Chapter-6: Costruction Procurement and Contract

UNITY UNIVERSITY
DEPARTMENT OF ARCHITECTURE & URBAN PLANNING
Contract, Specification and Quantity Survey

CHAPTER- 6
COSTRUCTION PROCUREMENT AND CONTRACT
October 2019
CONTENTS
 Procurement and Contract
 Stages in Construction
 Introduction to procurement
 Types of Procurement
 Procurement and Contract Management
 Procurement and Contract Delivery System
 Procurement Management
 Procurement Preparation
 Tendering
 Tender Evaluation
 Tender Evaluation Report

6. PROCUREMENT AND CONTRACT
6.1. Stages in Construction
 The following are the common formal stages for a construction
project:
Inception & Planning &
Tendering Stage
Feasibility Design Stage
Construction Award of Contract Bid Evaluation
Commissioning &
Acceptance
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6.1. Stages in Construction
i. Inception and feasibility
 At this stage the owner puts his visions and wishes and with this as
the starting point, the various groups (professionals) try to

conceptualize the project and prepare a conceptual design.
 At this stage the owner will heir a consultant to formally design and
develop the concept into a practicable project.

ii. Planning and Design stage
 Planning is a function of devising the cause for future with a vision,
formulated for the future state of the organization or project.

 At this stage the consultant plans and designs the project based on
the owner’s requirement and the possible constraints.
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6.1. Stages in Construction Cont.…
iii. Tendering Stage
 At this stage contractors are invited to offer their best technical and
financial offers as per the conditions and specifications depicted in

the contract documents.
iv. Bid Evaluation / Evaluation of Tenders
 The bids are evaluated based on:
 Compliance with the contractual terms and conditions,

 Correction of bid prices,
 Detailed analysis.
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v. Award of Contract
 After the negotiations have been successful, the contract will be
awarded to the successful contractor.

 The formal steps might include:
 Write a letter of acceptance

 Write the letter to proceed with the works
 Performance bond: 10% a guarantee that he will do the job as
agreed
 There are different methods & types of construction contracts. The
owner generally makes the selection.

 The type selected depends on the kind of work being performed and
the conditions under which it is being performed.
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vi. Construction
 Here is where the actual execution of the works takes place as per
scheduled.
vii. Commissioning and Acceptance
 Commissioning is a process where by the contractor makes sure that
all installed mechanical or electrical parts are operational.

 Acceptance has two stages:
 Provisional acceptance: the client accepts the completed works on

provisional basis for a period one year. During this period all
payments except the retention money are paid.
 Final acceptance: At this stage the owner completely accepts the
works executed and the retention money is released to the contractor.
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6.2. Introduction to Procurement
 Construction Industry involves procurement and contract
management systems in order to ensure fair competition and
distributions of obligations and rights among stakeholders.
 Competition helps:
 The Project Owners’ -acquire the five rights (Counterpart,

Cost, Time, Quality and Quantity)
 The Project Financiers’ & Regulators’ - value market
principles and effective utilization of finance, and
 The Project Providers’ - get impartial & neutral opportunity
for business.
 Procurement is a process used to select the lowest competitive and
qualified bidder for procuring services, works or goods from

potential competitors based on reasonable & relevant criteria.
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6.2. Introduction to Procurement Cont…
 Procurement can also be expressed as a method used to employ or
buy services or works or goods for the value (in the form of money)
which includes reasonable profit.
 An effective and efficient procurement method ensures the following
rights called the "Five Rights".

 The Right Quality,
 The Right Quantity,
 The Right Cost / Price /,
 The Right Counterpart and
 The Right Time.
The Right Quality
 Right Quality is always based on two major factors. These are the
technical expectation and the economic consideration, i.e. Price &

Availability.
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6.2. Introduction to Procurement Cont…
The Right Quantity
 The quantity should be computed carefully and included in the BOQ
correctly.
 If the quantity is found mistakenly small :
 Project budgeting will be affected due to less quantities

 Construction planning will be affected and cause under stocking
 Tenderers can manipulate their offer due to it
 Overzealous contract administration is caused, and
 Contractor cash flow will be affected.
 On the other hand if the quantity is mistakenly more, it will cause
high stocking, more storing places and risk of spoilage; unhealthy

practices due to over budget provisions; and manipulation in
tendering.
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6.2. Introduction to Procurement Cont.
The Right Cost/ Price
 Tendering together with negotiation and market intelligence
techniques is the only way that ensures the right cost and
accomplishing the task successfully.
 Competition is the bases for determining the right cost or price.
The Right Counter Parts

 This is to guarantee that the parties agreeing to accomplish the task
shall be fit to the job.

The Right Time
 The right time for the provision of resources and accomplishment
of obligations of each party shall be set and agreed.
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6.3. Types of Procurement
 Procurement types can be classified based on the things to be
procured and the way how they are procured.

 There are six bases for classifying procurement methods. These are:
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6.3. Types of Procurement Cont…
A. Things to be Procured: Goods, Services, or Works
 A-1. Procurement of Goods: Physical resources like Materials and
Equipments are made available using Procurement of Goods.

