Episode 118 - Tendering

This week we will be talking about Tendering. This episode content meets PC5 - Building Procurement t of the Part 3 Criteria.

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Episode 118:

Hello and Welcome to the Part3 with me podcast.

The show that helps part 3 students jump-start into their careers as qualified architects and also provides refresher episodes for practising architects. I am your host Maria Skoutari and this week I will be talking about Tendering. Today’s episode meets PC5 of the Part 3 Criteria.

Make sure to stay until the end for today's scenario!

So, let's jump right into today’s subject. What do we mean by tendering and how are tendering processes used to establish a contract price:

A common confusion within the industry is about the differences between tendering and procurement. They are distinct activities in the construction process, whereby procurement:

is the overall act of obtaining goods and services from external sources (i.e. a building contractor) and includes deciding the strategy on how those goods are to be acquired by reviewing the client’s requirements (i.e. time, quality and cost) and their attitude to risk.

Whereas tendering relates to an important phase in the procurement strategy but procurement involves much more than simply obtaining a price. Tendering is:

the bidding process, to obtain a price; and
how a contractor is actually appointed.

The chosen procurement route, shouldn’t affect the tendering strategy as each tendering strategy can be used within most procurement strategies. So tendering has three main strategy types which are most common in the construction industry, although there may be subtypes of each.

The first is single-stage tendering which is the most common type of tendering strategy whereby the employers requirements are sufficiently defined enabling a price for the whole of the construction works to be provided. With this strategy, invitation to tender documents are issued to a number of competing contractors who are all given the chance to bid for the project based on identical tender documentation.

This is usually done at RIBA Stage 4 so that the tendering contractors receive the most detailed information to base their bid on. The bidding contractors are then given a predetermined amount of time to submit their tenders. These are then analysed, in terms of cost and quality, before a single contractor is declared the preferred contractor. They then ultimately enter into a building contract with the client to deliver the tendered works.

The second strategy is two-stage tendering has become more common in recent years and is often used where time is constrained and it enables design and tendering to overlap. It is also used if the design process would benefit from the technical input of a contractor in the later design stages. It is essentially used to obtain the early appointment of a contractor. The process, therefore, involves first-stage tender enquiry documentation being issued to bidding contractors at RIBA Stage 2 or 3. Rather than requesting a bid for constructing the entire project (which is still in the process of being designed), the preferred contractor is then chosen on the basis of the quality of their bid, the quality of their team and their preliminaries price and overhead and profits allowances. The preferred contractor then joins the design team on a consultancy basis using a pre-construction services agreement (PCSA) which I expand on in Episode 98 if you want to learn more about pre-construction services agreements. The preferred contractor then works with the professional team to complete the design, usually to RIBA Stage 4, before presenting a bid for the works at this stage and then follows the negotiation of the final terms of the contract.

And the third strategy is negotiated tendering which is effectively a single-stage tender with a single contractor who returns with an initial price. This is then negotiated with the client’s professional team. The benefit of this route is the speed with which a price can be obtained for the works. However, the competitive advantage of a formal bidding process is compromised. Also, many public bodies and government departments will not allow negotiated tenders except in exceptional circumstances as it is difficult to prove that value for money in the current market has been achieved.

Early contractor involvement is in essence a form of negotiated tender but emphasis is put on the contractor as the lead designer from the outset of the project. This is beginning to be seen in infrastructure projects where the early appointment of a contractor can significantly affect the direction of the emerging design. Early contractor involvement involves the creation of a designer/contractor team led by the contractor. Methods to successfully achieve this are still at their early stages and, at present, methods of early contractor involvement are bespoke to a particular project. Contractor selection is similar to two-stage tendering as it is done not on a cost basis but rather on the quality of the team and bid.

Robust tendering techniques can help to ensure positive tender results through:

accountability
auditability
ensuring everything has been picked up
parity
helping to reduce claims of corruption; and
ensuring that the correct price has been paid for the proposed works.

So what are the advantages and disadvantages of each tendering methods relating to each respective chosen procurement route:

Firstly, there is an expectation for a minimum amount of design work to have been produced that is to be passed on to the tendering contractors at the tender phase. This might be to a greater or lesser degree, depending on the chosen procurement route.

Before the tender action is carried out it is important to know the estimated cost of the project as the client will want to know that they can afford the proposed development and so that there is a basis of comparison when the tenders are returned. This estimate is called the pre-tender estimate (PTE). While the pre-tender estimate is not strictly part of the tendering process, it is important that it exists before the tender is carried out, otherwise, analysis could be very problematic.

