PROCUREMENT THROUGH THE TENDERING PROCESS

Procurement refers to the mechanism by which resources are marshalled and deployed, and
contracts agreed, for the purpose of implementing a project. The concept of procurement
embraces not only consideration of the process and means by which contracts are to be let,
but also the choice of contractual arrangement for the particular project; for example, whether
a project is let on a “traditional” basis, a design and build basis, or some other basis.

In government procurement of public works work is either undertaken in house, or a

contractor is engaged to perform certain works which, when completed, are proffered for
public use and maintained by the government itself.

At its simplest level, procurement may involve little more than a person finding a builder or a
tradesperson from the telephone book or the Internet, and arranging for that person to
perform certain work based on an oral agreement, or a short written quote. At the other
extreme, particularly for the procurement of large, public sector contracts, where probity and
transparency are of the utmost importance, the process of arranging contractors to perform
works may be intensely time consuming (for all involved), document heavy, and subject to
strict controls as to how the contract may be let.

In all cases, no matter which procurement route is used, the elements of the procurement
process will be such that they can be grouped into one of three broad categories:

(a) individual negotiation;

(b) tendering; and

(c) other hybrid versions involving elements of tendering and individual negotiation.

Contracts that are individually negotiated, such as where an owner and a contractor meet and
agree on terms, without any kind of tendering process, are relatively simple in this context, in
that the existence and formation of a contract usually comes down to the application of
elementary principles, such as offer, acceptance, consideration, the parties having agreed
upon essential terms, and there being a mutual intention to enter into a contract.

TENDERING

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 for the selection of the contractor that

will construct the works. However, as procurement routes have become more complex,
so tenders may 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.

The process by which an owner/invitor procures tenders, and ultimately enters into a contract,
for the acquisition of construction or engineering goods and services, is largely a matter for
the invitor to determine, although there are, in the case of work put to tender by governments
or public corporations, statutory and other legal restrictions upon how that process is
conducted. The nature of the tendering process, certainly in projects which are not subject to
public sector procurement constraints, may be sculpted to meet the needs and circumstances
of the ultimate client.

Irrespective of the nature of the goods or services that are being sought, the process for
securing tenders may take a number of different basic forms:

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 organization 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 be invited to prepare tenders. This sort of prequalification process
is not the same as selective tendering (see below).
Open tendering has been criticized 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.

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.

Negotiated tendering
Negotiating with a single supplier 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.

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 program of work.

Framework tendering

What is a Framework Contract and when should it be used?

A framework contract is a contractual arrangement for an estimated quantity of supplies,

works or services at fixed unit prices over a certain period of time, where actual quantities of
supplies are purchased or specified scope of works or services are performed by means of
individual call-off orders and payment is made for the actual quantities delivered or services
and works undertaken.

A "Call-Off Order" means an order/individual contract issued by the Procuring and Disposing
Entity for the purchase of specified quantities of the supplies or performance of services,
works under a framework contract.

A framework contract provides an efficient, cost effective and flexible way of procuring
supplies or services that are needed continuously or repeatedly over a period of time by
reducing procurement costs and time.

A framework contract also provides a means of having supplies, works or services "on call",
where they might be needed urgently, but where the quantity and timing cannot be defined in
advance. For example, malaria drugs might be needed to deal with a sudden outbreak of the
disease, but the size and timing of any outbreak cannot be known in advance. The existence
of a framework contract allows a Procuring and Disposing Entity in such a case to respond
quickly to the emergency, without resorting to direct procurement, which is likely to result in
higher prices, caused by lack of competition.

Features of Framework Contracts

 Fixed unit prices are defined in framework contracts which cover a certain period of
time.

 The general service area for delivery is defined but the precise location, quantity and
timing are not specified.

 Contracts are activated by use of call-off orders which specify requirements and
payments are made against each individual call-off order.