 A-2. Procurement of Services: In the construction Industry
procurement of services are often termed as consultancy services

procurement.
 These include services like Pre-feasibility and Feasibility
studies, Design and Contract Administration of projects,
Construction Management Consultancy Services, Research or
Study based Consultancy Services, etc.
 A-3. Procurement of Works: In the CI procurement of works mean
the procurement of contractors to carryout the actual physical

infrastructures.
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B. Bidders’ Coverage: Competitive Vs. Negotiated Tendering
 B – 1.Competitive Tendering:
 Used for the selection of better and capable winning bidder among
the various eligible firms.
 Competitive bidding can either be Open or Limited Competitive
Bidding in the form for their invitations.
 B – 1.1 - Open Tendering – all eligible bidders are allowed.
 Consumes time for tendering and bid –evaluation
 Might result in incompetent bidder
 Results in better cost
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 Advantages of Open Tendering
 It allows all interested contractors to compete on equal grounds
and potentially strong new contractors may appear in the
competition.
 It gives the opportunity for local authorities to demonstrate the
best bargain possible for public and government money and
assures fairness in selecting contractors.
 It helps to prevent contractors from forming rings i.e. agreeing on
offers to be submitted to the owner due to the long list of
contractors and may not know each other.
 The owner may obtain the least possible construction cost
estimates due to the tight price competition among long list of
contractors.
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 Disadvantages of Open Tendering
 Due to the long list of contractors, tender evaluation will take
longer time incurring additional overhead costs to the owner.
 Public accountability may be questioned, if the lowest offer is not
accepted during the financial evaluation of tenders.
 Contractors with ill-equipped management may submit the lowest
offer and inevitably the contract can drag out causing delay and
incurring additional cost to the owner.
 If the submitted tender price is too low and the contractor is losing
money, then the contractor may try to reduce the quality of works.
 It is also very normal that qualified and experienced contractors
may not participate in the tender knowing that the competition will
be very tight.
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B–1.2 - Limited Tendering / Selective Tendering
 Only those passing a certain qualification criteria are allowed.
 Applicable when the project is urgent or unique.
 Avoids the rejection of Bids which are non – responsive for technical
evaluations.
 The short list of contractors is usually prepared based on different
criteria such as:

 Contractor’s previous reputation in business,
 Financial standing,
 Available resources especially of machineries and manpower,
 Normal conduct of business i.e. the specialization of the contractor,
 Attitude on contractual claims, and others.
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 The selective tendering has the following advantages to the project
owner:
 Competent contractors are participating in the tender and it is fair
to select the contractor with the lowest offer.
 It reduces the time and overhead cost of tender evaluation and
facilitate the early commencement and completion of the project.
 It results in less abortive tenders and, hence, a reduction of
tendering cost and waste in the construction industry.
 Enable competing contractors to include an adequate level of
profit which helps to give stability to the construction industry
 Reduces the risk of failure.
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 The selective tendering has also the following disadvantages to the
owner
 Tender prices are inevitably higher than would have been under
open tendering due to the limited number of competing contractors.
 Contractors who are not interested in the tender may submit high
prices rather than withdrawing from the tender not to remove their
names in the subsequent tender lists.
 There is a great chance of forming rings among contractors unless
the composition of the list of contractors is variable for each tender.
 Care shall be taken to ensure no favoritism in inclusion and
exclusion of contractors from the short list especially in public and
governmental projects.
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B–2. Negotiated Tendering
 Negotiated contracts are made particularly when the contactor has
special skills to undertake particular work which require a high

degree of technical competence or is capable of completing the works
within a required time period.
 Direct appointment of an eligible firm
 Exceptionally exercised
 Applicable when the project requires special skill and is very
urgent
 The offer might be higher than the norm
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 The advantages of negotiation tendering are:
 The contractor can participate starting from design stage

contributing his experience for a better quality and performance of
works.
 It allows early commencement and completion of projects with a
better understanding of the contracting parties.
 Client’s tendering costs are substantially reduced owing to the
production of minimal tendering information.
 All the important points of the construction project (e.g.
construction programme, method and procedure) are discussed
during the negotiation and this effects the rational price.
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 The disadvantages of negotiation tendering are:
 Contractors will offer higher tender prices.

 Client obtains an offer which is not truly competitive and does
not reflect what the construction market can bear.
 There may exist legal implications of joint design when the
negotiation results in design and production overlap.
 Contactor experiences difficulty in estimating on outline
information.
 It may not satisfy the requirements of public accountability in
construction projects for public sector clients.
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B–3. Serial Tendering
 Serial tendering is more applicable when the owner has a continuing
construction program of similar projects such as housing projects,

schools, health centers and so on.
 Contractors are invited to participate in a tender with the basic
understanding that successful contractors will enter into a series of

contracts with the same conditions contained in the tender.
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 The advantages of serial tendering are:
 Lower tender prices can be obtained, if the competition is open to

all contractors.
 It allows the owner and the contractor to program works in
advance with more certainty.
 It generally creates a better relationship between the owner and
the contractor in such a way contractors usually contribute advice
in planning of future works.
 It allows the contractor more time to plan, organize and
coordinate his resources and experience for the next projects
enabling a more efficient way of performing the future contracts.
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 The disadvantages of serial tendering are:
 It has the tendency of reducing work available, under

competition, to other contractors.
 The work’s to follow may go to unfair extents as the client knows
the contractors prices. This depends on the interests of the client.
 It reduces the work available under competition to other
contractors who may have wished to price.
 In this type of tendering, contractors should also consider the future
economic factors such as cost of materials, machineries and

manpower in the future as series of projects will be executed with the
current cost estimates.
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C. Geographical Coverage: International Vs Regional Vs National Vs
Local Tendering
 Based on geographical coverage: i.e. International, Regional,
National and Local Tendering.

 Such types of procurements are generally caused by three major
factors.
 Local Capacity – lack of local capacity,
 Financial Sources – depending on financial source and,
 Globalization – free tread policy (WTO)
 In Practice - Preference Margins – Up to 10% margins might be
used to encourage local firms.
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D. Procurement Awareness: General and Specific Tendering
 To enhance proof of competition and increase accessibility, projects
are recommended to create awareness starting from its initiation.

