SRQ780

SRQ780
Strategic Construction
Procurement
Week 5
Contract Payment Options and
Tendering Process
Dr Xin Hu
Level 4 - John Hay Building
Deakin University, Geelong
Tel: +61 3 522 78304
E-mail: xin.hu@deakin.edu.au
Teaching Team
Unit Chair, Lecturer & Tutor – Dr Nilupa Udawatta

 E-mail: nilupa.udawatta@deakin.edu.au
 Discussion Board on CloudDeakin
 By appointment - in person
Lecturer & Tutor - Dr Xin Hu

 E-mail: xin.hu@deakin.edu.au
Tutor - Dr Dominic Doe Ahiaga-Dagbui

 E-mail: dominic.ahiagadagbui@deakin.edu.au
Deakin University CRICOS Provider Code: 00113B
Unit Timeline
Week Commencing Class Topic Delivered by Bb Collaborate Sessions Assignments Due Dates
1 9 March Introduction to the unit and overview of Nilupa
construction procurement
2 16 March Procurement Methods – Part A Xin Session 1 - Thursday, 19
March 2020 at 6.30pm
3 23 March Procurement Methods – Part B Xin
4 30 March Procurement Methods – Part C Xin A1 (Individual) – Strategic
Procurement Report (20%)
5 6 April Contract Payment Options and Tendering Xin Session 2 - Thursday, 9
Process April 2020 at 6.30pm
6 20 April Subcontracting Practices and Construction Nilupa
Contract Risk
7 27 April Guest Lecture Guest Session 3 - Thursday, 30

Lecturer April 2020 at 6.30pm
8 4 May Introduction to Standard Forms of Contract in Nilupa A2 (Individual) – Tender
the Australian Construction Industry and Evaluation Report (30%)
Variations
9 11 May Critical Clauses of Standard Forms of Contract Nilupa Session 4 - Thursday, 14
May 2020 at 6.30pm
10 18 May Alternative Dispute Resolution Methods Xin

11 25 May Innovation in Strategic Construction Nilupa Session 5 - Thursday, 28
Procurement and Review May 2020 at 6.30pm
12 1 June A3 (Group) – Critical Analysis
3
(50%)
Assessments
No Deliverable Mark (%) Format Submission Date
Strategic procurement Thursday, 02 April 2020 by 3.00pm

1 20 Individual
report (Week 4)
Thursday, 07 May 2020 by 3.00pm

2 Tender evaluation 30 Individual
(Week 8)
Thursday, 04 June 2020 by 3.00pm

3 Critical Analysis 50 Group
(Week 12)
Refer to assessment brief for further information on assignments

Procurement strategy - Elements
– A statement of objectives
– A summary and analysis of project objectives, requirements, characteristics, risks,
client capabilities etc.
– Analysis and recommendation of procurement/delivery routes: Procurement
 Traditional route
 Design and construct route
method
 Management routes determines
 Collaborative routes such as partnering who carries
 Integrated routes such as PPP what risks…..
– Analysis and recommendation of contract pricing options:
 Lump-sum contracts
 Measurement contracts
 Reimbursement contracts
– Analysis and recommendation of tendering methods:
 Open tendering
 Selective tendering
 Etc…
– Procurement approaches
– Analysis and recommendation of form of contract and contract administration
 Forms of contracts
 Contract administration arrangement
Contract pricing
options
Contract pricing options
 Price-based contracts
a) Lump sum contract
b) Re-measurement contract
 Cost-based contracts (Cost plus contracts)
a) Cost plus fixed fee contract
b) Cost plus percentage fee contract
c) Cost plus variable fee contract
 Alliancing pricing model
 PPP pricing models
Introduction
 The construction price includes direct and indirect project costs

plus profit;
 Two types of commonly used contracts:

