competitive bid

Dictionary of Banking Terms for: competitive bid
competitive bid

public auction bid containing prices and terms offered by an underwriter for a new issue of securities. Issuers select the underwriter bidding the best (highest) price and lowest interest cost. The highest price must be combined with the interest coupon to arrive at Net Interest Cost or NIC. Sometimes the issuer specifies the interest coupon, or sometimes allows bidders to specify the coupon rate, especially in municipal general obligation (GO) bonds.

Underwriting proposals for most municipal general obligation bonds, railroad bonds, and public utility bonds are submitted in this bid form. U.S. Treasury securities also are marketed through competitive bidding by dealer banks bidding the highest price (and lowest yield) for new Treasury bills, notes, and bonds. Contrast with negotiated underwriting.

Dictionary of Business Terms for: competitive bid
competitive bid

sealed bid, containing price and terms, submitted by a prospective contractor to a purchaser, who awards the contract to the bidder with the best price and terms. Many municipalities and virtually all railroads and public utilities use this bid system.

Dictionary of Finance and Investment Terms for: competitive bid
competitive bid

sealed bid, containing price and terms, submitted by a prospective underwriter to an issuer, who awards the contract to the bidder with the best price and terms. Many municipalities and virtually all railroads and public utilities use this bid system. Industrial corporations generally prefer negotiated underwriting on stock issues but do sometimes resort to competitive bidding in selecting underwriters for bond issues.

Dictionary of Marketing Terms for: competitive bid
competitive bid

price quote from a prospective supplier in response to a request from a buyer. Competitive bidding is most often used by government agencies who are required by law to periodically open all contracts to bid and must award business to the lowest bidder. This is intended to ensure impartiality in buying decisions. However, it also makes it more difficult for the supplier to communicate value or quality advantages that may justify a higher price. The supplier must attempt to predict how competitors will bid in order to be priced competitively. The supplier may bid relatively low if excess capacity is available to be filled, or it may bid relatively high if it has a significant competitive advantage. Competitive bids are also used to establish a market value for a product or service that cannot otherwise be priced. For example, a long-term customer of a service business may request competitive bids from other suppliers to find out if the price they pay for their uniquely tailored service is still competitive. Competitive bids sometimes have a mandatory deadline and may require a deposit to establish the financial stability of the bidder.

Copyright (c) by Barron's Educational Series. Reprinted by arrangement with the publisher of this site.