Competitive Tender – Definition

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Competitive Tender Definition

Competitive tender is a term used in different contexts to describe similar situations. This term is used in the construction industry to describe a procurement method used by construction companies and contractors where a tender is submitted for the supply of goods and services.

In the trade of securities, a competitive tender is an auction or bidding process through which securities are purchased by institutional investors and corporations. In a competitive tender, the highest bidder is awarded the newly issued securities. There are certain rules guiding competitive tender, most importantly, all bids by investors and corporations must be submitted at a predetermined date.

A Little More on What is a Competitive Tender

Competitive tender is otherwise called competitive bidding. Before investors, contractors or suppliers submit their bids, there must be an invitation to tender. The competitive tender was first used in the UK in the 1980s where companies can operate, gain a contract, and run a service by bidding for it.

Institutional investors can purchase newly issued government securities through competitive tender or bidding. There are two types of tender used for buying government securities, these are competitive tender and non-competitive tender. While the U.S Treasury uses non-competitive tender, the Bank of Canada uses competitive tender.

In a competitive tender, newly issued government securities are awarded to the highest bidders.  The minimum bid is pegged at $100,000. Auctions are conducted by the U.S Treasury weekly and monthly to award government securities to the highest bidders. Individuals or interest investors can place their bids 30 days in advance of the auction stating the amount of securities they want to purchase and at what price. Parties can submit their bids through the Treasury Automated Auction Procession System (TAAPS) which is done electronically or send their bids via mail.  Institutional investors who purchase securities through competitive tenders can resell the securities on the secondary market.

Reference for “Competitive Tender” › Investing › Bonds / Fixed Income › Economics help blog › Glossary Terms


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