Purpose of Tendering and Procedures

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[edit] Introduction

A tender is a submission made by a prospective supplier in response to an invitation to tender issued by an employer. It makes an offer for the supply of goods or services.

There are two purposes in tendering:

1. To select a suitable contractor at a suitable time
2. The offer of a price is required from the contractor at an appropriate time. This offer will be the basis for the ensuing contract.

Along with the conditions, the contract drawings and bills of quantities (if used) make up the contractual agreements.

There is no direct relationship between the type of tendering procedure and the form of the contractual agreement. The tendering process marks the beginning of the contractual relationship.

Main methods:

1. Open Tendering

2. Selective tendering - single or two stage

3. Nomination / negotiation

4. Serial

5. Joint ventures

[edit] Legal obligations

[edit] The parties’ obligations

• The employer’s request for tenders is an invitation to treat and therefore the employer is under no legal obligation to accept any tender.
• The cost of tendering is generally borne by the contractor.
• Where the preliminary work goes beyond what is normally expected, an employer may agree to make payment.
• A person who invites another to tender with no intention whatsoever of accepting that tender can be liable for any expenses that the latter incurs.
• An employer who expressly promises to accept the lowest tender will be bound by that promise, if that tender complies with any conditions.
• An employer may be under an implied obligation to give proper consideration to any tender submitted in accordance with published conditions.
• Local authorities are required by the Local Government Act 1972 to publicise formal contracting procedures, normally involving competitive tendering.
• Local authorities are required to give reasons for their procurement decisions and are generally prohibited from taking into account non-commercial considerations in reaching those decisions.

[edit] European Union control on procurement in the public sector

• European Treaty (which applies to all public sector contracts): prohibits discrimination within the European Union on grounds of nationality and restrictions on the free movement of goods or services.
• A complex array of European Union Directives lay down rules governing the procedures for the awarding of contracts by any public body where the contract value is greater than specified values. See OJEU for more information.

[edit] Open tendering

• Traditional method
• Advert placed and interested suppliers can apply for documentation
• Advert or documentation may state that the employer is not bound to accept the lowest tender, or indeed any tender
• It is an indiscriminate request for tenders, and there is no method of ensuring high quality building
• Preparation places unnecessary burden of time, effort and expense on the industry as a whole
• Its use has been declining in the UK, but because of the effect of certain European Union legislation, its use in the public sector is increasing

[edit] Single stage selective tendering

• A limited number of contractors (generally no more than six) are pre-selected to tender for the work
• An employer who builds regularly may have an approved list of contractors
• If the pre-selection process has been done properly, any of the contractors is satisfactory to the employer
• Therefore tenders may be considered on price alone

[edit] Selection of contractors

• A short list of suitable tenderers should be drawn up either from the employer’s approved list of contractors or from an adhoc list
• The number of tenderers invited should be a maximum of six
• One or two further names should be added to replace any firms that do not accept the preliminary invitation
• Points to be considered:

1. The firm’s financial standing and record
2. The firm’s recent experience of building at the required rate of completion
3. The firm’s general experience and reputation in this area
4. The firm’s competence and resources in respect of statutory health and safety requirements
5. The firm’s approach to quality assurance procedures
6. Whether the management structure of the firm is adequate for this type of contract
7. Whether the firm will have adequate capacity at the relevant time

• This can be achieved by means of the NJCC Standards Forms of Tendering Questionnaire
• Lists should be periodically reviewed to exclude firms whose performance has been unsatisfactory and to allow the introduction of suitable additional firms

Advantages of Single Stage:

• Ensures only capable and approved firms submit tenders
• Competitive pricing - the full scope of work is priced in competition with other bidders
• Risk allocation - the client and the contractor have a clear statement of risk allocation in the contract. Avoidance of cost escalation during second-stage tendering. The contractor is not given an opportunity to revisit the pricing.
• Cost certainty - provides the client with an early contractual commitment on price for the whole works.
• Overall speed of the project - timescales are known.

Disadvantages of Single Stage:

• Design team do not have the benefit of the contractors experience at a stage in the design when it would be most useful.
• Issues such as continuity of work, production cost savings, build ability and subletting specialist items can have a significant impact on the final price of a project.
• The price is only as good as the information provided.
• Competitive pressure may encourage tenders to take risk in their pricing.
• Sequential design and construction removes opportunities for acceleration of the overall programme.

Problems with Single Stage tender:

Proceeding to tender with unresolved design issues will eventually result in:

• Communicating different levels of design completion in tender documentation.
• Incomplete or contradictory tender information
• Errors or omissions in the contractors tender
• Qualifications or discrepancies in the contractors submission that are now identified prior to the acceptance of tenders.

