CONSTRUCTION TENDERING

Learning unit1: Prepare Tender Documents

Introduction: After a client has selected an appropriate procurement

strategy for his building project, the next stage will be a review of
how best to obtain the resources that will be necessary for him to
have the work carried out.

o In most instances, client organizations will have limited skills and

resources relating to construction work and they will have to rely
on others to provide the necessary services, expertise and
resources, e.g., designers, engineers, surveyors and contractors
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o The client will therefore need to identify and contact suitable personnel
or organizations to assist him with his project. This will be achieved
through a process of tendering.

• What is tendering?

o Tendering is the process by which bids are invited from interested

contractors to carry out specific packages of work or supplying goods.

o It is an important stage of the building project, as the decisions taken at

this point will help to determine the quality and caliber of people and
organizations involved in the building process and the price to be paid
for their services.
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o It is as well to be aware that the tendering process is not used

exclusively to appoint a contractor to carry out the client’s project.
It is also highly likely that most members of the project team will
be asked to go through a tendering procedure.

o With most procurement routes, the client will want to appoint an

architect and quantity surveyor to help him manage the various
processes, and an appropriate tendering procedure should ensure
that the client obtains a competent service at a realistic price.

o Once an architect and surveyor are appointed, they will then be

able to assist the client in the selection and appointment of the
main contractor.
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• Methods of contractor selection

The client’s professional advisers should aim to find a contracting
company
1. that is financially stable and has a good business record

2. For which the size of the project is neither too small nor too large;

3. That has a reputation for good-quality workmanship and efficient

organization; and

4. That has a good record of industrial relations.

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There are three principal methods of choosing a contractor:

(a)Open tendering
(b) selective tendering
(c) nomination

a)Open tendering: This is initiated by the client’s project manager,

architect or quantity surveyor advertising in local newspapers
and/or the technical press, inviting contractors to apply for tender
documents and to tender in competition for carrying out the work,
the main characteristics of which are given.
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o Usually, a deposit is required in order to discourage frivolous

applications, the deposit being returnable on
the submission of a bona fide tender.
Advantages

1.There can be no charge of favoritisms as might be brought where a

selected list is drawn up.

2. An opportunity is provided for a capable firm to submit a tender, which

might not be included on a selected list.

3. Open tenders don’t exclude any potential suppliers, which means your
organization gets a great overall view of the supplier market and the deals
on offer. It should secure maximum benefit from competition
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4.By not excluding any suppliers, you take an unbiased approach to

the supplier market – an important factor for government
departments and agencies.

o it may not always do so, however, as may be seen from the

disadvantages below).
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Disadvantages
1. There is a danger that the lowest tender may be submitted by a
firm inexperienced in preparing tenders (particularly if bills of
quantities are used), and whose tender is only lowest as a
consequence of having made the most or the largest errors.

2.There is no guarantee that the lowest tenderer is sufficiently capable

or financially stable. Although obtaining references will provide some
safeguard, there may be little time in which to do so.
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3. Open tenders can be a more expensive process, simply because

they are more time consuming; accepting all comers means there are
more bids to manage, analyze and decide upon.

4. If you aren’t excluding anyone, you’re potentially dealing with

suppliers you know nothing about. This can expose you to some
unscrupulous operators and generally leaves you more vulnerable to
a bad deal.

5. With open tenders, there is sometimes too much focus on lowest

price at the expense (pardon the pun) of quality and other important
considerations.
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b. Selective tendering: A closed tender, also known as a limited tender, is

open to only those who are specifically invited to bid. Those who aren’t on
the invitation list but submit a proposal anyway are likely to be ignored.

o A closed tender isn’t as common within government departments and

agencies as it excludes potential suppliers; there are, however,
circumstances under which it is allowed.

o Closed tenders are more popular among for-profit organizations,

particularly when they know the supplier landscape well, have done their
research, and narrowed the field down to a select number of vendors.
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o Selective tendering may be either single or two stage, depending

on whether the full benefits of competition are desired (in which
case single-stage tendering is used) or whether limited
competition plus earlier commencement of the works on site is
considered advantageous (using two-stage tendering).

• Single-stage selective tendering: Under this procedure, a short

list is drawn up of contractors who are considered to be suitable
to carry out the proposed project. The names may be selected
from an approved list or ‘panel’ maintained by the client (as
many public authorities do), or may be specially chosen.
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o In the latter case the contractors may be invited, through suitably

worded advertisements in the press, to apply to be considered for
inclusion in the tender list.

o This gives the client the opportunity to exclude any firms thought
to be unsuitable, and to limit the number of tenderers. At the same
time, it gives any firm the opportunity to apply to be considered.
The criteria that a client may use to decide upon the suitability of
a contractor are:

1. Whether the company has had recent experience of similar

projects of a similar standard and completed within the envisaged
time scale.
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2.Whether the company has the skills necessary for the delivery of
the project.(Building and engineering knowledge, Health and safety,
Knowledge of codes and regulations, Time management,
Organization, Communication, Problem-solving, Reading and math
skills.

3. The quality of the company management structure and personnel

employed by the company.