 This approach is very helpful for:
I. The Project Owners to:

• identify interested bidders to issue Invitations by letters and
save time;
• identify bidders relevant for the procurement required; and
• protect loss of cost in preparing lots of tender documents.
II. The Bidders to:
 give sufficient time to assess the cost of the project;
 protect loss of cost only to participate; and
 encourage competent bidders
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 General Procurement Notice (GPN) is of two types. These two types
are based on their purpose, why and when they are notified.
Type I Type II
●
The purpose is to create awareness and let ●
The purpose is to determine interested
bidders’ have prior information about bidders who could be invited in the form
upcoming projects such that they can follow up of Limited Competitive Tendering.
its development and include them in their plan.
●
This type of GPN is used for procurement of
●
This type of GPN is used for
works and goods and is often announced as procurement of services and is often
soon as the design implementation service is announced after financial sources are
started. determined.
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 Specific Procurement Notice (SPN) is an Invitation for Tender or a
Request for Proposal when the project is ready for implementation.

 SPN can be sent to those interested bidders identified following
GPN directly. Otherwise, it should be advertised on the bases of

enlarging opportunities.
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E. Procurement Steps:
 They are related with whether tender packaging for submission
separately and their evaluations are staged for a single or two steps
when invitations are made.
E-1 Single or Two Staged Tendering:
 Single: Bidders submit single proposal and the evaluation is carried
out on the same.

 Two Staged: When the bidders submit separate proposals and the
evaluation will be carried out separately, usually financial then

technical.
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E-2 Pre or Post-Qualification Tendering:
Pre-Qualification
 Prequalification is an internationally accepted practice in
procurement management.
 It would normally be required for civil works contract of which its
nature and cost is large and complex.

 It is a procedure in which eligible bidders are invited to provide
evidence of their ability to perform the services required by the

employer.
 Prequalification is desirable because it enables the Employer to
establish the competence of companies subsequently evaluated.
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Pre-Qualification
 Pre - qualification can be of two types:
1. During licensing requirements which entitled them for a single

stage tendering process. Tender evaluation criteria become the low
priced bid.
2. The Second is when two staged tendering is used to pre-qualify
tenderers’ for their technical competency. Then either
 The lowest priced bidder or
 The top evaluated bidder based on the weighted average of the
technical and the lowest bidder for financial scores will be
recommended for award.
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Pre-Qualification
 Pre - qualification should be based entirely on the ability of the bidder to
carry out the required works satisfactory.

 The following criteria are often used in determining this ability of the
bidder;
 Experience and past performance,
 Health, Safety and Environment Records, if any,
 Capability in respect of personnel and equipment,
 Organizational arrangement and facilities,
 Financial Status, and
 Schedule of Commitments.
 Aim: To establish a list of capable firms while ensuring
that a proper level of competition is safe guarded 34
Pre-Qualification
 Aim: To establish a list of capable firms while ensuring that a peoper

level of competition is safe guarded.
 Contractors are asked to submit a record of their previous performance
related to the type of work that the client is considering carrying out,
their financial as well as their technical information and other related
information.
 Selected contractors are then advised to purchase the bid document for
later submission, evaluation and award.
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Pre-Qualification
 Advantages of pre-qualification
To the Employer To the Bidder
• Protect the employer against unqualified • Saves bidders from the cost of preparing
bidders. bids.
• Quicker evaluation for only pre-qualified • Assure pre-qualified bidders for their bid
bidders. considerations.
• Ensure award to least evaluated not lowest • Reduce low balling bidders from
bidder. participation.
• Asses level of interest shown by bidders. • Make bidders to be better planned.
• Show competency & methods of
implementation.
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Post-Qualification
 Post - qualification is a tendering type where financial evaluation is
carried out first and rank bidders on the basis of their offer for tender
price. Then technical evaluation follows.
 Technical Evaluation is performed step by step starting from the
lowest financially evaluated bidder until technically or cumulatively

qualified bidder is determined.
 The advantage of this approach is not to loose the lowest financially
evaluated bidder and to save time during technical evaluations.

 However, Post qualification approaches often cause to fix evaluators
on financial results and be locked and biased for successive

technical evaluations.
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6.4. Procurement and Contract Management
 Procurement and Contract Management involves three major
processes: Contract Planning, Procurement Management and

Contract Management.
Delivery System
Contracting Method Contract Formulation
Procurement Method Contract Administration
Contract Types
Contract Closing
Contract Procurement Contract

Planning Management Management
Procurement Preparation
Tendering
Tender Evaluation & Notice of Acceptance
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6.4. Procurement and Contract Management Cont…
Contract Planning
 Contract planning includes decisions on proposed Delivery Systems,
Procurement Methods and Contract Types to be followed and used

together with its provisions for alterations.
 This is because such decisions are related to regulatory requirements
such as:
 Ethical (Neutrality, Formality, and Impartiality);
 Economical: (Proof of Competition, Least Qualified and
Evaluated Bidder);
 Accountable: (Obligations and Rights);
 HSE (Health, Safety and Environment); and
 Transparent: (Accessibility and Notice of Advertisement).

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Procurement Management
 Procurement Management is a process of selecting individuals or
organizations to carry out the intended services and / or works.