1. Price based: Lump sum contract or re-measurement contract,
in which the prices are quoted by the contractor at bidding
stage;
2. Cost based: Cost reimbursable contracts, in which actual costs
incurred by the contractor are reimbursed together with a fee
to cover overheads and profit;
Price based contacts
 Lump sum contract (also called “fixed price contract”) is the most
basic form of agreement between the owner and the contractor;
 Contractor determines contract price based on the drawings and
specifications prepared by the designer (poor details and
specifications can lead to disputes) – the contractors undertake to be
responsible for executing the complete contract work for a stated
total sum of money;
 The contactor undertakes a defined amount of work in return for an
agreed sum;
 Payments made to the contractor are usually assessed on the basis
of percentage of work completed on a monthly basis;
 It is mainly used in projects where the plans and specifications

are complete in details before bidding – this allows the owner
to know the cost of the project in advance;
 This type of contract is not suitable when plans and
specifications are incomplete – the lack of certainty can lead to
a higher bidding price;
 The contract is also not suitable for high risk projects;
 Basically, this type of contract is considered as a fixed price
contract but it can still change. Changes in scope, flaws in
drawings and specifications, and changed site condition cause
variations to original quoted contract price;
 The client transfers most of the risks to the contractor (cost certainty
of the client; the construction methods, techniques, sequences, and
procedures are the contractor’s responsibility);
 The contractor can be expected to ask for a higher markup in order
to take care of unforeseen contingencies;
 If the actual cost of the project is under-estimated, it will reduce the
contractor’s profit;
 Any modifications to scope and design will give rise to a cost change;
 Both main contractors and subcontractor contracts can be let on
lump-sum basis;
b) Re-measurement contract (unit price contract)
 Under this form, the detailed bill of quantities is prepared by the

quantity surveyor based on drawings and specifications. The
contractor quote their rate against these quantities;
 But, the contractors are paid for the work on the basis of actual
quantity multiplied by quoted rate;
 The contract is suitable when the quantities cannot be accurately
identified in advance (when quantities are not predictable);
 The contract is particularly suitable for linear construction, such as
roads, railways, utility lines;
b) Re-measurement contract (unit price contract)
 There may be provisions in the contracts to adjust the rates for changes
(e.g., as per FIDIC Conditions of Contract, sub-clause 12.3, if the actual
measured quantities of the items vary more than 10% from the quantity
of bill of quantities, then a new rate shall be used for the items);
 The owner takes the risk of changes in the quantities originally estimated;
 The final cost is not known until the completion of the project;
 Additional staff will be required to take measurement of the work done;
 Changes in contract can be made easily as the contractor will be paid
based on actual done on site;
 The cost of tender is actually reduced as the bidders do not need to set
up their own bill of quantities;
Combination of lump sum and re-measurement contract:
 Definite items (e.g., superstructure of a building or a bridge)

can be covered by the lump sum method;
 Indefinite items (e.g., substructure of a building) can be
included in the re-measurement method;
Cost-based contacts
Cost plus contract
 Also known as cost reimbursement contract;

 This contract needs contractor reimbursement of the actual
cost of carrying out the work plus an additional amount in the
form of fees to cover this overheads and profit;
 Can be used when the work scope is unknown/unclear and
where the risk is high;
 Suitable where the owner has trust in the contractor;
 The contractor ensures all costs are transparent to the owner
including payments made for labour, materials, machinery and
equipment, subcontractor, etc.
Cost-based contacts
Cost plus contract
 Contractor’s cost risk is low while client’s cost risk is high (the client
is responsible for payment of any costs resulting from unforeseen
conditions);
Variations to cost plus contracts:
a) Cost plus fixed fee contract;

b) Cost plus percentage fee contract;
c) Cost plus variable fee contract;
Cost-based contacts
 The contractor will receive the actual direct job cost plus a fixed
fee;
 The contractor will have some incentives to complete job quickly
since its fee is fixed regardless of the duration of the project;
 The owner takes the risk of direct job cost overrun;
 The contractor may risk loss of profit if the project is delayed
beyond the expected completion time;
Cost-based contacts
 The contractor will receive the actual direct job cost plus a fixed
percentage of the construction cost;
 The contractor will have little incentive to reduce job cost;
 The owner takes all risks of cost overrun;
 If there are pressing need to complete the project, overtime
payments to workers are common and will further increase the job
cost;
 This method can be used to reduce the time it takes to procure a
contractor (mainly used for urgency projects);
Cost-based contacts
 The contract sum is made up of two parts: a fixed amount and a

variable amount depending on the relationship between the target cost
and the actual cost;
 The contractor agrees to a penalty if the actual cost exceeds the
estimated job cost, or a reward if the actual cost is below the estimated
job cost (this will determine a variable fee – positive or negative);
 The contract provides incentives to contractors to reduce/control costs
as much as possible;
 Agreeing the target cost requires that the client has sufficient
knowledge and experience to be able to accurately estimate the likely
cost of the works and to negotiate effectively with the contractor and
sometimes the consultant team;
Alliancing pricing model
NOP - Non-owner participants
Three elements in an alliancing contract:
1. Reimbursable costs - This covers the direct

project costs and indirect project specific
overhead costs incurred by the NOPs in the
performance of the work;
 Defined in the project alliance agreement;