4.Whether the company has the spare capacity to carry out the work
within the proposed time scale(the ability of a factory, company, or
industry to produce more of a product than is now being produced).
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5.The financial standing and record of the company.

o It is recommended that the number of tenderers should be limited

to between five and eight, depending on the size and nature of the
contract.

o If the firms on the list are all ones which are reputable, well-
established and suitable for the proposed work, and the client fixes
the construction time, then the selection is resolved into a question
of price alone and the contract can be safely awarded to the firm
submitting the most favorable tender.
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Advantages
1. It ensures that only capable and approved firms submit tenders

2. It can be a cheaper process. Inviting only a select few to submit

bids means there is less time you have to spend on analyzing them
and deciding their potential. Less time equals less money.(It tends to
reduce the aggregate cost of tendering)

3. You have the opportunity to invite only those suppliers you know
to be reputable and professional. This avoids any bad eggs.
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4.With fewer bids, there is a chance to embark upon more

substantial communication and a more collaborative approach. Not
only can this lead to a better deal for both sides, it also lays the
foundations for a positive, long-term business relationship.

Disadvantage
1.The cost level of the tenders received will be higher, owing to
there being less competition and also due to the higher calibre of the
tenderers.
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2. Obviously, a lot of potential suppliers are excluded. Dealing only with

those you know can reduce the chance of dealing with bad eggs, but it
also means you miss out on the good ones you don’t know about.
Somewhere out there, the right supplier for you is waiting; a closed
tender reduces your chance of meeting them.

3. There’s a level of bias with closed tenders that can make them
inappropriate for government departments and agencies.

4.If you’re new to the supplier landscape, or have worked with an

incumbent for many years, it’s difficult to identify a shortlist of the best
vendors out there.
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•Two-stage selective tendering: This procedure is used when it is

desired to obtain the benefits of competition and at the same time to
have the advantage of bringing a contractor into the planning of the
project, thus making use of his practical knowledge and expertise.

o It may also result in an earlier start on site. The first stage aims to
select a suitable contractor by means of limited competition. The
second stage is a process of negotiation with the selected
contractor on the basis of the first-stage tender.

o First, a short list of tenderers is prepared, as described for single

stage tendering.
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•First stage: When being invited to tender, tenderers are informed of

the second stage intentions, including any special requirements of the
client and the nature and extent of the contractor’s participation
during the second stage.

o Tenderers are asked to tender on the basis of any or all of the

following:
i) a schedule of rates, consisting of the main or significant items only
ii) A detailed build-up of prices for the main Preliminaries items
iii) A construction programmer showing estimated times and labour
and plant resources which would be used, and also construction
methods
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iv)Details of all-in labour rates and main materials prices and

discounts which would go into the build-up of the detailed tender
(v) Percentage additions for profit and overheads
(vi) Proposed sub-letting of work, with additions for profit and
attendance.

o During this stage, discussion with each of the tenderers may be

conducted in order to elucidate(make clear) their proposals and to
enable the contractors to make any suggestions with regard to
design and/or construction methods.
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o When these procedures have been concluded, a contractor is selected

to go forward to the second stage.

o It is important that in accepting the first-stage tender, the parties

define procedures for either of them to withdraw, should the second-
stage negotiations prove abortive, and what, if any, payment may be
due to either party in that event, including reimbursement of the
contractor for any site works the contractor may have carried out.

•Second stage: During this stage, finalization of the design proceeds in

consultation with the selected contractor, and bills of quantities (or
other detailed document describing the proposed works) are prepared
and priced on the basis of the first-stage tender.
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o Negotiation on the prices will follow until agreement is reached

and a total contract sum arrived at, when the parties will enter
into a contract for the construction works.

o When time is pressing and it is desired to start work on site

before final agreement is reached, a contract may be signed
earlier.

o In that case, when the surveyor considers that a sufficient

measure of agreement has been reached on the prices for the
principal parts of the work, he will recommend the client to
proceed with arrangements for the signing of a contract.
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o This is not recommended in most of Codes, but the client may

consider that it is worth taking a risk in order to speed up the
project.

C. Nomination: Another name for this method is single tendering.

We can consider this method as a special case of selective tendering,
having only one name in the shortlist. Normally this happens when
the contractor has done previous construction work satisfactorily for
the client.

o Therefore the client may prefer to award the next construction to

the same bidder. In this method, there will be no competition. As a
result, it will lead to a higher price. Here, the contract sum agrees
after negotiation by the client with the contractor.
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o If there is a large project to carry out in several stages, a method

combining selective tendering and nomination can be used. This
method is called serial tendering.

Serial Tendering: Serial tendering is the term used where tenders are
invited for a project or series of projects, each of which will become a
contract or contracts in their own right.

o The contractor is chosen for the first phase by means of selective or

open competitive tendering. The accepted tender outlines the basis of
payment for the resulting contract.

o For the later stages, the same tender will use. However, a provision
has to be made for so doing in the initial contract by the inclusion of a
formula for updating prices.
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o Gaining the benefits of continuity is the main purpose of serial

tendering. All the site facilities of the first stage will continue
for the latter phases of the project. When the second phase
commences, these facilities are already available.

o It allows a smooth transition with less additional expenses.

After finishing the first stage, the contractor’s workforce is
familiar with the details of the construction. It is a major
advantage. In addition, it helps speedier and more efficient
progress of works in the latter stages.