 Contracts may also be in place with a number of providers at the same price or
different prices but without a guarantee by the Procuring and Disposing Entity that it
will issue 'call off orders' to each of them.

 Once the contract has been approved by the Solicitor General where applicable, the
call-off orders need not be approved subsequently.

Benefits of using framework contracts:

 Reduced time and resources spent on procurement, as the Procuring and Disposing
Entity only has to conduct a single bidding process and place a framework contract to
be able to order supplies, works or services whenever they are needed, rather than
conducting a separate procurement process each time.

 Bidders' time and effort in preparing bids or quotations is reduced. A greater number
of bidders are interested in the contract since a call off order results in guaranteed
business.

 Lower prices are obtained since by aggregating requirements, there are benefits of
economies of scale by the Entity through more competitively priced bids.

 The lead time for delivering supplies, works or services is reduced since there is no
need for a procurement process for each order. The minimum response times for
delivering supplies or services may be included in the framework contract signed.

 Procuring and Disposing Entities retain the benefits of competition, even where
supplies, works or services are needed in an emergency situation.
  The Procuring and Disposing Entity obtains benefits of scale without incurring the
costs of holding stock or paying for a large volume of supplies or services up-front.

 Framework contracts are placed and commitments made at the time of 'call off orders'
in accordance with the funds available.

 Once a framework contract is in place, the completion of call-off orders is a quick and
simple process.

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.

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

Other important terms

Pre-qualification

Pre-qualification is a term which is used to describe the initial assessment or “short listing” of
potential bidders for project works. The purpose of pre-qualification is to streamline the
bidding process itself, so that only prospective tenderers of adequate competence, experience
and financial viability are invited to tender. The use of tender lists is a manifestation of pre-
qualification.

Tender list

Local authorities, and other branches of government, may be permitted or required to produce
a list of potential tenderers who may be invited to tender for work put out to tender by the
local authority (or other governmental arm). Contractors are vetted before being included on
a tender list. The convenience of using tender lists lies in the fact that once a contractor has
been vetted and included on the tender list, the contractor will not usually need to be vetted
each time a new contract is put to tender. Contractors may be required to disclose numerous
matters about their performance history when applying to be included on a tender list,
including whether the contractor has worked on a project where its employment has been
determined

A decision by a local authority to remove a tenderer from a tender list, or to disqualify a

tenderer on a tender list from being invited to tender for a project, is not actionable at
common law, although it may in some circumstances confer a right to seek judicial review of
the local authority’s decision. In Fairclough Building Ltd v Borough Council of Port Talbot,7
a contractor which was on a local authority’s tender list, and which was initially invited to
tender for a project, subsequently had its invitation to tender revoked by the local authority
when it emerged that a director of the company was in fact the husband of a senior assistant
architect of the local authority. There was no suggestion of actual impropriety on anyone’s
part. The Court of Appeal held that the contractor was without remedy at having its invitation
to tender revoked. Nolan LJ held:

“A tenderer is always at risk of having his tender rejected, either on its intrinsic merits or on
the ground of some disqualifying factor personal to the tenderer. Provided that the ground of
rejection does not conflict with some binding undertaking or representation previously given
by the customer to the tenderer, the latter cannot complain. It is not sufficient for him to say,
however understandably, that he regards the ground of rejection as unreasonable.”

Design contest

A design contest involves an invitation for the submission of plans or designs, usually of
special innovation or excellence, with the prize for the best plan or design being an amount of
money, or an award of a contract to the winning submission. It is usually only if a person is
successful in the competition that he will be entitled to remuneration for work performed in
preparing his submitted design

Tender submission

The submission of a tender by a prospective contractor usually constitutes an offer to enter

into a contract to do works. If there is no contractual relationship between the owner and a
tenderer which requires the tender to be kept open, the tenderer may withdraw its tender at
any time prior to it being accepted.

Further reading… Comalco Fabricators Ltd v Dillingham Constructions Pty Ltd (1977)