Successful single stage tendering include:

• Limiting the contractors risk by undertaking design reviews for completeness, build ability and co-ordination before issue of tender; preparing comprehensive tender documentation; minimising work that will be designed during construction
• Selecting the right contractor by building enough time into the programme to allow for post tender evaluation of tenders
• Managing the design process to deliver certainty by allowing time in the pre-construction programme for the completion of design work and production information
• Design responsibility - clear communication of the extent of the design responsibility allocated to the contractor and making sure designers stay strictly within their scope of work

[edit] Preliminary enquiry

• In order that the contractors may be able to decide whether they will tender and to anticipate the demands on their tendering staff, each firm should be sent and should reply to a preliminary enquiry for invitation to tender
• It should include the following information:

1. Project name
2. Type and function of building
3. General description of the project
4. Employer’s name
5. Employer’s professional team
6. Location of site
7. Approximate cost range
8. Number of tenderers it is proposed to invite
9. Nominated sub-contractors for major items
10. Form of contract and any proposed amendments
11. Examination and correction of bill (Alternative 1 or Alternative 2)
12. Anticipated date of possession
13. Period for completion of works
14. Approximate date for dispatch of tender documents
15. Tender period
16. Details of guarantee requirements
17. Particular conditions applying to the contract

[edit] Interview

After the responses to the preliminary enquiry letter have been received, each contractor suitable should be interviewed in order to:

• Determine that the forms of construction to be used will in general be suitable
• Discuss and establish the organisation of the work and the time required for tendering
• Discuss and establish (if required) the nature and extent of the design indemnity insurance to be taken out by the contractor
• Provide any further information required by the contractor
• Make a final judgement on the competence of each firm’s competence

[edit] Sending out documents

Tender documents will include:

• Checklist of drawings and documents
• Specification
• Tender form and instructions for their completion
• Complete sets of drawings
• Or the bills of quantities with a selection of drawings
• Pre-tender health and safety plan
• Proposed programme dates
• Specific contract terms and conditions
• Details of and bond and/or guarantees required
• Covering letter

The covering letter should include:

• Invitation to tender (if not already sent)
• List on enclosures
• Date and place for delivery of tenders
• Whether the site is open for inspection and if so what arrangements should be made to visit
• Request for acknowledgement
• Also enclosed should be an envelop for the delivery of the tender already addressed and marked ‘tender for…’ on the face

Time for tendering

• As long as possible
• Determined in relation to the size and complexity of the job
• Four weeks should be regarded as the minimum time for tender
• Contractors tendering on a specification and drawings will need longer than when bills are supplied

The formulation of bids

• Where no bills are supplied, the tenderers must prepare their own quantities from a complete set of drawings with the guidance of the specification
• Estimating, (the contractor formulating rates for the items in the bills), does not:

1. take account of the way in which the costs are incurred (brickwork on second floor is cheaper than brickwork on seventeenth floor)
2. necessarily mean that the actual rates are the same as those in the in the bills

• If the contractor does not want to tender (too busy or not appropriate work), they may submit an inflated ‘cover bid’
• If the contractor is short of work they may be satisfied with a low profit or no profit at all
• If the contractor does want the job, but the contract is risky, they may add a premium to the rates
• The contractor’s cash flow has a significant effect:

1. If the project is at the end of a tax year, they may reduce the rates at the beginning of a project and increase them at the end – back loading
2. Or the contractor may wish to get cash quickly to meet liabilities and will therefore inflate the rates at the beginning – front loading

• Illustrates the danger of using bill rates to value variations

[edit] Withdrawal of tender

• As the contractor’s tender is merely an offer, it may be revoked at any time before it has been accepted
• This can cause problem for contractor’s relying on sub-contractor’s bids when formulating their own tenders

[edit] Opening of tenders

• When returned, the marked envelopes will be left unopened until the time stated for delivery has passed and a check has been made that all have been delivered.
• Bills may be returned in separate envelopes and only the bill accompanying the lowest tender will be opened.
• A list is prepared for the client in order of price, and the contract period may also be entered against the contractor’s name if this has been requested from the contractor
• As soon as any tender is accepted, all tendering contractors must be notified

[edit] Examination of a priced bill

• The QS will make a mathematical check and generally look through the rates for any possible serious errors or omissions in the pricing
• If there are none, the tender can be recommended for acceptance
• If mistakes are found, the contract administrator, employer and contractor must be notified
• Under Alternative 1:

1. The contractor will either be invited to stand by the tender price or to withdraw
2. If they withdraw, the next lowest bid may be considered
3. If they stand by the tender, an endorsement should be added to the priced bills indicating that all rates and prices inserted therein by the tenderer are to be considered as reduced or increased in the same proportion as the correct total or priced items exceeds or falls short of such items