 Procurement Management is carried out based on the provisions
made during the contract planning phase of the Procurement and

Contract Process.
 It involves the preparation of procurement documents, their
invitation and submission of tender proposals, and Opening and

Evaluation of tenders.
 On the bases of results from tender evaluations, the procurement team
will recommend the lowest responsive bidder for Contract

Management Phase.
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Procurement Management
 The following issues are necessary for a successful Procurement
Management phase:
 Knowing and ensuring the implementation of procurement
related National and International laws, rules and regulations,
 Adherence to the provisions made during the contract planning
phase including their change processes that is; with respect to:
Delivery Systems, Procurement Methods and Contract Types,
 Establishment of a flexible procurement team, and
 Adhering to the principles of Proof of competition, Impartiality,
Neutrality, Accessibility and Formality.
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Contract Management
 Contract Management is a process of reaching contractual agreement
for implementation, its administration and finally concluding the

contract.
 Similar to the procurement management process, it shall be based on
the provisions decided during the contract planning phase. It

involves:
 Negotiation based on tender evaluation recommendations,
 Signing of contractual agreement,
 Administration for contractual implementation,
 Progress tracking, and
 Changes, claim and disputes administrations.
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Contract Management
 The following issues are necessary for a successful Contract
Management phase:
 Knowing and ensuring the implementation of contract related
National and International laws, rules and regulations,
 Adherence to the provisions made during the contract planning
phase including their change processes, that is; with respect to
delivery Systems, Procurement Methods and Contract Types,
 Identifying, recognizing and involving all potential or key
stakeholders to form a contract team,
 Understanding, mapping and monitoring all contract conditions
agreed upon, and
 Ability to administer changes, claims and disputes.
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6.5. Procurement and Contract Delivery system
 Procurement and Contract Delivery system is the way Project Owners
together with Project Regulators and Financiers determine the

assignment of responsibilities to Project Stakeholders along the
Construction Process.
 Procurement and Contract Delivery system is often determined
during the Basic Planning phase of Construction Project.

 Generally, there are six types of Procurement and Contract Delivery
systems. These are:

 Force Account,
 Design Bid Build (DBB),
 Design Build (DB) or Turnkey,
 Finance / Build Operate System (BOT),
 Construction/Facility Management Consultancy, &
 Alliances and Outsourcing.
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6.5. Procurement and Contract Delivery system Cont…
 Such Procurement and Contract delivery systems are developed
overtime and are shown in Fig. below.
Force Account - Since development started
Design Bid Build (DBB) – 1950s / 1987
Design Build (DB) / Turnkey - 1970s Onwards / Mid 1990s
Finance / Design Build Operate - 1980s / ……
CM / Facility Management - Mid 1990s / 2000s
Alliances & Outsourcing – 2000s / 2000s
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Force Account
 When the Project Owners engage themselves to undertake the
project, it is called a force account delivery system.

 Often such a system is promoted if the Project Owners believe that
there is a comparative advantage in Cost, Time and Quality issues.

 When there is a lack of capacity from the private sector to undertake
very large and technologically new projects, public companies do

undertake such projects using Force account delivery systems.
 When projects are unattractive to bidders.
 These days this type of delivery system is often used when projects
are small and places are remote.

 Reduction of the contractor’s profit from the total cost of the work is
the advantage gained from this delivery system.
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Design Bid Build (DBB)
 Is the most practiced type of delivery system in the Ethiopian
Construction Industry – Since 1987

 Project owners → Basic Planning → Design – Consultants →
Bid - Contractors→ Project Built.

 Client – coordinates the different packages.
 Consultant – Design and may supervise the project - (Provide the
methods not the end result).

 Contractor - construct works with due care and diligence and
complete them in accordance with the contract, but they are not held
responsible for design deficiencies.
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Design Bid Build (DBB)
 This traditional approach becomes less popular due to the following
factors:
 Severe adversarial relations between the design and contract
administration consultant and the contractor
 Fragmented contract for the project owner
 Project owner responsibility for risks associated with the design
and contract administration
 Non - Impartiality of the Design and Contract Administration
services
 The inability of design and contract administration consultants to
cope up with new construction technologies and constructability
issues of their designs
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Design Build (DB)/ Turnkey
 Is a response to problems associated to the last two types of delivery
systems.
 Design-build contracts are exactly as what the name implies. One
contractor responsible for both the design and construction.

 Reduces fragmentation, adversarial relations and Project Owners’
risk. However, there is loss of control & higher cost of tender &
risk.
 A design-build contract provides distinct advantages to the owner
who no longer needs to referee disagreements between the designer

and the contractor because they are working together under the same
contract.
 This type of contracting is growing in popularity.
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 Advantages of DB are as follow:
 Minimizing Project owners’ risk transferable due to Designers’ faults;

 Accountability and entire responsibility for both design and
construction which entitle the employer to receive completed project
is onto a single contractor;
 Employers’ responsibility to co-ordinate interfaces between different
project elements is avoided;
 Single point responsibility minimizes the opportunity to claims by the
contractor due to design related issues;
 Coordination between design and construction processes will also be
enhanced, and
 The client budget or financial requirement is defined early enough in
the development process.
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 Disadvantages of DB are as follow:
 Since limited supervisory role by the employer representative is

practiced; which is relatively flexible and makes the employer
distanced from the whole process, the employer has little chance to
understand what is developed and entertain variations in
requirements implying loss of control.
 Contractors in order to provide reasonable offer, their tender cost is
higher than in the case for DBB delivery system
 The increase in risk transferred onto the contractor will be
counterbalanced by the increase in contract prices which can be
taken to include these costs of risks.
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Finance Build Operate Transfer (BOT)
 Design-build-operate contracts are not as common as DB. They may
be used for projects such as athletic arenas, water treatment plants,

water purification facilities, and toll highways.
 The principle is that the contractor will retain some percentage to
ownership in the facility, up to 100%, for a specified period of time,

and operate the facility of a profit during that time to recoup the
capital investment (total cost plus profit).
 The period of ownership by the contractor may vary from few years
to permanent. During the period of ownership, the contractor is

responsible for all costs of ownership, and all profits resulting from
ownership.
 In the case of athletic arenas, there is typically a revenue-or profit-
sharing agreement with the term ownership or municipality.