So once all the information has been compiled, then the preferred type of tendering can be chosen based on the methods I mentioned earlier. Whilst all three tendering strategies can be used with almost any procurement route, it is reasonable to state that some suit certain strategies better than others.

Traditional projects are generally advanced to a far greater level of design detail before going to tender. As the contractor is not responsible for the design, it generally supports a single-stage tender. The benefits, therefore, of single-stage tendering under traditional procurement is that it provides the most competitive price and its the most linear form of tendering, however, on the flip side, single-stage tendering doesn’t involve the contractor during the tender review process which may lead to high levels of provisional sums and risk items on the client side, this may then as a result cause implications to the programme.

Now relating to Design and Build Procurement, single-stage tendering provides the most competitive price, but given the nature of this process, the contractor may not fully understand the project which may lead to a higher ‘risk allowance’ and programme implications to include the tender period.

Under the management procurement route, single-stage tendering can’t be used.

Now when it comes to two-stage tendering, the advantage of using it under traditional procurement is the fact that the contractor’s involvement may reduce outstanding design/construction risks and the ability to overlap tendering and design. However, the disadvantages include offering no incentive for the contractor to mitigate risks as a traditional contract will leave most of the risk on the clients side and the programme may have to accommodate a tendering period (if design and tendering cannot be overlapped).

When used in Design and Build procurement, two-stage tendering offers the opportunity of increased contractor involvement in the design so that they can positively influence it, it retains some degree of competition resulting in competitive pricing and the ability to overlap design and tendering. However, the disadvantages include a lack of competitiveness during the second stage and it may also result in programme implications to include a tender period (although this can be overlapped with design).

Whereas on management procurement, two-stage tendering offers the benefit of offering some degree of competitiveness for preliminaries and overheads and profits compared to negotiated tender, however, it does increase the programme to accommodate for the tender period.

Now looking at negotiated tendering, under traditional procurement, it provides contractor involvement throughout the process enabling more effective mitigation of risk throughout the design process by the contractor and there are no tendering period requirements to be allowed for in the programme. However, having no competition under negotiated tendering may result in high contract offers and may not be suitable for public procurement contracts.

Under Design and Build procurement, negotiated tendering offers the most contractor involvement in the design process and there are no tendering period requirements to be allowed for in the programme. However, similarly to traditional procurement, the lack of competitiveness may not result in the best tender offer and it may not be suitable for public procurement contracts.

Whereas on management procurement, negotiated tender offers no tendering period requirements to be allowed for in the programme, but the key disadvantage is the fact that there is no competition at all on preliminaries and overheads and profits and programme.

So once the most appropriate tendering procedure has been determined, then comes the time for selecting the tendering contractors:

The selection of the tendering contractors is an extremely important part of the tendering process as the quality of tender returns will only be as good as the quality of the tenderers on the list. It is advisable for project teams to start considering suitable contractors as soon as the project begins; this may initially be on the basis of previous experience, word of mouth or from meetings and presentations from contractors looking to secure new work.

During this period, an Enquiry Letter, alongside a Project Information Schedule and a Pre-Qualification Questionnaire should be submitted to the initial list of potential contractors.

The purpose of the Pre-Qualification Questionnaire, is to establish the prospective tenderer’s financial position, relevant knowledge and experience and technical capability to deliver the works. In terms of the minmum period for responses to the pre-qualification questionnaires, the period in the case of public procurement is generally 30 days from the date of issue, in the case of the private sector the perios may be substantially less, for single-stage for example where Contractor’s design is not required and the questionnaire is straightforward, 14 or 21 days may be adequate.

In terms of the Project Information Schedule, this must provide the contractors with information sufficient to enable them to decide whether or not to tender and should include details of:

The project and its estimated value
The Employer, the professional team and contact point
The tendering procedure to be used
The programme, including anticipated dates for pre-selection interviews, issue of tender documents and tender submission
The requirements for the Contractor’s design
Any applicable BIM requirements
The Contract to be used
Completed Contract Particulars
Any amendments or modifications of the Contract or its conditions
Any requirements for parent company guarantees or for performance or other bonds that are not covered by the Contract Particulars
Mode of execution
The basis of the contract award (lowest price or price and quality)
Where the award is to be based on price and quality, provide a list or general statement of the quality criteria and the relative weightings that will be applied to each of those criteria and to price
In relation to errors in priced tender documents, for private sector procurement, whether Alternative 1 or 2 will apply. Under Alternative 1 the tenderer should be given details of the erros and afforded an opportunity of confirming or withdrawing their tender. Under Alternative 2, the tenderer should be given an opportunity of confirming their offer or amending it to correct genuine errors.