• Under Alternative 2:

1. The contractor should be given the opportunity of confirming their offer or amending it to correct genuine errors
2. Should they elect to amend the offer and the revised offer is no longer the lower, the offer of the firm now lowest in the competition may be examined
3. If the tenderer elects not to amend the offer, an endorsement will be required as above

[edit] Negotiated reduction of tender

• Should the tender under consideration exceed the employer’s budget, the recommended procedure is for a reduced priced to be negotiated with the tenderer, based on agreed changes to the specification or the quantity of work

[edit] Preparing contract documents

• Completing the articles or agreement is left to the contract administrator or QS
• All documents should be marked for identification and signed by both parties

[edit] Two stage selective tendering (negotiated tendering)

• To separate the process involved with selection from the process for determining the pricing mechanisms
• Not to involve the contractor with responsibility for design, but to get the contractor involved in an advisory capacity before the scheme has been fully designed

Reasons for selecting a two-stage tender:

• Achieving early appointment of the main contractor ahead of the completion of the design, and potentially a quicker start on site
• Securing the involvement of a contractor for pre-contract services on a competitive basis, to obtain input on build ability, sequencing and subcontractor selection.
• Transferring a greater degree of design and other construction risk to the contractor
• If the client has a genuine need to follow a two-stage route, because of programme constraint

[edit] First stage

The first stage competition is typically based on deliverable including a construction programme and method statement, detailed preliminaries pricing, overheads and profit.

• The process for the selection of the contractor and for the establishment of a level of pricing for subsequent negotiation
• Competitive selection takes place based on a minimum amount of information needed to:

1. Provide a competitive basis for selection
2. Establish principles of layout and design
3. Provide unambiguous pricing documents related to preliminary design and specification information in forms sufficiently flexible for a basis for pricing the second stage tender
4. Define obligation, conditions of, and programme for second stage procedures
5. State the conditions of contract

• When the first stage procedure has been completed and a contracted selected for the second stage, no contract for the execution of the work will have been entered into
• The costs incurred in preparing and submitting the first stage will be borne by the tenderers
• Tenderers should not be required to submit a response to the health and safety plan with their first stage tenders: the tenderer whose bid is most favourable should be required to submit its response as soon as possible

[edit] Second stage

The second stage is concluded with the agreement of a lump-sum contract sum, typically based upon competitive tender of between 70 and 80% of the value of work packages.

• The process of finalisation by the employer’s professional team in collaboration with the selected contractor of the design and development of production drawings and the health and safety plan for the whole project and the preparation of bills of quantities for the works proceed on the basis of the first stage tender
• The result is an acceptable sum for inclusion in a contract, and completed contract documentation is prepared in conjunction with the contractor
• If the parties fail to proceed beyond the second stage, procedures, established during the first stage, will need to include equitable arrangements for reimbursement of the contractor’s participation in the second stage
• Used for complex projects

What are the advantages of 2 stage tendering

• Early involvement of the contractor
• Encourages collaborative working
• Potential for earlier start on site
• Greater client involvement in selecting the supply chain
• Contractor can help identify and manage risk

What are the disadvantages of 2 stage tendering?

• Cost certainty may not be achieved before construction starts
• Additional pre-construction fees for the contractor
• Contractor could take advantage of second stage negotiation - increase costs
• Potential for parties to not agree contract sum - risk - cost of retendering

[edit] Selective tendering for design and build

• The terms of any consultant switch should be communicated to the tenderers in the preliminary enquiry
• In order to limit unnecessary work by tenderers, the employer should include in the requirements all information about the site and building in their possession

[edit] Selection of tenderers

• Preliminary list should comprise six to eight contractors
• Final list should (in additional to criteria outlined above) take into account:

1. Whether the firm has had recent experience of designing and constructing to type of building envisaged by the Employer’s Requirements
2. Whether the firm’s customary design capability is in-house and if not, what method will be used

• Final list should be limited to no more than three firms, due to the high costs involved in in preparing tenders for work with contractor’s design involvement
• If two stage tendering is used, the list may be increased to no more than five firms with either one or two going through to the second stage

[edit] Employer’s Requirements

The Employer’s Requirements should state the priority of the following items that will determine the successful tender:

• Appearance
• Functional requirements
• Capital cost
• Expected lifespan of the building
• Flexibility of use
• Quality
• Running and maintenance costs
• Time of construction
• Any other factors

[edit] Cost of tendering

Where substantial high quality design work is required or excessive competition is introduced, it may be in the employer’s interests to offer payment fro the preparation of unsuccessful competitive tenders

[edit] Single stage or two stage?

Most employers would benefit from a two stage procedure that would enable post-tender changes and development to the design and cost.