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Finance Build Operate Transfer (BOT)
 This delivery system is advantageous because of three major factors:
 It minimizes owners’ scarcity of financial resources;

 It devoid of considerable risks from the project owners and lessen
regulatory activities; and
 The facility is well operated and transferred with free of charge
or minimum compensations to project owners.
 The increasing popularity of the BOT project is largely due to a
shortage of public funding and the opinion that the facility will be
more efficiently managed by a private entity.
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Construction/ Facility Management Consultancy
 Construction Management Consultancy Delivery System is a
response to problems associated with DB and BOT where the

Project Owner was not well represented for its benefit and the
problem of fragmentation between Planning and Implementation.
 Construction management consultancy firm is used to coordinate all
activities from concept inception through acceptance of the facility.

 Facility management consultancy adds operation of facility during
operation to Construction Management Consultancy.

 Construction Management Consultancy service are particularly
attractive to organizations that involve in construction physical

infrastructures such as MoE, MoH, Real Estate Organizations,
MoWRs, MoT&C, etc.
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Construction/ Facility Management Consultancy
 Construction Management Consultants then represents Project
Owners to carry out the following services:

 Feasibility studies of Construction related services
 Plan and Monitor the Triple Constraints of Project Performances
 Lead and Organize regulatory systems of the Construction
Industry
 Valuation, Quantity Surveying and Procurement and Contract
Management Services
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Partnering, Alliances, Outsourcing (Running and Specialized Delivery
System)
 The need for constructing quicker, cheaper and to a higher quality of
physical infrastructure by clients and at the same time with

 Very minimized or no dispute questioned fragmentation of
packaging,
 Costs related to wastes and overheads,
 Single staged procurement systems,
 Involving in less competitive and comparative advantage for
services and works and existing stakeholders relationships.
 As a result,
 Running delivery system using Partnering and Alliances,

 Specialized delivery system using Outsourcing,
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 Other forms of delivery systems:
 Re-measurement Form of Contract (B.O.Q)

 Schedule-of-Rates Contract(Unit Rate Contract)
 Lump sum Based Contract
 Cost Plus Contract
 Negotiated Contract
 Labor Contract
 Segregated Contract
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6.6. Procurement Management
 Procurement Management process can be idealized into three major
processes. These include Preparation, Tendering, and Evaluation

(including Award Recommendation) Processes.
Procurement Team Preliminary Evaluation

Tender Document Detail Evaluation
Approval of Tender Docs Award Recommendations
Procurement Tendering Tender

Preparation (Invitation - Opening) Evaluation
Invitation
Clarification
Submission and Opening
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6.6. Procurement Management Cont….
A. Procurement Preparation
 Procurement Preparation phase is meant for the formation of a
Procurement Team; the preparation of Tender Documents and their

approval for procurement implementations.
A.1. Procurement Team
 Ethiopian Procurement Regulation states that a Procurement team
consisting of a minimum of five members shall be established.

 As Tender Evaluation is a joint technical and commercial exercise,
the project owner shall consider that the necessary experts shall be
composed in the procurement team.
59
A.2. Preparation of tender documents
 Tender Documents are prepared to:
 Instruct bidders on the procedures for the preparation and

submissions of bids,
 Inform prospective bidders about the nature of things to be
procured,
 Inform bidders about the criteria for evaluation and selection of
the successful bidder, and
 lay down the contract conditions, delivery system, procurement
methods and contract types of the project.
60
 Tender documents include:
1. Form of Invitation to Tender or Request for Proposals;

2. Instruction to Tenderers (Standard and / or Particular
information) or Terms of References;
3. Prequalification Documents if necessary – Refer procurement
methods based on stages;
4. Forms of Tender - Refer Contract Documents (Chapter 7);
5. Forms of Contract Agreement - Refer Contract Documents
(Chapter 7);
61
 Tender documents include:
6. General and Particular Conditions of Contract – Refer

Contract Documents (Chapter 7);
7. Bill of Quantities and Drawings - Refer Contract Documents
(Chapter 3);
8. Technical Specifications & Methods of Measurement – Refer
Contract Document (Chapter 2 & 3); and
9. Other Forms, Formats and Schedules – Refer Contract
Document Parts (Chapter 7).
62
Bidding Document (PPA)
 Part 1- Bidding Procedures
Section 1 – Instructions to Bidders

Section 2 – Bid Data Sheet
Section 3 – Evaluation and Qualification Criteria
Section 4 – Bidding Forms
Section 5 – Eligible Countries
 Part 2- Schedule of Requirements
Section 6(A) – Scope of Works

Section 6(B) – Technical Specifications
Section 6(C) – Drawings
Section 6(D) – Bills of Quantities (or Activities Schedule)
63
Bidding Document (PPA)
 Part 3- Contract
Section 7 – General Conditions of Contract

Section 8 – Special Conditions of Contract
Section 9 – Contract Forms
64
65
66
A.3. Approval of tender documents
 Includes the checking, renewal and approval of tender documents.
 Check list is usually used for tender document approval.
Prepare Checklist for

1. Request for Proposal including Proposed Program and Terms
of References
2. Architectural, Structural, Electrical and Sanitary Preliminary
and Final Designs
3. Feasibility Studies for Big Projects
4. Road and Bridge Designs
5. Water Works Designs
6. Contract Documents
7. General Points
67
B. Tendering Phase
 Tendering Phase includes Invitation, Clarification, Submission and
Opening of tenders.
 Normally open tenders are floated for a period between 30 to 45 days.
Limited and Negotiated tenders can be invited between 7 to 15 days.