 NOPs should only be reimbursed for costs that
have been actually and reasonably incurred;
 Reimbursable costs and project financial
transactions should be open book and fully
auditable (an external cost auditor);
Source: National Alliance Contracting Guidelines

https://www.infrastructure.gov.au/infrastructure/ngpd/files/National_Guide_to_Alliance_Contracting.pdf
2. NOPs’ fee: This comprises both corporate

overhead and profit;
 It can be a mark-up percentage of reimbursable

costs, or a fixed amount;
 Profit is straightforward – represents the NOPs’
reward for the service provided and the risks
they bear;
 Corporate overhead – represents the recurring
indirect costs of running the NOPs’ business
that are not linked directly to a project;

3. Risk or reward amount

(Painshare/Gainshare regime) – This
is a performance-based payment to
NOPs that increases or decreases to
reflect the project’s outcomes, and is
designed to incentivise NOPs to
bring projects within cost budgets.
The risk or reward amount measures
the alliance’s actual performance
against the target cost and other
agreed project objectives; TOC - Target outturn cost;
AOC - Actual outturn cost;

PPP pricing models
1. Unitary charge (or Availability-based payments)
 The public sector client makes regular payments called “unitary charge” to the
special purpose vehicle;
 These payments may be fixed or variable (based on level of use - e.g. shadow
toll);
 Government provides the private developer with the payments that are
contingent on their performance. If a service is not provided on time or is not
of agreed quality or quantity, service payments to the private sector party
may be reduced. The essence of the PPP approach is that government is
buying services with an agreed quality, quantity, cost and timeframe;
 The private sector uses the unitary charge to:
 Finance the operation of that infrastructure to a performance level agreed
with the client;
 Finance the construction of new infrastructure;
 Earn a profit;
PPP pricing models
2. User payments
 The private sector is allowed to charge a service fee from the

general public for using the facility, e.g. through paying a toll;
 Where there is a user-payment arrangement, such as in
economic infrastructure, the payment to the private party
similarly depends on users receiving a service (for which they
then pay);
 The revenue generated usually becomes the main source of
security for debt repayment;
Tendering
 Tendering: An introduction;
 Tendering methods;
 Tendering process;
Tendering: An introduction
Successful projects start with best practice in tendering;

Benefits of best practice in tendering:
 Clear understanding of the rights and obligations;
 Reduction of likelihood of misunderstandings and
disputes;
 Increase chance to meet required scope, time, cost,
quality;
 Tendering is the process by which tenders are invited from

interested contractors to carry out construction work;
 Client should select a tendering method and process that

suits the project objectives, client's and project
requirements, the chosen procurement route and level of
risk;
Ethical principles in tendering:
 Honesty, fairness and conformity to all legal obligations;

 Clear identification of ownership of intellectual property;
 No collusive practice;
 Declare conflict of interest;
 Confidentiality of all information;
Obligations - Party calling tenders

 No discrimination against tenderers;
 Inform all invited tenderers of the process;
 Use the same conditions for all tenderers;
 Use transparent and accountable process;
 Provide clear documents and requirements;
 Provide clear evaluation criteria;
 Not decide based on lowest price only;
Obligations – Tenderer
 No submission without intention to proceed;

 No response if no capability;
 Ensure compliance with requirements;
 Advise deficiency in tender documents;
 Advise information that may affect project;
 Tenderers must not talk to other potential tenderers, e.g.
information about the bid price;
Abuse of competition
 Client side abuse:

 Technical leveling;
 Post-tender negotiations;
 Tenderer side abuse:

 Payment of unsuccessful Tenderer's fees;
 Cover bids or bid rigging;
 Collusive arrangements;
Tendering methods
Negotiated
Tendering
processes
Open
Competitive Selected
Selective
Tendering methods
Negotiation
 Direct negotiation between the client and a single