This process should then assist in selecting the contractors to move forward to the tendering stage.

There are three main types of contractor selection techniques:

Open tendering: this allows anyone to express an interest to tender. The proposed tender opportunity is usually advertised in journals or on websites. Public procurement is a form of open tendering.

Selective tendering: this can be in the form of a shortlist drawn up by the project/client team or may be drawn from a pre-agreed framework/ approved-suppliers list. The key difference between this and open tendering is that selective tendering is not open to everyone and the list of suitable contractors is chosen by the project team. Once a project is likely to become a reality then a long list should be drawn up from all members of the design and client team.

Single contractor selection: this works hand in hand with negotiation as a tender technique. A contractor is selected and then the negotiation process begins. It is basically a shortlist of one.

Then, once the unsuitable contractors are discounted from the long list, the next step is a formal contractor pre-qualification process. This may be a short interview or perhaps a pre-qualification questionnaire (PQQ) depending on the size and complexity of the project. The aim is to ensure that the proposed contractors have the relevant experience, the relevant financial standing and a suitable health and safety record.

The contractor should be provided with a suitable period to respond to tender enquiries. This period will vary on a project-by-project basis depending on its size, complexity, time of year and market conditions.

It’s common for the first stage of a two-stage tender to have a shorter period than a single-stage tender. This is because the contractors only have to price preliminaries, overheads and profits and the qualitative part of the bid, whereas for a single-stage tender, a contractor will have to fully understand and provide a formal quotation for the entire project. This means that they will need additional time to receive information back from their supply chain.

Setting the right tender period is also crucial to prevent contractors from withdrawing. If a contractor deems that they don’t have enough time they are more likely to withdraw from the tender rather than risk submitting what they feel would be a substandard bid. Assurances that contractors will be submitting a tender should be sought at the PQQ stage. It is not unusual for tender extensions to be requested by contractors during the tender process; this may be due to them underestimating the amount of work required to complete the tender, their current commitments, tender addenda being issued or leaving the tender too late. If an extension is granted then this extension must be given to all contractors so that an unfair advantage is not given. It is advisable for the project manager to build in a small amount of float into their programme for the possibility of a tender extension.

So once the contractor selection technique has been determined, then the relevant tender documents will need to be compiled:

Under a traditional contract the design information, bills of quantities/schedule of works/ schedule of rates and preliminaries will be issued, whereas under a design and build contract the documents are compiled together in a document called the ‘employer’s requirements’, which the contractor responds to with their contractor’s proposals. The use of a bill of quantities will also be dictated by the choice of contract type.

Accompanying the design information, the tender information to be issued to the contractors also includes:

Invitation to Tender Letter
Form of Tender
Contract Conditions
Instruction to the tenderers documents
Project Information
Design Information
Pricing Document
Typical Appendices

Now looking at each one in further details, starting with the Invitation to Tender letter, this is to be sent to each contractor which formalises that the contractor is being invited to tender on the project. The letter will also provide a description of the project alongside providing confirmation on the return dates and the contract details for any queries that are raised

Then is the Form of tender, which is a form that the contractor signs and return with their proposed tender, in terms of both price and programme.

Then followed by the Contract Conditions, which may include a commentary on the proposed contract conditions which may be dictated by bodies other than the client.

Next, we have the Instructions to Tenderers documents, which set out what is expected to be returned by the contractor and by what date. It also includes the proposed scoring mechanism, any applicable questionnaires, details for arranging site visits and details for submitting tender queries.The proposed scoring mechanism should be made explicit in the instructions for tenderers document. The

split between proposed price and quality of bid should be confirmed. This may be shown as a percentage or may be broken down further, with the quality section perhaps having additional subsections. The scoring criteria will be project-specific and should be agreed by the team before the tender is issued. This document doesn’t form the basis for the contract documents so isn’t necessarily required to be provided.

The next document is the Project Information, different contracts identify this document differently, but principally this is where the project is described in detail and where the contractual obligations that the contractor is being asked to undertake are outlined. It will include (but is certainly not limited to):

setting the base date
fluctuation procedures
completion strategies (i.e. partial possession, sectional completion)
the level of liquidated damages
method of payment strategy
performance guarantees strategy
insurance strategy
period of suspension
dispute resolution strategy and alternatives
collateral warranty requirements and strategy; and
Joint Fire Code application, etc

For Design and build it will also include the level of design responsibility required.

