Procurement and Tendering

Module II: Tender Documentation

Course Code : AUMCM 769

MBA CPM
2nd Semester
2021-22
Content

► Tender Process
► Various Types of Tendering
► Single Vs Two Stage Tendering
Tendering: Processes & Various Types

► A tender is a submission made by a prospective contractor/vendor 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.

► There is also an increasing tendency for suppliers to be aggregated into single

contracts, for example, 'integrated supply teams' on public projects may include;
the main contractor, designers, sub-contractors, suppliers, facilities managers, and
so on.

► 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: refer next
slide.
Procurement Strategy

Adopting Procurement Strategy

Procurement Procedure

Direct Negotiation or Negotiated Bidding or Bidding Competition

Procurement Routes
Design & Built Traditional
Route Route
Contracting Models

Prime Contracting/ Multiple Prime

Design, Build, Finance, Design & Build/ EPC
Management Contracting Contracting/
Operate (DBFO)
Construction Management

Long Term Revenue LUMP SUM Unit Price Cost Reimbursable

Compensation Formats
Types of Tendering

Procurement Procedure

Direct Negotiation or Negotiated Bidding or Bidding Competition

Types:
Open tendering,
Selective tendering,
Negotiated tendering,
Serial tendering,
Framework tendering,

Methods:
Single-stage and
Two-stage tendering.
Various Types of Tendering

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 response to 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 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.
Various Types of Tendering

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.
Various Types of Tendering

Negotiated & Serial Tendering

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 programme of work.
Various Types of Tendering

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.

► Framework tender documents are likely to include a request for a schedules 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 reduce tender costs.
Various Types of Tendering

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
Single-Stage Tendering

Single-Stage 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.

► Tender procedures will vary depending on the nature of the goods or

services that are being procured, but very broadly they can be classified
as either single-stage or two-stage.

► Single-stage tendering is the more traditional route, 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 (perhaps

following completion of a pre-qualification questionnaire and/or a

pre-tender interview). The invitation to tender will include
information describing the goods or services required in sufficient
detail to enable prospective suppliers to prepare an accurate
tender.
Single-Stage Tendering

Single-Stage Tendering
 Tenders are prepared and returned by prospective suppliers (this
may involve questions and answers and a mid-tender interview to
clarify the client’s requirements).
 Submitted tenders are then assessed and compared (this may
involve further interviews).
 The preferred tenderer is selected and negotiations opened.
 Subject to the outcome of those negotiations the preferred tenderer
may then be appointed.

► However, increasingly it is becoming useful to obtain input from

prospective tenderers before there is sufficient information available for
the main contract to be awarded. This can allow early input from the main
contractor, or early appointment of a specialist contractor, for example
cladding contractor, before the main contract has been awarded.
Two-Stage Tendering

Two-Stage Tendering
► Two stage tendering is used to allow the early appointment of a
contractor, 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 allowing the contractor to begin work and in the second stage a
fixed price is negotiated for the contract.

► It can be used to appoint the main contractor early, or more commonly as

a mechanism for early appointment of a specialist contractor such as a
cladding contractor. It may also be adopted on a design and build project
where the employer's requirements are not sufficiently well developed for
the contractor to be able to calculate a realistic price.

► In this case, the contractor will tender a fee for designing the building (or
completing the design) along with a schedule of rates that can be used to
establish the construction price for the second stage tender.
Two-Stage Tendering

Two-Stage Tendering
► The first-stage appointment might be made on the basis of a bespoke
agreement, a consultancy agreement or a pre-construction services
agreement (PCSA), with an appendix setting out all tender items to be
applied to the second stage contract, and a clause that makes it clear
there is no obligation to proceed to the second stage, and in such
circumstances the first stage fee would be full and final settlement of the
contractor's costs.
► The basis of the appointment for the first stage may include:
 A pre-construction and construction programme.
 Method statements.
 Detailed preliminaries including staff costs.
 Agreed overheads and profit.
 A schedule of rates to be applied to the second-stage tender.
 Agreed fees for design and other pre-construction services.
 CV’s for proposed site and head office staff.
 Tendering of any packages that can be broken out and defined.
 Agreed contract conditions to be applied to the second-stage construction contract.
 It is important that this appointment is based on as much information as possible and that
requirements are well defined, as subsequent changes could prove expensive.
Two-Stage Tendering

Two-Stage Tendering
► The pre-construction services carried out by the contractor in the first
phase might include:

 Helping the consultant team develop the design, or the contractor

undertaking all design development themselves.

 Helping the consultant team develop the method of construction, or

the contractor developing the method of construction themselves.

 Obtaining prices for work packages from sub-contractors or

suppliers on an open book basis.

► In theory, the early involvement of the contractor should improve the

buildability and cost-certainty of the design as well as creating a better
integrated project team and reducing the likelihood of disputes.
Two-Stage Tendering

Two-Stage Tendering
► Ideally the second-stage negotiation is simply a mathematical exercise
using the pricing criteria agreed in the first stage agreement. In reality
however, there will be some items not previously considered, around
which negotiations will ensue. In the case of sub-contractors, the second
stage construction contract is negotiated by the main contractor subject to
the approval of the design team.

► Two-stage tendering enables the client to transfer design risk to the

contractor, however the client inevitably loses leverage as the contractor
becomes embedded in the team and competition is less of a threat.
However, whilst tender prices for two-stage contracts may initially be
higher than single-stage tenders, which are subject to full competition, the
final account tends to include fewer variations and fewer claims. A longer
period of familiarity with the project creates better relationships as well as
a reduction in learning curves and programme performance.
Two-Stage Tendering

Two-Stage Tendering
► It is in the client's interests to try to include some packages in the first
phase, and to ensure that they have some means of securing an
alternative bid if negotiations with the preferred contractor fail, albeit this is
likely to result in delays and difficulties regarding design liability. However,
the client may find the competition lose interest once they find out that
another contractor been awarded the first stage tender.
 Single-Stage & Two-Stage Tendering
Risks and Benefits
► Single-Stage Tendering
Benefits:
► The client benefits from a competitive tendering
process which can lead to more competitive
pricing.
► The client can also benefit from a fixed price
through this tendering process.
Risks:
► The number of contractors prepared to bid for
the project may be low.
► The development scheme is generally designed
and costed up by the contractor in isolation
which can often result in the project budget
being exceeded. Generally, this is because
contractors may not have been consulted on
the buildability at the outset meaning ever-
changing building costs throughout the project.
► Two-Stage Tendering
Benefits:
► The project doesn’t have to be fully designed
and costed before they can start procurement
for the project, thus reducing costs.
► Shorter timescales required to get a contractor
appointed.
► Due to the shorter timescales, the client would
benefit from contractor early engagement which
could result in project costs being reduced
through a Value Engineering Process.
► The collaborative approach breeds greater
communication with the client and the clients
team, which can result in improved outcomes.
Risks:
► If the client and contractor don’t communicate
with each other then it would be unlikely that
they would benefit from collaboration and
project and cost clarity.
Single-Stage & Two-Stage Tendering

Further Reading…
► https://www.cqsa.co.uk/node/48

► https://www.macfarlanes.com/what-we-think/in-depth/2015/tendering-to-the-two-stage-process/

► http://constructingexcellence.org.uk/wp-
content/uploads/2015/12/Two_Stage_Open_Book_Guidance.pdf
Q&A