Tenderer/contractor;
 Mainly use in highly specialised projects in which only one entity has
the required skill and current capacity to undertake the work, or
when the work is so urgent that there is no time for inviting tenders;
 Negotiated contracts are more common in the private sector than
the public sector, where legislation requires tenders must be called;
Tendering methods
Competitive
The traditional tendering process is designed to produce a set of

circumstances to enable price competition followed by direct
comparison;
 Open tendering:
 The client invites tenders by using public advertisement without
restriction on the number of tenders received;
 Simple projects – low risk and low cost;
Tendering methods
 Selected tendering
 Clients often develop a list of contractors who are qualified to

bid for their projects;
 A register is maintained by the client and regularly reviewed;
 Organisations are invited to tender as work is required after
reference to this register;
 This sets a boundary on open tendering in order to ensure the
tendering contractors have sufficient competence for the
project (e.g., financial reliability, and experience in relevant
projects);
Tendering methods
 Selective tendering
 Involving an advertised invitation calling for “Expression of Interest (EOI)”

from interested tenderers;
 Accordingly, interested contractors submit Expression of Interest and the
client creates a list of qualified contractors;
 The prospective contractors are chosen based on their experience and
financial capabilities. Other criteria also include management of projects,
quality of workmanship, and reputation of company;
 Client will use this list of qualified contractors to invite tenders for the
advertised project only;
 The clients can save time for reviewing large amount of tendering
documents in open tendering;
 Suitable for complex, high risk and high cost projects;
Tendering methods
Tendering methods can also be classified as:
 Single stage tendering:
 Used in traditional procurement system;

 An Invitation to Tender or Request for Tender (RFT) is
issued - The RFT will include sufficient details for
tenderers to prepare an accurate tender;
 Submitted tenders are then assessed and evaluated;
 The preferred tenderer is selected;
Tendering methods
 Two-stage tendering:
 Purpose is to involve the selected contractor as soon as possible with

the project (e.g. Design and build procurement system);
 Stage 1:
 Prequalified prospective contractors are invited to tender;
 The pre-qualified tenderers develop design proposals typically up
to scheme design stage, with possible documentation;
 Client identifies preferred tenderer by reviewing tenders. Then a
pre-construction service agreement is executed which defines the
contractor’s advice input;
 Then the appointed contractor completes the design;
 Stage 2:
 Negotiation of price with the winning tenderer from the first stage;
Tendering process
PHASE 1: PHASE 3:
PHASE 2: TENDERING
TENDER PREPARATION TENDER EVALUATION
Project definition; Call for tenders; Tender analysis;

Project scoping; Responding to invitations Tender clarifications;
to tender and developing
Selection processes; Tender selection;
offer;
Tender Award;
Tender meetings and
documentation;
enquiries;
Criteria for selection;
Amendments to tender
documents;
Submission & closing of
tenders;
PHASE 1:
TENDER
PREPARATION
Tendering process
Phase 1: Tender preparation
Project definition & scoping
 Project brief: scope of project, project stakeholder requirements,
constraints, etc.;
 Initial investigations: market research, feasibility studies etc.;
Selection processes
 Open tendering; One-stage tendering;