B.1. Invitation: The invitation to tender shall clearly state:
 The owner and his desirous service or works
 Eligibility requirements,
 Place to get further information,
 Where to purchase & submit tender documents,
 How long the tender will be floated,
 How should the tender offer be packed, and
 When and where submission and opening of tender will take place.
68
B. Tendering Phase
Sample Form for Invitation to Tender for Construction Works

The ……. has received a loan / grant from …. in …. towards the cost of ….. and it is
intended that part of the proceeds of this loan will be applied to eligible payments under
the contract for ….. This Tender is open to all bidders from eligible source countries as
defined in the ….

The ….. invites sealed bids from eligible bidders of Categories …. with renewed
license and tax registration for the year under tender and / or equivalent eligible bidder
for the construction and completion of ….

The Project consists of the following …. together with ………
Description Area (m2) Remark

Page-1
69
B. Tendering Phase
Sample Form for Invitation to Tender for Construction Works Cont…

A complete set of bidding documents may be purchased by interested bidders on
submission of a written application to …., and upon payment of a nonrefundable fee of
Birr …….. at or before …. on ….

Interested eligible bidders may obtain further information from, and acquire the bidding
documents, at the office of the Employer at ….

All bids must be accompanied by a security of ….. of the bid amount in Birr or an
equivalent amount in a freely convertible currency.

Wax sealed envelops containing offer for furnishing all the necessary labor, equipment
and material for performing satisfactorily and completing of all works as illustrated and
described in the tender documents shall be deposited in ……
Page-2
70
B. Tendering Phase

The envelope shall be submitted as follows
A separate wax sealed envelope and marked “Tender Security” carrying contractor’s
Tender Security as and statement of qualification.
A second wax sealed envelope and marked “Original Tender Document” carrying the
original Tender Offer.
A third wax sealed envelope and marked “Copy of Tender Document” carrying the copy
of the Tender Offer.
A fourth wax sealed envelope and marked “Tender Offer” carrying all the above three
envelope.
All envelopes shall bear the following reference
The Outer and Inner envelopes shall bear the full address of the bidder. The outer
envelope shall also bear the following statement:
“DO NOT OPEN BEFORE …… HRS ON ….. OF …., 20 …. ”
The Original Tender Envelope shall be opened if and only if the Tender Security
Envelope carrying the security & statement of qualification is valid.
Page-3 71
B. Tendering Phase
Bids will be opened in public and read aloud in the presence of Tenderers or their
authorized representative who choose to attend at …. On ….

The eligible bidder shall:
 Read the tender documents particularly the ITB and Technical Specifications before
rating BOQs,
 Visit and investigate the site of works (authorization shall be obtained from the
Employer on receipt of written request) before rating BOQs,
 Be required to furnish, if found a successful winner, a performance security from a
surety approved by the Employer, in the sum of a minimum of Ten Percent (10 %) of
the total contract sum for the faithful performance of the works in accordance with
the contract documents.

The ……. Reserves the right to reject any or all bids, to waive informalities, to
advertise for new bids or to proceed and do the work otherwise as may be deemed to be
for its best interest without giving reasons for doing so.
Page-4 72
B. Tendering Phase
B.2. Clarification and addendum
 Clarifications can either be requested by interested bidder or carried
out using a pre - tender clarification meeting.

 In both cases, issues clarified shall be sent (written) to all bidders
participating for the intended services or works.

 The bidders shall submit their offer on or before the submission date
and time.
 Late bids are automatically rejected.
73
B. Tendering Phase
B.3. Tender opening
 Bids shall be opened in public on the date, at the time and place
mentioned in the invitation to tender and stipulated in the tender

documents.
 Ethiopian practice (public): Two representatives from MoWUD,
Project Owner, Consultant (if available), and Contractors (Who wish

to attend) by themselves or by their representatives shall attend during
the tender opening ceremony.
 The following will be carried out during tender opening:-
1. Tender Attendee members shall take their place and be registered,

2. Tender box opened and checked for faulty things,
3. Check the tender is the right one,
74
B. Tendering Phase
B.3. Tender opening
 The following will be carried out during tender opening:-
4. Bids will be opened one after the other,

5. All necessary data which deem useful such as Project Name, Name
of bidder, Bid Bond Amount, Tender Price, etc. will be read aloud
and recorded at the opening of bids.
6. Bidders representative shall sign a register to attest their presence
during opening, and
7. Tender committee members shall sign on the Tender
75
B. Tendering Phase
B.3. Tender opening
76
C. Tender Evaluation
 Tender Evaluation Phase: is made to determine and make award
recommendation for the least evaluated bidder using preliminary and

detail evaluations.
 The recommended winner may or may not necessarily be the lowest
bidder.
 The following factors are used in determining the least evaluated
bidder.
 Technical qualification,
 Completion time,
 Commercial terms of the offer, etc.
77
C.1. Preliminary Evaluation
 Preliminary Evaluations are made for Eligibility and Arithmetic
review requirements.
 Before commencing the actual evaluation, it is useful and
recommended to complete a Basic Data Sheet for each tenderer to

record key information and enable coding.
i. Eligibility Requirements
 Eligibility Requirements: Tenders are subjected to eligibility
qualifications before they enter to bid and their respective evaluations.
78
i. Eligibility Requirement
 Most often sited issues considered in eligibility requirements are:
 Valid & Up to date Trade and Professional License,

 Valid & Up to date Membership to Financier Organizations,
 Valid provision of Bid Security or Bond,
 Completeness and submittals of all required documents,
 Turnover requirements fulfilled
 Power of Attorney, Signature & Sealing Requirements, and
 Appropriate Invitation, Packaging and Submission
Requirements.
79
 Responsive to Tender is based on the deviation from the bid
conditions. The more major deviations are witnessed the bid will be
rejected based on non – responsiveness to bid conditions.
Major Deviations Minor Deviations
 Affecting the validity of the  Do not affect the triple
bid constraints of the project
 Rejection or Disqualifying  Do not result in change of Bid
conditions stated Price
 Substantial effect on the Bid  Non conditional tenders
Price
80
ii. Arithmetic Review
 Most tenders are often submitted hastily and it is common to have
arithmetic error.
 Evaluation without arithmetic check will ultimately result in disputes.
 Therefore, it is a formal evaluation process to review arithmetic
before carrying out detail evaluations.

