EXPLAIN DIFFERENT TYPES OF TENDERS.

1. OPEN TENDER

Open tendering is the main tendering procedures employed by both the government and private
sector. The client advertises the tender offer in the local newspaper giving detail and key
information of the proposed works and inviting interested contractor to tender. In the legal
sense such tender notices constitute invitation to treat, a mere request by the employer for
suitable contractor to submit their bids or offers.

If the pre-requisite to tendering on the form of possession of the necessary registration has
been identified in the tender notice, then the advertisement is directed to only that particular
class of the public having the said qualifications. In order to reduce number of enquiries,
earnest money is deposited (for private project). Until the receipt of a bone fide tender selected
then it will be returned. Although price is very important in the decision on which tender or
bid to accept, it is not the only factor taken into account. Client does not bind to accept the
lowest or any offer. The advantages and disadvantages of open tender are stated below:

Advantages

 Allowing the tender list to be made without bias. Client will obtain the bargain possible.
No favouritism in selecting contractors.
 Ensuring good competition not obliged to accept any offers.
 Traditional method of tendering, familiar to all sector of the engineering and
construction industry.

Disadvantages

 It allows any interested contractor to tender. Therefore it gives opportunity for an

unknown contractor to compete for the work.
 The tender list can be long as too many contractors tendering for one job.
 Uneconomic use of source.
 Public accountability may be questioned if the lowest offer is not accepted.
 Does not attract reputable and established contractor unless they are forced to, due to
lack of work.

2. SELECTIVE TENDER

Selective tendering is the one alternatives developed to address the limitations of the open
tendering procedure. In this method, a short list of contractor is drawn up and they are invited
to submit tenders. The purpose of the elective tendering are to improve the quality of the bids
received, to ensure that contractors with the necessary experience and competence are given
the opportunity to submit the necessary bids, due to urgency work involved, for specific
reasons of the employer, eg security reasons in government projects. etc. and to make the
tendering procedure more manageable and less a burden on the parties involved. Such list may
be prepared through recommendation from the Client’s professional adviser whom have
knowledge of the Contractors undertaking the work in the past or advertisement through the
newspaper (prequalification). The advantages and disadvantages of the selective tendering are
stated below.

Advantages

 Only the competent contactors were invited to tender, then the lowest can be accepted.
 It reduces the cost of tendering (economic use of resources, reduced tender
documentation, shorter tender periods, better management of the tender process, etc.)

Disadvantages

 Reduces the availability of work for other contractors especially new contractors.
 Tender Price may be invariably higher than would have been in open tendering.
 Greater chance of collusion.
 Tendering period longer because it involves two distinct stages.
 Favoritisms may occur in the short listing.

3. TWO STAGE SELECTIVE TENDER

Two stage selective tendering combines elements of competition and negotiation into a
formula where the employer could utilize the contractor’s expertise at an early stage of the
project cycle so as to maximize innovation, ingenuity and quality and simultaneously optimize
cost, time and resource input. A contractor is selected competitively early in the design
process. The tender documents contain approximately quantities of the major value items. As
design and planning proceed, the final tender is developed from cost and priced data supplied
with the initial tender. Two stage selective tendering was very popular in developed countries.
It was different from selective tendering because has two (2) distinct stages namely:

1. Selection of suitable contractor

This involves the selection of a suitable contractor and the establishment of a level of pricing
for subsequent negotiations.

The objective is to select suitable contractor as early as possible is to work together with the
professional team and to establish a level of pricing for subsequent negotiation.

The criteria for short listing is normally confined to items such as technical and financial
capability, experience in similar works and extent of resources (manpower, plant and
equipment).

The pricing document should be flexible enough to cater for adjustment of price fluctuation
for the period between two stages and the pricing of the second stage.

In selecting a suitable candidate, a basis for pricing the subsequent second stage should be
established accordingly.

2. Determination of Contract Price

Once a suitable contractor is selected, he will work together with the project team start
contributing to the pre contract process in his capacity as unbiased but independent
construction expert. This contractor will contribute the following:

 Contribution as a Technical Advisor to the Design Process

 Practical Skills and Buildability
 Minimization of Project Delay

During this stage, a negotiation to reach an agreement on the final contract price is undertaken
and the pre contract process is perfected.