 Selected tendering; Two-stage tendering;
 Selective tendering;
 Negotiation;
Tendering process
Tender documentation
 Notice to Tenderers: Project summary, list of tender documents, key dates,
contact details, validity period, details of tender submission;
 Conditions of Tendering: Coverall tender process including the procurement
system, communication issues, probity issues, selection criteria, etc.;
 Tender Forms and Schedules: Request specific information from tenderers
including cost and its breakdown, program, methodology, detains of human
resources, plant, equipment, etc.;
 Conditions of Contract: General and special conditions;
 Specifications: Detailed specifications;
 Drawings: Depend on the chosen procurement system;
 Bills of quantities: if any;
 Additional: e.g., environmental impact study;
Tendering process
Criteria for selection
 Price;
 Construction period;
 Capability:
 Previous experience;
 Financial resources;
 Personnel resources;
 Technical resources;
 Current workload;
 Dispute resolution record;
 Quality assurance system;
 Occupational health and safety (OHS) record;
 Innovation:
 Efficiency in design, project management and financial management;
 Resolution to complex design and construction problems;
 Possibility of less rework and lower cost of finished product;
 Possibility of higher quality, timely delivery and environmental
responsibility;
Tendering process
Risk
Risks Likely results Strategies
Understatement of Need unsatisfied; Unsuitable results; Analyse requirements accurately;
requirements; Specify requirements clearly;
Overstatement of Poor competition; High cost; Analyse requirements accurately;
requirements; Specify requirements clearly;
Misinterpretation of Unsuitable results; High cost; Time Specify requirements accurately and
requirements; lost; clearly;
Impractical schedule; Poor tender response; Late Improve planning; Input from
completion; potential tenderer (early
involvement);
Probity issues; Unethical conducts; High costs; Implement codes of practice and best
practice policies;
Insufficient statement of Variety of offers; Difficult to Clear statement of specifications;
specification; evaluate; Less alternatives; Higher
cost;
Unclear specification; Unsatisfied results; Increased costs; Clear statement of specification;
Time lost; Define specification based on
required outputs or performance;
Tendering process
Risk
Risks Likely results Strategies
Inadequate identification of Lack of offers from suitable Improve procurement
potential tenderer; tenderers; planning; Improve market
knowledge;
Unacceptable terms and Poor tender response; High Use standard documentation;
conditions; cost;
Insufficient information; Variations in offers; Long Improve control and review
clarification process; High of the overall documents;
cost;
PHASE 2:
TENDERING
Tendering process
Phase 2: Tendering
Call for tender: Advertisement
 Summary of description of work;

 Information about tender documents collection;
 Place and time for submission;
 Contact details;
 Deposit, if applicable, the method of obtaining refunds;
Tendering process
Phase 2: Tendering
Tendering process
Phase 2: Tendering
Responding to invitations to tender, and developing offer
 Tenders are submitted based on genuine believe on capability;

 Declare potential conflict of interest;
 Advise if any decision not to proceed with the tender;
 Communication: receipt of documents, clarify any doubt;
 Development of offer on full understanding of project;
 Not engage in uncompetitive behaviours;
 Prohibitive collusive behaviour;
 Agreement between tenderers as to who should win;
 Meeting or exchange of information between tenderers before
submission;
 Agreement between tenderers to fix prices or conditions;
 Submission of a cover tender;
Tendering process
Phase 2: Tendering
Tender Meeting
 For explanation and clarification;

 Minutes of meeting should be forwarded to all tenderers (as part of tender
documentation);
 Information for resolving significant error, omission, ambiguity or discrepancy
in the tender documents is forwarded in writing to all tenderers;
Meeting Agenda
 Introduction
Company and points of contact for questions
Role of participants
Brief description of evaluation and target award date
 Review of technical requirements
Overview of scope, interface with other works, etc.
Explain drawings, plan, quality, etc.
 Site visit
Access to site, safety considerations
Facilities, utilities, required permits, etc.
 Review schedule requirements
Millstone and completion dates
Reporting requirements
 Questions & Answer and Conclusion
Tendering process
Phase 2: Tendering
Site visit
 Material handling equipment
 Site location and condition;
requirements;
 Surrounding area;
 Permit requirements;
 Existing building or facility;
 Working time restrictions;
 Access to site;
 Site investigation programs;
 Availability of lay-down
 Hazardous material;
area, facilities;
 Location of other works;
 Location of disposal area etc.;
Tendering process
Phase 2: Tendering
Amendments to tender documents
 Amendments are to be advised as an Addendum for significant issues;

 Each Addendum is issued in sufficient time before tenders close;
 May be appropriate to extend the tender period, particularly if Addendum is
issued late in the tender period;
Submission & closing

 Closing date/time;
 Maintain security and confidentiality of all tenders;
PHASE 3:
TENDER
EVALUATION
Tendering process
Phase 3: Tender evaluation
The aim of any effective tender evaluation should be to

determine the tender which:
 Best meets the needs of the contracting body;