 At this stage no adjustment on the unit prices is allowed. If the
contractor has made any arithmetic errors those are corrected.

 If unit prices are left unfilled then it is assumed that the contractor
will have covered the prices in other sections of the submission.

 Note: - Arithmetic review can be done if and only when
financial proposals are opened.
81
C.2. Detail Evaluation
 Detail Evaluations include Technical, Commercial and Financial
Qualification requirements.
 Evaluations at this stage should first and foremost critically see the
technical and commercial offers and establish system that can ensure
common bases for comparison.
 Finally, the Financial offer will be updated using Absolute Results
from Commercial comparisons
82
C.2. Detail Evaluation
Technical Evaluation
 Besides being required to submit a priced bill of quantity a contractor
is required to submit a technical compliance document.

 This technical compliance document will require submission of
required details.
 In the evaluation process, at least the following will need to be
checked.
 Completeness of bid
 General compliance to the tender requirements
 Substantial responsiveness to technical specifications and bidding
documents.
83
checked.
 Alternative proposals if any
 Acceptance for detailed examination
 Review of the proposed organization/staff organization chart
 Schedule of personnel capabilities
 Implementation schedule/ schedule of program of work/ details of
work program
 Availability of equipment/ schedule of plant and equipment
 Working hours
 Labour build up, run down and source
84
checked.
 Interest rates/ Day work rates
 Cash flow/ program of payments
 Schedule of suppliers/ Sub contractors
 Detail regarding site establishment
 Details regarding temporary works
 Details regarding the financial stability
 The original copies to be submitted
85
Commercial Evaluation
 This includes Benefit Forgone due to Completion Time; Additional
Costs due to differences in Foreign Currency Exchange and

Advance Payment requirements; and Provisions of Domestic or
Regional Preference Margins.
1. Benefit forgone due to completion time
 The Benefit Forgone (BF) due to additional completion time can be
computed using the following expressions:

BF = (FV – TO) / (1 + i)n; FV = TO (1 + i)n
Where: TO = Tender Offer after Arithmetic Check;
n = Completion time in days
i = Discount Rate = 0.05 % per day = 1.5 % per month;
FV = Future Value
86
2. Additional cost due to Foreign Currency Exchange requirements
 Used when the tenders have provisions to quote different currencies.
 For currency conversion, selling rates of Bank published by an
official source and applicable for transactions shall be used.

 Additional cost due to Foreign Currency Exchange requirements can
then be determined using selling rates at:

 15 days prior to tender submission date
 Tender Opening Date
 Decision for Award or Expiry of Tender Validity date
87
2.2. Additional Cost due to Advance Payment
 Occurs when different amounts of advance payment are requested as
part of the tender offer.

 The Additional Cost due to differences in mobilization advance
requirements can be computed from the following expressions:

APAC = {(AP x TO) / 100} – PV;
PV = A x PWF; A = {(AP%) x TO} / n; PWF = {(1 + i)n – 1} / {i(1 + i)n}
Where: AP = Advance Payment Requirement in %;
TO = Tender Offer after Arithmetic Check;
i = Discount Rate = 0.04 % per day;
n = Completion time in days
PWF = Present Worth Factor; PV = Present Value
88
3. Domestic or regional factor
 Domestic or regional preference margin is a provision to give
preference to local companies even if their bid offer is not over by a

percentage often equals 7.5 - 10 % for construction works.
 This implies that domestic or regional companies can be awarded the
tender even if they are not lowest in tender price of the evaluated
bidders using all the other criteria.
 A contractor can be eligible for such preference margin if and only if;
 Its legal constitution is in accordance with the Employers’ Country /

Region
 It is registered according to rules and regulations of the Employers’
Country / Region
89
3. Domestic or regional factor
 It has proof that its majority of works are undertaken in the
Employers’ Country / Region
 Its majority of capital shares are held by the Employers’ Country /
Region nationals
 Its majority of the board of directors members are the Employers’
Country / Region nationals
 Its 50 % key personnel are nationals of the Employers’ Country /
Region
 Its arrangement to execute the work should not involve major part of
its work or net profit other than the Employers’ Country / Region
Nationals or Co - Companies
90
Financial offer comparison
 After all commercial comparisons are considered on the same bases;
the Tender offer will be adjusted based on the Cost - Benefit principle
which involves adding costs and benefits foregone. That is:
TO evaluated = (TO + BFCT + ACAP + ACFE + ACPM)
Where TO evaluated = Tender offer evaluated
TO = Tender offer after arithmetic check
BFCT = Benefit forgone due to completion time
ACAP = Additional cost due to advance payment
ACFE = Additional Cost due to foreign exchange
ACPM = Additional cost due to preference margin
91
Financial offer comparison
 Besides, Financial offers per groups of trades of works are compared in
order to evaluate whether tenders are front loaded or not.

