Tender processes for construction contracts

1 What is the tender process?
2 Types of tender process
3 Related articles on Designing Buildings

[edit] What is the tender process?

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

In construction, the main tender process is generally the process adopted for the selection and appointment of the main contractor that will construct the works. However, as procurement routes have become more complex, so tenders may now be sought for a wide range of goods and services, for example, on a construction management contract the works are constructed by a number of different trade contractors each contracted to the client, and contractors may take on additional functions such as design and management. In addition, clients may procure certain goods and services themselves, rather than through the contractor, and the contractor themselves will procure goods and services themselves through tender processes.

There is also an increasing tendency for suppliers to be aggregated into single contracts, for example, 'integrated supply teams' on public projects that may include; the main contractor, designers, sub-contractors, suppliers, facilities managers, and so on.

For more information see: Supply chain.

[edit] Types of tender process

Irrespective of the nature of the goods or services that are being sought, the process for securing tenders will generally take one of a number of different basic forms, described below.

[edit] Open tendering

Open tendering allows anyone to submit a tender to supply the goods or services that are required. Generally, an advert will be placed giving notice that the contract is being tendered, and offering an equal opportunity to any organisation to submit a tender.

On larger projects, there may then be a pre-qualification process that produces a short-list of suitable suppliers who will then be invited to prepare tenders. This sort of pre-qualification process is not the same as selective tendering (see below).

Open tendering has been criticised for attracting tenders / expressions of interest from large numbers of suppliers, some of whom may be entirely unsuitable for the contract and as a result it can waste a great deal of time, effort and money. However, open tendering offers the greatest competition and has the advantage of allowing new or emerging suppliers to try to secure work.

For a more detailed description of the procedures for open tendering, see Tender.

[edit] Selective tendering

Selective tendering only allows suppliers to submit tenders by invitation. A pre-selected list of possible suppliers is prepared that are known by their track record to be suitable for a contract of the size, nature and complexity required. Consultants or experienced clients may maintain ‘approved’ lists of prospective suppliers and then regularly review performance to assess whether suppliers should remain on the list.

Selective tendering can give clients greater confidence that their requirements will be satisfied and should reduce the wasted effort that can be involved in open tendering. It may be particularly appropriate for specialist or complex contracts, or contracts where there are only a few suitable firms. However, it can exclude smaller suppliers or those trying to establish themselves in a new market.

See selective tendering for more information.

[edit] Negotiated tendering

Negotiating tendering involves negotiating with a single supplier, which may be appropriate for highly specialist contracts, or for extending the scope of an existing contract. It can reduce the costs of tendering and allow early contractor involvement, but the competitive element is reduced, and unless the structure of the negotiation is clearly set out there is the potential for an adversarial atmosphere to develop, even before the contract has been awarded.

See Negotiated tendering for more information.

[edit] Serial tendering

Serial tendering involves the preparation of tenders based on a typical or notional bill of quantities or schedule of works. The rates submitted can then be used to value works over a series of similar projects, often for a fixed period of time following which the tendering procedure may be repeated.

Serial tendering can reduce tender costs, and may encourage suppliers to submit low rates to secure an ongoing programme of work.

[edit] Framework tendering

Clients that are continuously commissioning work might reduce timescales, learning curves and other risks by using framework agreements. Such arrangements allow the client to invite tenders from suppliers of goods and services to be carried out over a period of time on a call-off basis as and when required.

For more information, see Call-off contract.

Framework tender documents are likely to include a request for a schedule of rates and time charges and a breakdown of resources and overheads to be applied (including any proposed subcontractor or sub-consultant details).

One or more suppliers are then selected and appointed. When specific projects arise the client is then able to simply select a suitable framework supplier and instruct them to start work. Where there is more than one suitable supplier on the framework, the client may introduce a secondary selection process to assess which supplier is likely to offer best value for a specific project. The advantage of this process to the client is that they are able instigate a selection procedure for individual projects without having to undertake a time-consuming pre-qualification process. This should also reduced tender costs.

However, framework arrangements can result in anti-competitive behaviour in the long run as relationships between the client and supplier become too 'cozy', and they can exclude innovation and smaller companies.

For more information, see Framework contract.

[edit] Single-stage and two-stage tendering

Single-stage tendering is used when all the information necessary to calculate a realistic price is available when tendering commences. An invitation to tender is issued to prospective suppliers, tenders are prepared and returned, a preferred tenderer is selected and following negotiations they may be appointed.

For more information, see Single-stage tendering.

Two-stage tendering is used to allow early appointment of a supplier, prior to the completion of all the information required to enable them to offer a fixed price. In the first stage, a limited appointment is agreed to allow work to begin and in the second stage a fixed price is negotiated for the contract

For more information, see Two-stage tendering.

[edit] Public procurement

Public projects or publicly-subsidised projects may be subject to public procurement procedures, enacted by The Public Contracts Regulations. The regulations set out rules requiring that contracts must be advertised in advance. This is of particular importance because the time taken to advertise contracts can be up to 52 days. The regulations also describe allowable procedures for the selection of contractors.

For more information, see Public procurement.