TENDERING

PURPOSE Select a suitable contractor at a suitable time Obtain a price offer from the contractor at an appropriate time

These two purposes are often pursued simultaneously, but they do not necessarily need to be. The offer (tender) will be the basis for the ensuing contract.

The contractor will take into account the conditions of the contract when calculating the tender price. The way the risks are distributed in a building contract will have a significant effect on the contractor's pricing strategy. However, the contractor's need for work may be stronger than the desire to add a premium for a risky project. The contractual arrangements are dictated by the procurement strategy.
3

PROCUREMENT SYSTEMS COMPARED

CONTRACT TYPE Employer RISK Contractor

Design & Build Complete package by supplier Design & Build Complete design input by contractor Traditional lump sum Fixed price Traditional lump sum Fluctuations Traditional measurement Bill of Approximate Quantities Traditional measurement Fixed fee prime cost Traditional measurement Percentage fee prime cost Management contracting

Simplified view of risk relative to some procurement systems

TYPES OF TENDER Standing offer - the contractor tenders for, say maintenance work over a specified period. The acceptance of such an offer by the employer does not in itself create a contract. The employer is not bound to order any work, nor is the contractor prevented from withdrawing before the period is over. However, any orders placed during the period must, if the contractor's offer has not already been revoked, be carried out. Standing offers are associated with term contracts.

Offer and acceptance The more usual type of type of tender is simply an offer by the contractor to carry out work in response to an invitation to tender. Once the employer accepts this offer, then (assuming the acceptance is not conditional), it forms a legally binding contract.

Competition Invitations to contractors to participate in a competitive tendering process usually adopt one of the codes of practice published the bodies below: National Joint Consultative Committee (NJCC) Code of Procedure for Single Stage Selective Tendering (1996) Construction Industry Board (CIB) Code of Practice for the Selection of Main Contractors (1997) Code of Procedure for Two Stage Selective Tendering (1996)

Open Indiscriminate request for tenders Single stage selective Pre-select a limited number of contractors to tender Two stage selective Stage 1, on the basis of a limited amount of information selection of contractor and the establishing of a level of pricing for subsequent negotiation Stage 2, selected contractor helps in design and development of production drawings, bills prepared and priced on the basis of the first stage tender
8

Selective tendering for design & build Tendering contractors put forward their solutions and prices in a Contractor's Proposals document in response to the Employers Requirement document. Negotiation Joint venture

OBTAINING TENDERS Tender List Best to restrict the list to no more than six (plus two reserves) Criteria for the selection of firms include: adequacy of available resources adequacy of technical and management structure financial stability and insurance cover health and safety record quality of work and adequacy of quality control performance record

10

Preliminary enquiry A month before planned dispatch of tender documents, send a letter to selected contractors asking whether they wish to tender for the project. The letter should cover the following information: project name, function an general description employer/design team location of the site approximate cost range number of tenderers form of contract any nominated sub-contractors for major items anticipated date of possession/contract period anticipated date for dispatch of tender documents tender period period for which the tender is to remain open
11

Tender documents and invitation The tender documents should comprise: a checklist of all tender documents instructions to tenderers two copies of drawings, two copies of schedules and specification, or two copies of bills of quantities or pricing schedules, or Employers Requirements for design and build two copies of the CDM Pre-contact information two copies of the form of tender an envelope for the return of the tender , labelled Tender giving the name of the project together with the latest date and time for the tender return an envelope for the return of priced bills or schedules in support of the tender (if they are to be returned with the tender), iabelled with the project name and the words Priced Bills or Priced Schedules
12

Instructions to tenderers where and by when to tender any information to be submitted with the tender e.g. method statement method of dealing with enquiries relating to tender documents method dealing with any errors or inconsistencies in the tender documents discovered after they have been issued whether or not alternative proposals are acceptable if accompanying a compliant the tender notes related to any performance-specified work and/or contractors designed portion
13

required period for validity for the tender anticipated acceptance date arrangements for inspecting additional information arrangements for visiting the site whether the employer will accept the lowest or any tender tender assessment criteria method handling errors in tenders method of communicating tender results

14

Formulation of bids by contractors Contractors know about: Costs - what they pay for their resources Prices - what they charge for their product Value - what the client is prepared to pay

15

Based on past experience together with current information on material costs, wage rates, plant hire charges etc. the contractor can build up rates that can be inserted into a bill and multiplied by the specific quantity required. On being invited to tender the contractor first decides whether or not the job is wanted. If it is not, few will decline to tender, most will submit an inflated tender (known as a cover bid). They fear that if they do not tender they might not be asked to tender for future work from the same source.

16

If the contractor wants the job he will consider the state of the market and assess what this type of building is selling for at the moment. Typically, a contractor will split the tender documents up as necessary to obtain prices from sub-contractors and suppliers. This assessment is then modified by the level of risk associated with the project (contractual conditions). If the contract is risky a substantial premium will be added to the contractor's bid.

17

The contractor's own cash flow has a significant effect on the tender. The contractor using his detailed knowledge of costs and finance can predict monthly net cash flow in or out of the project.

Back-loading - if the project takes place near the end of a tax year he may want to reduce the level of profit appearing on the balance sheets for the purpose of reducing tax liabilities. This can be done by artificially reducing rates for work at the beginning of the project and adding a corresponding proportion on to the rates for work later on in the project.
18

Front-loading - the contractor may need cash quickly to meet liabilities, or show a good return for shareholders' dividends. In this case the rates at the beginning of the project can be increased, with a corresponding decrease at the rates at the end. Note, neither process makes any difference to the contract sum.

19

Opening tenders This should be done as soon as possible after the published time for their receipt. best done with two people present each tender opened to be countersigned by those present tenderer and amount tendered should be entered on a list and the list countersigned by two of those present

20

Examination and adjustment of the priced document lowest tenderer requested to provide a priced document in support of the tender (unless already submitted) QS examines priced document to check any amendments notified during the tender period have been properly dealt with and check for any errors in the computation

21

Dealing with computational errors Two methods are commonly used: 1. Tenderer advised of his errors and given the opportunity to confirm or withdraw his offer. If he withdraws the process is repeated with the next lowest tenderer. If he confirms the pricing document is endorsed to that effect and all the rates and prices, excluding those relating to preliminaries, provisional sums and prime costs be considered increased or decreased in same proportion as the corrected total of priced items exceeds or falls short of the uncorrected total of such items. It is these adjusted rates and prices that will be used for valuing variations.
22

2.

The tenderer is advised of the errors and given the opportunity to amend his tender to correct genuine errors or to withdraw his offer. If he amends and the amended tender is no longer the lowest, or if he withdraws, the examination process is repeated with the next lowest tenderer.

Usually the lowest tender is accepted unless other criteria are also to be evaluated.

23

Negotiated reduction of a tender Should the lowest tender exceed the employers budget negotiations may be opened with the lowest tenderer to achieve a lower price by agreed changes to specification (quality) or quantity of the work. If such negotiations fail the next lowest tenderer may be approached with a view to negotiation.

24

Notification of results immediately after the tenders have been opened all but the lowest three should be notified that their tenders have not been successful second and third lowest tenderers are advised they are not the lowest but may be approached should the lowest tenderer withdraw his offer as soon as a decision has been made all unsuccessful tenders so notified and any submitted priced documents returned unopened it is good practice, once the contract has been let to provide each tenderer with a complete list of the tender prices received (list does not disclose who tendered which amount)
25

Tender analysis QS analyses the successful tender: enables cost plan to be revised to reflect tendered prices for use in the post-contract control process provides data for costing future projects.

26

END

27