 Front loading often cause disruption of projects or overzealous
contractual negotiations.
Rejection of All Tenders:
 Though is solely the power of the employer to decide, for the sake of
fairness it is recommended that such rights shall be exercised in the

following cases:
 All Tenders are found non – responsive during the Preliminary
evaluations
 Evidences of lack of competitions such as collusion among bidders,
monopoly, etc.
 Lowest responsive offer is found unreasonably high.
92
Procurement Procedure Flowchart
93
Procurement Procedure Flowchart
94
Tender Evaluation Example
C. Tender Evaluation Example
95
Tender Evaluation Example
Tender Evaluation
 Preliminary Evaluation: - Eligibility Responsiveness and Arithmetic
Review
 Detail Evaluation: - Commercial and Equivalent Financial Offer
Comparisons.
 Commercial Evaluation:
 Benefit Forgone due to Completion Time;
 Additional Costs due to differences in Foreign Currency
Exchange and Advance Payment requirements; and

 Provisions of Domestic Preference Margins.
 Finally the equivalent financial offer is computed.
 Checks on front loading shall also be carried out.
96
Tender Evaluation Example Cont…
97
98
 Arithmetic Review
99
 Benefit forgone due to completion time
10
0
 Additional cost due to Advance payment
10
1
 Additional cost due to Foreign Exchange Rate
10
2
 Financial comparison
10
3
6.6 Procurement Management Cont.…
Tender Evaluation Report
 Tender Evaluation Report may be written using the following Outlines:
 Executive Summary
 Introduction
 Evaluation Results
• Preliminary Evaluations Responsiveness
• Detail Evaluations Results
• Award Recommendations
1. Introduction
1.1. Background
1.2. Basic Data
1.2.1. Tender Opening Records
1.2.2. Engineers’ Estimate
10
4
2. Preliminary Evaluation Responsiveness
2.1. Instruction to Bidders Responsiveness
2.1.1. Eligibility
2.1.2. Tender Security
2.2 Form of Tender and Appendices Responsiveness
2.2.1. Form of Tender
2.2.2. Priced Bill of Quantities
2.2.3. Schedules
2.3. Contract Document Responsiveness
3. Detail Evaluation Results
3.1. Basic Data for Comparison
3.1.1. Assignment of Codes and Arithmetic Review
3.1.2. Adjusted and Average Tender Offers
10
5
3.2. Commercial Offer Comparisons
3.2.1. Benefit Forgone due to Completion Time Variations
3.2.2. Additional Cost due to Advance Payment Requirements
3.2.3. Additional Cost due to Foreign Currency Requirements
3.2.4. Additional Cost due to Local / Domestic / Regional
Preference Margins
3.3. Financial Offer Comparisons
3.3.1. Front Loading Assessment
3.3.2. Ranking of Tenders
3.4. Award Recommendations
3.4.1. Recommended Tender Offer
3.4.2. Negotiation Issues
10
6
 Annexes
 Annex – A: Basic Data on Tender Offer

 A.1: Pre - Bid Basic Data
 A.2: Tender Opening Records
 A.3: Assignment of Codes and Bidders Particulars
 Annex – B: Preliminary Evaluation Responsiveness
 Annex – C: Detail Evaluation Results
10
7
THANK YOU!
10
8

Chapter-6: Costruction Procurement and Contract

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UNITY UNIVERSITY

DEPARTMENT OF ARCHITECTURE & URBAN PLANNING

Contract, Specification and Quantity Survey

 Procurement and Contract Management

 Procurement and Contract Delivery System

 Tender Evaluation Report

Construction Award of Contract Bid Evaluation

the starting point, the various groups (professionals) try to

develop the concept into a practicable project.

formulated for the future state of the organization or project.

the owner’s requirement and the possible constraints.

financial offers as per the conditions and specifications depicted in

 Compliance with the contractual terms and conditions,

awarded to the successful contractor.

 Write a letter of acceptance

owner generally makes the selection.

the conditions under which it is being performed.

all installed mechanical or electrical parts are operational.

 Provisional acceptance: the client accepts the completed works on

 The Project Owners’ -acquire the five rights (Counterpart,

qualified bidder for procuring services, works or goods from

rights called the "Five Rights".

technical expectation and the economic consideration, i.e. Price &

 Project budgeting will be affected due to less quantities

high stocking, more storing places and risk of spoilage; unhealthy

The Right Counter Parts

shall be fit to the job.

of obligations of each party shall be set and agreed.

procured and the way how they are procured.

Equipments are made available using Procurement of Goods.

procurement of services are often termed as consultancy services

the procurement of contractors to carryout the actual physical

 Applicable when the project is urgent or unique.

criteria such as:

special skills to undertake particular work which require a high

 The contractor can participate starting from design stage

 Contractors will offer higher tender prices.

construction program of similar projects such as housing projects,

understanding that successful contractors will enter into a series of

 Lower tender prices can be obtained, if the competition is open to

 It has the tendency of reducing work available, under

economic factors such as cost of materials, machineries and

National and Local Tendering.

used to encourage local firms.

are recommended to create awareness starting from its initiation.

I. The Project Owners to:

Request for Proposal when the project is ready for implementation.

GPN directly. Otherwise, it should be advertised on the bases of

out on the same.

evaluation will be carried out separately, usually financial then

nature and cost is large and complex.

evidence of their ability to perform the services required by the

establish the competence of companies subsequently evaluated.

1. During licensing requirements which entitled them for a single

carry out the required works satisfactory.

 Aim: To establish a list of capable firms while ensuring that a peoper

lowest financially evaluated bidder until technically or cumulatively

evaluated bidder and to save time during technical evaluations.

on financial results and be locked and biased for successive

processes: Contract Planning, Procurement Management and

Contract Procurement Contract

Procurement Methods and Contract Types to be followed and used

organizations to carry out the intended services and / or works.