 Achieves value for money;
 Has the best available and affordable business solution,
within applicable legal constraints;
Tendering process
Best practices in tender evaluation:
 Start planning early: It is best practice to have considered the evaluation

criteria at an early stage of the project to ensure that the right result in
achieved;
 Test the evaluation process: Identify any potential problems (e.g., market
consultation and running dummy scores through the proposed model).
Once the evaluation criteria are set, they must be adhered to. No
adjustment of the criteria or their weightings is permitted;
 Advance disclosure: Make the evaluation criteria known to tenderers at the
first opportunity;
 Keep an audit trail: Document the reasons for awarding scores to each
tender and, the reasons for choosing the criteria and weightings;
Tendering process
Tender analysis:
 Experienced and competent tender evaluation team;
 Team Leader: leadership, technical and commercial skills;
 Team members: free of any conflict of interest;
 Consistent approach to the evaluation of all tenders;
 Tenders are analysed against defined criteria for selection;
 “Non-Price” assessment is considered;
 Risk analysis techniques is encouraged;
Tender clarification:
 Clarify elements of the proposals that are unclear or subject to
misinterpretation;
 Tenderers should provide complete response by the time nominated;
Tendering process
Tender selection - stages
 Undertake cursory review of the tender submissions to ensure that they
are generally complete, conforming and are accurately prepared;
 Preliminary evaluation (Preliminary assessment on price, organisation,
method of work, schedule, etc.);
 Price evaluation (Rank regarding price);
 Qualitative evaluation (Rank regarding qualitative assessment);
 Select 2 or 3 tenders (based on the above evaluation results);
 Determine total project costs – having regard to all related matters,
including the level of in-house resources required to supervise each of
the tenderers;
 Select the tender which provides the best overall value to the principal;
 Report and recommendation a tender for acceptance;
Tendering process
Tender selection - Preliminary evaluation
 To verify that the submissions address all requirements;

 A tender may be excluded from further assessment:
 Does not comply with any mandatory requirements;
 Price is significantly higher for no related benefits;
 Substantially deficient;
 Price is unrealistically low;
 Obvious incapability of complying with the requirements;
Tendering process
Tender selection - Price evaluation
 Lowest bid price may be a major factor influencing choice;

 Individual rates and prices should be examined to see whether
relatively high or low rates could alter the ranking of tenders (Certain
work is to be varied);
 Contractor may set highly profitable rates for some items and non-
profitable or less rate for others;
 Prices for the same type of work can vary from one contractor to
another;
 One tender may put large sums for access, insurance, setting up etc.;
while another may spread the cost of such items over all its unit rates;
 Impracticably low price: from inexperience, over-optimism, or
misunderstanding of contract requirements;
Tendering process
Tender selection – Qualitative (non-price) evaluation
The most common criteria:
 Relevant past experience (in comparable fields, scale and role);

 Past project performance;
 Management and technical skills, resources to be used;
 Management systems (e.g., project management tools, and
occupational health and safety systems);
 Methodology (e.g., construction methods, construction
programme);
 Value adding component (e.g., economic, social and environmental
development initiatives);
Tendering process
Tender selection – Qualitative (non-price) evaluation
 When assessing the non-price criteria, the scoring system can be used;
 For instance, for the “Experience” criterion, the Tenderer A has “excellent”
experience, it will get the score of “10” for its experience. In addition, the
Tenderer B has “poor” experience, it will get the score of “2” for its
experience;
Score Card Description
10 Excellent Represents industry best practice. Fulfilment of the criterion at the highest
possible level.
8 Very good Negligible risk of failure. Satisfies the selection criterion in all respects. Highly
competent.
6 Good Acceptable and compliant. Successful completion highly probable. No
shortcomings apparent.
4 Fair Generally meets the requirements except for minor aspects and shortcomings.
Successful completion likely.
2 Poor Marginally adequate. Successful completion uncertain. Concerns regarding
competence and ability.
0 No Non-compliant. Fails to satisfy specified requirements. High risk of failure.
Tendering process
Tender selection – Evaluation methods
1. Matrix method;
2. Ratio method;
3. Adjusted comparative price method;
Tendering process
1. Matrix method
Tendering process
1. Matrix method
Step 1: Identifying
and determining the
criteria used for
tender evaluation;
Tendering process
1. Matrix method
Step 2: Give a weight

to each criterion
based on their
importance;
 The sum of all weights should be 100% (or 1);

Tendering process
1. Matrix method
Step 3: Calculate the

score for the “Price”
criterion;
Formula: Score for “Price” criterion = 5+10×($M-$T)/$M

M = Median Price; T = Tendered price
Example: Score for “Price” criterion (company B) = 5+10×(20-19)/20 = 5.5

