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Key Features of Blockchain for Improving Tendering Process

Tendering refers to the process by which organizations source products and services from the best vendors at the best price by submitting proposals or competitive bids. Tenders are intended to ensure transparency and fair competition, as well as to derive the best value through an open process. In some cases, competitors attempt to eavesdrop on each other’s tender values to secure the contract. Sometimes, bribery has been committed during the tendering process to facilitate the award of a contract in favour of the bribery party. The prevention of these issues requires an independent, secure, and transparent solution. Among the solutions, blockchain technology, which is technically a public distributed ledger that stores and shares information, is an alternative to the traditional database. This article discusses key features of blockchain for improving the tendering process.

Decentralizing the Tendering Process

Tender evaluation is a critical step in the tender process to assess and identify potential tenderers. The evaluation committee usually conducts this process, consisting of procuring entity and the end-user community. This process is typically carried out manually. The likelihood of manipulation could result in collusion between a competing bidder and the evaluation committee. This could lead to the corruption of the entire bidding process. For example, the competing bidder bribes or colludes with the evaluation committee to win the main contract award. Blockchain utilizes a peer-to-peer (P2P) network concept and there will be no centralized authority to manage the chain process. Blockchain is characterized by its decentralized nature because it is publicly distributed. The participants are permitted to join the network, and each participant receives a copy of the blockchain information known as a node.

The primary function of a blockchain node is to verify the legality of each subsequent batch of network transactions. In this case, no one in the process holds any authority to manipulate the process. In the tender blockchain, there is no central or single-party controller. A blockchain distributes the tender information across the network nodes and makes them accessible at various locations of the tenderers. Tenderers will submit their proposal through the network nodes. Subsequently, the tender is evaluated based on an algorithm with pre-determined criteria resulting in no data manipulation. Importantly, this ensures the fidelity of the data. The decentralization feature of the blockchain improves the tender process by creating a fair and open platform for the bidders.

Immutability in the Tendering Process

A tenderer contract is generally awarded based on predetermined criteria such as the lowest price-compliant bid or the most economically advantageous bid. There have been instances where bidders have bribed the project officer to reveal other bidders’ prices to submit a lower offer to be selected. In the blockchain, the tender process is immutable, meaning that data cannot be manipulated or altered. Blockchain works like a public distributed ledger based on hashing encryption. A public distributed ledger is a series of digital data shared, synchronized, and replicated worldwide across multiple sites, countries, and institutions.

The blockchain collects transaction information and creates blocks. Once the block is loaded, the system will run an encryption algorithm, which creates a hexadecimal number called the hash. The hash is created, becomes the following block header, and is encrypted with the other information in the block. These blocks are interlinked with each other and form a blockchain. If a blockchain containing tender information is created with hashing encryption, and one of the bidders is aware that his price is high and would like to change it, he is unable to do so. This is because changing the information in any of the blocks will change the hash, making the subsequence and all following blocks invalid as they no longer store a valid hash of the previous block. The immutability of the blockchain prevents anyone from altering the results once they are submitted, even if they have access to the prices of other contractors.

Enhancing Security in the Tendering Process

During the tender process, sensitive data, including confidential financial and supplier information, is exchanged. A blockchain provides a secure means of storing data that cannot be accessed by unauthorized individuals. Blockchain technology uses cryptography to ensure the data in blocks is secure, not accessible, and cannot be altered by unauthorized individuals. SHA-256 is one of the strongest hash functions used for encryption. A unique 256-bit signature will be generated for each text based on a cryptographic hash algorithm, and this signature will be used to validate users.

Each user has a public and private key. The public key is a unique identifier for each user, whereas the private key is used to access all the account’s contents. For example, organization A releases a tender to tenderers through a hash function. The details are encrypted and digitally signed using organization A’s private key to ensure authenticity. The tender information and digital signature are transmitted to tenderers using the tenderer’s public key. Tender information is then decrypted using each of the tenderer’s private keys. The tender information is protected by an encryption algorithm and decrypted using the receiver’s private key throughout the process. This prevents the information from being leaked.

Enhancing Transparency in the Tendering Process

Government procurement requires careful consideration of purchases as taxpayer funds are involved. The principles of transparency, openness, fair competition, and value for money guide the purchasing decision. In a shared database using blockchain technology, all transactions are recorded and displayed on the digital public distributed ledger. All relevant parties have access to the same information simultaneously, regardless of location. As a result, all parties involved in a tender can be part of the same network and are able to monitor the progress of the tender step by step. Besides, all parties can view their transaction history, including the bids submitted, the evaluation process, and the final decision. All transactions recorded on the blockchain are transparent and tamper-proof. This will eliminate the possibility of corruption and unethical behavior among participants in the tender. In this way, stakeholders were able to establish trust and accountability.

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Zoey Lee Pei Yuin
Zoey Lee Pei Yuin
Lee Pei Yuin (Zoey) has substantial experience in the specialised field of procurement and sourcing management, specifically in the engineering and construction industry. She holds a Bachelor’s degree in Science and Technologies Studies and is a member of Singapore Institute of Purchasing and Material Management (SIPMM). Zoey completed the Graduate Diploma in Procurement and Supply Chain Management (GDPSCM) in June 2023 at SIPMM Institute.

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