as this is a tested fact that in that case SUS PO details shows short dump. I had the oss message regarding teh same confirming from SAP.

    Eager to know if there is any other limitations with PPS.

    4. Is ECC Ehp4 mandatory to run PPS in SRM7.01 – is there any SAP link on this info about mandatory software components to support PPS ?

    I am not sure whether i will get notification once you answer – would be useful if you can also mail me alongwith replying here.