A government bid is an offer to provide a service for the government in exchange for some amount of money. The bidding process is similar to what occurs at an auction, except that the different entities are competing to provide a service for the lowest price. Government agencies seeking bids are attempting to fulfill their assignments while minimizing costs. A company that submits a government bid is seeking to turn a profit by entering into a business relationship with the government.
When a governmental body is asked to provide a service, it typically first decides whether it can perform the duties in-house or should hire a contractor. Just like in business, the government employs contractors if they offer some special expertise or can get a job done for a low price. As a general rule, the bigger a project, the more likely contractors will be involved. This can be seen in many military projects.
If contracting work is deemed necessary, a governmental agency will issue a request for proposal (RFP). An RFP simply states the requirements of the issuing agency that is paying for the service. At this point, potential contractors that are interested will respond to the RFP with a government bid. The bids may vary in more than just price quote. For example, if a high-speed rail system is being sought, proposals may involve different train designs, construction schedules, or maintenance procedures.
The scale of governmental-provided services in modern industrialized countries can be vast. Sometimes a third party helps match up government bids with contractors. Contractors will often pay other companies to sift through the multitude of RFPs for ones that may be applicable to them.
After a designated period of bidding, the responsible government agency evaluates each bid and selects the one that best meets its requirements. This may or may not be the bid with the lowest price—higher-priced bids are often selected if other advantages of the proposal outweigh the price difference. If enough companies do not respond with a government bid or if no proposals are adequate, a new RFP may be issued.
Once the government selects a winning bid, it signs a legal contract with the company to provide the needed service at the agreed-upon price. In a fixed-price contract, there are no allowances for payment increases if production costs run higher than expected. Conversely, a cost-plus contract has stipulations to allow for a variable payment upon completion of the service. This is a common type of contract for large-scale defense projects that are deemed to have unpredictable development costs.