Median Price (M) = 20; Tendered price (T) = 19
Tendering process
1. Matrix method
Step 4: Give a score

for each no-price
criterion by using the
scoring system;
Tendering process
1. Matrix method

weighed score for
each criterion;
Example: Weighted score for “Methodology” (company A) = 10% × 8 = 0.8

Tendering process
1. Matrix method

total weighed score
for each tenderer,
compare and make
the decision;
Example: Total weighted score (company A) = 2+1.4+1.4+0.7+0.8 = 6.3

Tendering process
2. Ratio Method
Tendering process
2. Ratio Method
Step 1: Identifying
and determining the
non-price criteria
used for tender
evaluation;
Step 2: Give a
 The sum of all
weight to each non-
weights should be
price criterion based 100% (or 1);
on their importance;
Tendering process
2. Ratio Method
Step 3: Give a score

for each no-price
criterion by using
the scoring system;
Step 4: Calculate the Step 5: Calculate the total

weighted score for weighted score (non-price
each non-price criteria) for each tenderer;
criterion;
Tendering process
2. Ratio Method
Step 6: calculate the

Value Added Ratio
(VAR) and the Final
score;
Formula:
Value Added Ratio (VAR) = lowest tendered price / price of bid under consideration
Final score = VAR ×Total weighted score
Step 7: Compare the final score, and make the decision;

Tendering process
2. Ratio Method
Step 6: calculate the

Value Added Ratio
(VAR) and the Final
score;
Step 7: Compare the final score, and make the decision;
Example – company A:
Value Added Ratio (VAR) = 19/20 = 0.95
Final score = 0.95×7.3 = 6.9
Tendering process
3. Adjusted comparative price method

Tendering process
3. Adjusted
comparative price
method
The fist 5 steps is same as the first 5 steps in the “Ratio Method” – the aim is
to get the “Total weighted score (non-price criteria)” for each tenderer;
Tendering process
3. Adjusted
comparative
price
method
Step 6: Calculate the Non-price index (I) for each tenderer;

Formula: Non-price index (I) = Total weighted score (maximum) / Total weighted
score
Example: Non-price index (company B) = 7.3 / 6.2 = 1.18

Tendering process
3. Adjusted
comparative
price
method
Step 7: Determine the importance of “price” criterion and “non-price” criteria to

the principle (the importance of “price” and “non-price” criteria is “a” and “b”
respectively, and a+b=100%);
Example:
a = 60% (the importance of price criterion);
b=40% (the importance of non-price criteria);
Tendering process
3. Adjusted
comparative
price
method
Step 8: Calculate the “a×Tender price” and “b×Tender price×Non-price index”

(the importance of “price” and “non-price” criteria is “a” and “b” respectively, and
a+b=100%);
Example: a = 60% (the importance of price criterion); b=40% (the importance of
non-price criteria);
For company A: a×Tender price = 60% × 20 = 12
b×Tender price×Non-price index = 40% × 20 × 1 = 8
Tendering process
3. Adjusted
comparative
price
method
Step 9: Calculate “Adjust comparative price (ACP)”, compare and make the decision -
The lowest ACP is the preferred tenderer;
Formula: Adjust comparative price (ACP) = “a×Tender price” + “b×Tender
price×Non-price index”
Example: a = 60% (the importance of price criterion); b=40% (the importance of non-price criteria);
For company A: Adjust comparative price (ACP) = “a×Tender price” + “b×Tender price×Non-price
index” = 12 + 8 = 20
Tendering process
Negotiations
– If no acceptable tender, negotiate with the most acceptable;
– Principal should advice reason if none is accepted;
– Re-tender may be needed if negotiation leads to significant

change in scope of work;
– Bid shopping: use tender negotiations as an opportunity to

trade-off one tender against another to obtain low prices;
Tendering process
Tender Evaluation Report generally includes:
 Project and tender scope;