The next piece of information to be included in the tender is the Design Information, which is the key consultant’s design and specifications. This typically includes the architect, structural engineer and services engineer but may also include any specialist design information that is required for a particular project. A drawing/specification issue sheet should also be included so that the tenderer has all the necessary information.

The next items to be included is the Pricing Document, the type of pricing document depends on the form of contract and the chosen procurement route. For a traditional project, a full bill of quantities is a common pricing document, however, a traditional contract may also be tendered on a specification and drawings basis, where it will be the contractor’s responsibility to produce the quantities. For a design and build contract the contractor is expected to return a contract sum analysis; this can be included in this section of the tender documents. For term contracts, or tenders for frameworks, the pricing document may be a schedule of rates, which can be used to draw down work as required. Any provisional sums should be listed and defined as being either a defined or undefined provisional sum. It should also be made clear that, in the absence of any clarification, the definition of each of the provisional sums is deemed as accepted. If two-stage tender is used, the contractor will generally not be required to price the cost of the work but they will required to price the preliminaries. Therefore, the tender documents should include a format for preliminaries to be presented.

So once the key information has been included within the tender information, then some typical appendices may be included to provide additional information that will be of benefit to the tendering contractors. Some example include health and safety documentation, key surveys for the site building, planning permission information, building control documentation, proposed warranty, design responsibility matrix, party wall agreements, risk register and so on.

Then once all the information has been compiled, the method for issuing the tender information should be determined. This will typically be shared with the contractors electronically and a suitable online tendering portal should be used in order to issue, track and provide a portal for queries and return of tenders.

So during the Tender Process itself, tender queries will start to come through and it is very important that they are answered back to all tendering contractors, not just those who asked the question. This is to ensure that parity is maintained and that no one is given an unfair advantage. The name of the tenderer raising the query should not be mentioned. A collated response including the answers to a number of queries should be issued so that it is clear to tenderers that everyone is being fed the same important information, raised through tender queries. Remember that any important information issued as an addendum must be included in the contract documentation when forming the contract. It is therefore advisable to keep a secure list of tender queries and answers as they are raised and word them in a way that would be suitable as a contract document.

Sometimes, mid-tender interviews may be deemed to be required, to provide the opportunity to meet the people working on the tender, the tenderers can also raise queries in a face-to-face environment, it is often carried out on-site, therefore can be combined with site visits, it is also an opportunity for the client team to assess the progress of each of the tenderers to date, and it is an opportunity to reaffirm commitment to the tender from both parties. If mid-tender interviews are expected to be required this should be mentioned in the Invitation to Tender.

It is extremely important to remember that any important information which is disclosed during the course of the interviews should be formalised and issued as tender queries or a tender addendum to all tenderers. This will ensure all tenderers are given the same information

Sometimes you may have tender withdrawals, which may occur due to tenderers’ work commitments pick up and they do not have the necessary resources to complete the tender response and having reviewed the information they do not think they will be competitive or believe the project is too risky.

If this happens, then it is important to follow the client’s process for tender withdrawals. Public procurement rules may differ from private clients as to whether another tenderer can be added to the list or whether the tender must continue with the remaining tenderers. If more than one tenderer withdraws then there is also the option of cancelling the tender and starting the process again with a new selection of tenderers. If it is agreed that new tenderers can be introduced, then all tenderers should be notified and all tenders given any necessary extension.

In terms of the tender period, single-stage tendering in the private sector has a recommended period for the preparation and return of tenders of 28 days. In the case of Design and Build contracts, depending on the nature and complexity of the Employer’s Requirements, if the design is not prescribed and has not been developed a period of 3-4 months should be allowed but a longer period may be required.

Then once the tender period ends, the tenders should be received and the method of how the information should be provided by the tenderers should be clearly set out in the instruction to tenderers documentation. This should include a time, date and location for tenders to be sent. It should also name the person that the tender returns should be addressed to. It is common for clients to request hard copies of tender returns, even when using online tendering, for opening purposes. Once the due date and time elapses no other tender returns should be considered as part of the opening process. Late tenders should certainly not be considered for public procurement projects. Private clients should be advised which tenders were late and if they wish them to still be considered then they must provide explicit instruction to do so.

A tender opening form should be used and another qualified construction professional should be present to witness the opening of the tenders. Each tender should be opened and the general raw information noted on the tender opening form. This typically includes:

the tender price
the proposed programme
any key comments/exclusions
any alternative tender offers; and
a confirmation that all documents have been submitted or not.