If no agreement being reached, the employer has an option to abandon the tendering exercise
and re-tender the works using any other tendering procedure.

The application of two stage selective tendering might be appropriate where the works are a
very complicated nature, where at the time of selection of the contractor, the magnitude of the
work may not be known with sufficient certainty and where it is an essential pre-requisite for
works to be finished by an early completion date. Table below are some advantages and
disadvantage of two stages selective tendering.

Advantages

 Benefit of the contractor’s expertise in buildability, specialist knowledge in proprietry

systems, project scheduling, etc resulting in value for money.
 Early commencement of work at site even when the magnitude of the works is not
known with sufficient certainty at the time of site possession.
 Savings of time due to the overlap of the design and tendering stage.
 The procedure utilizes the best aspects of both competition and negotiation to arrive at
the most favourable arrangement at an optimum firm price before work commences.
 Since the contractor is part of the project team at a very stage of the project, this results
in better communication and information flow.
 Generally, there will be fewer claims and disputes in the post contract award stage due
to the contractor’s involvement at the design / pre contract stage. Experience has shown
that the contractor has a clearer understanding of the requirements and a better
appreciation of the intricacies of the design and contract documentations.

Disadvantages

 Its application requires a high level of familiarity and commitment on the part of
employers and contractors.
 Owing to a relatively smaller element of competition, but on the other hand higher
negotiations content, the tender process is relatively more expensive and longer than
other common procedures.
 Should the second stage be deadlocked or result in no acceptable agreement being
reached, the tender process has to be initiated all over again, albeit, through a different
route. This incurs a time and cost penalty to the project as a whole.
  This procedure requires a high level of commitment, integrity and good faith on the part
of both sides which sadly is usually lacking, hence the apparent failures encountered to
date.

4. NEGOTIATION TENDER

Negotiation tendering is extensively used in the engineering and construction industry

commencing from tendering till dispute resolutions, i.e. under the styles of pre-contract
negotiations and post contract negotiations. Usually with single contractor but may be up to
three contractors. Negotiation process involves are as follows:

Identification by the employer of a suitable contractor to negotiate with. The contractor can be
selected either from the employer’s own list of preferences or on the advice of the professional
team.

The contractor being apprised of the workscope.

The selected contractor is issued with details such as the scope of work involved, relevant
drawings, design and /or information to enable him to appreciate the extents of obligations and
the employer’s actual needs. Some employers prepare and issue to the contractor proper tender
documents inclusive of a nominated bills of quantities to assist contractor in pricing the works
for the forthcoming negotiations. Negotiations can be applied to the following type of contract:

 In Partnering type of contracts under the so called win-win formula.

 Where the employer has a long term business relationship with the contractor.
 In situations where the parties are in a relationship of holding and subsidiary companies.
 Where the contractor is involved in the financing of the project.
 In situations where the employer finds it advantages to employ the same contractor to
continue an initial or existing contract for the new works
 Where there is a pressing need to have a very early start of work on the site and to
complete the works on a fast tract basis.
 In special circumstances e.g. Security reasons, emergencies etc where it is expedient to
secure the services of a particular contractor only.
 Where there is only a single contractor who is the only one available or with ether the
special skill or resources to carry out the particular works.
 The employer’s resources are either limited or constrained thereby making the use of
the other tendering impractical.

Advantages

 Only reputable contractor are invited for negotiation.

 The Contractor can contribute his expertise during design stage.
 Early Commencement of work on site. It shortens the period involved in appointing the
contractor.
 Reduce risk of failure.
 Best alternatives for the employer to adopt is special circumstances such as
emergencies, security reasons and etc.
  Experience has shown that contracts let out this basis result in fewer disputes and claims
during the construction stage.

Disadvantages

 The cost work is likely higher than competitive tender.

 Reduces the availability of work for other contractors.
 Should the negotiations be deadlock or prove eventually unsuccessful, this causes
wastage of valuable resources on both sides and loss of time for the employer, thereby
delaying the overall selection of suitable contractor.