 Details of tendering method used;
 List/details of tender documents issued to tenderers;
 Key selection criteria;
 Tender advertisement;
 Details of any addendums issued during tender period;
 Tender opening;
 Tender validity period;
 Tenders received;
 Summary of tender evaluation methodology adopted;
 Tender evaluation tables;
 Final recommendations with reasons for selection;
Please note that the above is not an exhaustive list. Refer to reading resources uploaded on
CloudDeakin for further possible contents of tender evaluation reports.
Tendering process
Risk:
Risk Source Likely Results Strategies
Ineffective Possible complaints; Audit and review evaluation

evaluation Subjective evaluation; procedures; Declare any conflicts of
process Poor results; interest;
Inappropriate Failure to fulfil the Improve tender evaluation procedures;
selection of Requirements; Financial, technical and commercial
tenderer expertise;
Unresolved Contract disputes; Define terms carefully; Clarify all
ambiguities Delivery delays; Cost ambiguities before signing contract;
overrun; Variations;
Useful References
 Walker, D and Hampson, K., Procurement Strategies: A Relationship-based Approach, ed., (2008)., 1st
ed., Wiley-Blackwell
 Uher, T.E. and Davenport, P. (2009), Fundamentals of Building Contract Management, 2nd ed., Sydney:
UNSW Press
 Hackett, M., Robinson, I. & Statham, G. (2007), The Aqua Group Guide to Procurement, Tendering and
Contract Administration, Blackwell Publ.
 Morledge. R. and Smith, A. (2013) Building Procurement, 2nd ed., Oxford: Wiley-Blackwell
 Ashworth, A., (2008) Pre-contract Studies: Development economies, tendering and estimating, Oxford:
Blackwell.
 Ashworth, A., Hogg, K. and Higgs, K. (2013). Willis’s Practice and Procedure for the Quantity surveyor,
13th ed., Chichester: John Wiley & Sons.
 Turner, J.R. and Simister, S.J. (2001). Project contract management and a theory of organization,
International Journal of Project Management, 19(8), 457-64.
Any question?

SRQ780 - Week 5 - Contract Payment Options and Tendering Process

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Unit Chair, Lecturer & Tutor – Dr Nilupa Udawatta

Lecturer & Tutor - Dr Xin Hu

Tutor - Dr Dominic Doe Ahiaga-Dagbui

7 27 April Guest Lecture Guest Session 3 - Thursday, 30

10 18 May Alternative Dispute Resolution Methods Xin

No Deliverable Mark (%) Format Submission Date

Strategic procurement Thursday, 02 April 2020 by 3.00pm

Thursday, 07 May 2020 by 3.00pm

Thursday, 04 June 2020 by 3.00pm

Refer to assessment brief for further information on assignments

 The construction price includes direct and indirect project costs

 Two types of commonly used contracts:

 It is mainly used in projects where the plans and specifications

b) Re-measurement contract (unit price contract)

 Under this form, the detailed bill of quantities is prepared by the

Combination of lump sum and re-measurement contract:

 Definite items (e.g., superstructure of a building or a bridge)

 Also known as cost reimbursement contract;

Cost plus contract

Variations to cost plus contracts:

a) Cost plus fixed fee contract;

a) Cost plus fixed fee contract

b) Cost plus percentage fee contract

c) Cost plus variable fee contract

 The contract sum is made up of two parts: a fixed amount and a

1. Reimbursable costs - This covers the direct

 Defined in the project alliance agreement;

Source: National Alliance Contracting Guidelines

2. NOPs’ fee: This comprises both corporate

 It can be a mark-up percentage of reimbursable

Source: National Alliance Contracting Guidelines

Three elements in an alliancing contract:

3. Risk or reward amount

Source: National Alliance Contracting Guidelines

 The private sector is allowed to charge a service fee from the

Successful projects start with best practice in tendering;

 Tendering is the process by which tenders are invited from

 Client should select a tendering method and process that

Ethical principles in tendering:

 Honesty, fairness and conformity to all legal obligations;

Obligations - Party calling tenders

 No submission without intention to proceed;

 Client side abuse:

 Tenderer side abuse:

 Direct negotiation between the client and a single

The traditional tendering process is designed to produce a set of

 Clients often develop a list of contractors who are qualified to

 Involving an advertised invitation calling for “Expression of Interest (EOI)”

Tendering methods can also be classified as:

 Single stage tendering:

 Used in traditional procurement system;

 Purpose is to involve the selected contractor as soon as possible with

Project definition; Call for tenders; Tender analysis;

 Open tendering; One-stage tendering;

Call for tender: Advertisement

 Summary of description of work;

 Tenders are submitted based on genuine believe on capability;

 For explanation and clarification;

Amendments to tender documents

 Amendments are to be advised as an Addendum for significant issues;

Submission & closing

The aim of any effective tender evaluation should be to