In exceptional circumstances where the employer’s requirements are well defined, then single stage tendering may be used

[edit] Extent of information

A full set of drawings and specification should not be expected at tender stage. Therefore the employer must indicate the minimum require to enable him to select a contractor

Tenderers should be instructed to indicate in their tender the period they require to elapse between the acceptance of their tender and the commencement of work on site to enable them to complete production drawings and obtain necessary statutory approvals

[edit] Tender period

Depends on the nature of the Employer’s requirements and whether a single stage or two stage procedure is being followed. For most projects, the period is three to four months

[edit] Assessment

The evaluation should be carried out in accordance with the criteria specified in the preliminary enquiry The best tender, which may not be the lowest, should be accepted

[edit] Two stage tendering

The process of finalisation of the contractor’s proposals resulting in an acceptable basis for the contract. Where the employer fails to reach an agreement with the selected contractor, it will be necessary to either recommence the second stage procedures with another tenderer or invite further first stage competitive tenders

[edit] Negotiation

• Newer forms of procurement (eg construction management and management contracting) demand a less adversarial approach
• The inherent flexibility demanded means no standard method for negotiating a contract
• Serial contracting: contractors are asked to bid for a project on the basis that if they build this one satisfactorily, others will follow and the same bill rates will be used - partnering
• Most effective way of selecting a contractor for non-traditional approaches
• Familiarity between employer and contractor is important factor

[edit] Joint ventures

• For projects that are so complex that the distribution of liability becomes a problem
• Involves all parties taking on joint and several liability for the design and/or execution of the project
• The agreements must be carefully examined and backed up by bonds or guarantees

[edit] Points to consider when preparing a Tender enquiry questionnaire to be sent to various contractors

Tender enquiry questionnaire

• Name of firm
• Size of firm
• Turnover of firm
• Evidence of financial stability
• Location of firm
• Recent experience of this type of project
• References from previous clients/architects
• Recent experience of this type of time scale
• Health and safety records
• Availability of resources for that time period
• Information on key personnel to be working on project
• Management structure of firm
• Quality assurance procedures within the firm
• Details of liability insurance

[edit] Points to consider when preparing an agenda and objectives for a structured interview to establish a shortlist of contractors who will be invited to tender.

Agenda for interview

• The information in the questionnaire
• Location of project
• Nature of site/ existing buildings
• Restrictions over site
• The firm’s general approach to the site conditions
• Description of the required retail development including cost
• Experience of the firm in large retail developments
• Discussion as to the type of contract and method of procurement that will be used
• Experience of the firm with this type contract and procurement method
• Whether there will be any contractor’s design
• Health and safety records and initial plan for the project
• Resource available for the project
• Initial thoughts as to programme and phasing
• Procedure to be adopted for the examination and correction of any errors in the tender
• Approximate date for despatch of tender documents and tender period
• Any additional questions that the firm may have

Objectives

• To establish whether the firm has the requisite skill and experience for this type of development
• To judge their competence
• To ascertain whether they have the adequate resources necessary to carry out the project
• To meet the firm face to face
• To give the firm an opportunity to ask any questions about the project, client and design team

List of attendees

• Client
• Architect and/or contract administrator and/or quantity surveyor
• Director of construction company
• Key personnel who would be involved with project

Bonds and/or parent company guarantees are commonly used to protect the financial interests of the employer.

What are bonds?

• Bonds are financial assurances that can be purchased from finance institutions such as banks or insurance company by contractors to back up their tenders

What are parent company guarantees?

• Parent company guarantees are financial guarantees under which the contractual performance of one company within a corporate group is underwritten by other members of the group to back up the contractor’s tender

In what ways do they provide security?

• Bonds and/or guarantees can be provided to guarantee every aspect of the contractor’s performance
• They provide security for the employer in that in the event of insolvency of the contractor
• Bonds can be provided in return for early release of retention money, so that the employer is protected against any defects that he may later discover
• Advance payment bonds protect the client in the event that the contractor fails to fulfil obligations that have already been paid for
• Bonds can also be requested by contractors from subcontractors to protect their ability to deliver the project for the tender sum in the event that their tender was based upon the subcontractor’s tender and the subcontractor has subsequently withdrawn

How are the requirements for these included in the tender documents?

• The need for a bonds and/or parent company guarantee would be stated in the preliminary enquiry for invitation to tender
• Details of the bonds and/or parent company guarantees would be outlined in the tender package

How would you deal with errors in tender returns?

Depends on which alternative chosen on instructions to tenders:

• • Alternative 1 – the QS should amend computing errors arriving at a new tender sum. They should inform the contractor who can choose to either confirm or withdraw
• Alternative 2 - QS should amend computing errors arriving at a new tender sum. They should inform the contractor who can choose to confirm or amend.

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