Once all tenders have been opened then the tender opening schedule should be signed and dated by all parties present as this will eventually form part of the tender report.

Then the review process can begin, whereby either a project manager or the architect depending on the appointed person to carry out this process, the tenders would be reviewed and analysed to ensure consistency for all tenderers and to ensure tender returns are reviewed on a like-for-like basis.

Some of the items to review and check include:

Insurances are like-for-like
The insurance certificates are provided for all insurance requested and are to the levels included in the tender
All qualifications and assumptions have been carefully reviewed
Proposed subcontractors/suppliers have been checked for and comments retrieved from the design team
Priced risk registers included in the tender have been reviewed.

All tender returns should be checked for errors before any detailed analysis is undertaken such as errors on programme dates, conflicts of interest and so on. If any other significant error or conflict is discovered then contact must be made with the contractor as soon as possible to clarify the qualification/issue. If it cannot be resolved then they must be made aware that they will be discounted from the tender process. If it can be resolved then the tenderer must confirm this in writing. The tender returns should also be issued to all members of the design team and client for their feedback and input.

Upon analysis, if there are any particular rates or costs that seem out of place or unduly high or low then the tenderer’s attention should be drawn to the item and they should be given a chance to confirm or explain the apparent disparity. The tender analysis process aims to ensure that the right price is being paid for the proposed project. There is therefore a duty to make tenderers aware of anything that seems to be an error.

Design and build contractors for example, will typically include a risk allowance within their tender return and this should reflect the completeness of design and residual risks. This register can then be used to base their priced risk allowances on and this can be analysed and normalised in a similar fashion to the works cost.

For overheads and profits the contractors should split their percentage rate to show the amount for overheads and the amount for profit.

Although it is important to ensure compliant tenders are issued so that a like-for-like comparison can be made, there is potential in allowing tenderers to submit an alternative tender submission in addition to a compliant tender. This may be for a shorter/longer programme, a different construction methodology or a different procurement route. It is essential to make it clear in the tender documents whether alternative tenders will be allowed or not and how they are to be dealt with. The usual method is to state that the alternative tender method will not be used in the evaluation process and not taken into account and will only be reviewed in more detail if they become the preferred contractor. This, however, could leave clients in a position where a very favourable tender is on offer but they are unable to take advantage of it, as the compliant tender did not compete well. To avoid this possibility the conditions of tender should make it clear that alternative tender submissions may be reviewed independently of the tender competition and can be explored by the client team separately to the tender evaluation. If any alternative tender submission is to be considered the other tenderers must be given an opportunity to submit a like-for-like alternative tender to maintain consistency.

So once the tender review and analysis are concluded, post-tender interviews should then be arranged:

The structure of the tender interview should be agreed in advance and all tenderers invited to interview should be given the same structure and same outline queries. It is also important to agree in advance which team members should attend the interview as this will differ depending on the type of tender and type of procurement route.

The post-tender interviews are a chance to properly understand the tenderer’s proposals and raise any in-depth queries that could not be practically answered by correspondence and it also a chance to meet the proposed team for the project. Any agreement made during the tender interviews should be confirmed in writing back to the tenderer, remembering that the correspondence may become part of the contract documents. If any significant information that comes out of the tender interviews could change the whole basis of the tender, then the other tenderers should be given the same information and given a chance to respond accordingly.

Following the full analysis of the tenders and the interviews have been carried out, a full post-tender estimate should be produced. This will take the equalised tender figures from each of the contractors and add on other cost centres to show a full project post-tender estimate. This will then show the equalised tenders on a like-for-like basis. An appropriate scoring mechanism should then be applied

to come up with an overall score for the pricing element of the tender. The findings should then be included in a full tender report, which includes a recommendation for award of contract.

Once the tender report has been issued and accepted by the client then all tenderers should be notified of the decision. Some clients will include a cooling-off period and public procurement rules will also dictate times for unsuccessful tenderers to raise objections.

The unsuccessful tenderers should be thanked for their time and effort and their scoring on both the qualitative and quantitative elements of the tender analysis, in relation to the winning tender, should be communicated to them.

To sum up what I discussed today:

Tendering has three main strategy types which are most common in the construction industry, single-stage tendering, two-stage tendering and negotiated tendering
single-stage tendering is the most common type of tendering strategy whereby the employers requirements are sufficiently defined enabling a price for the whole of the construction works to be provided
two-stage tendering has become more common in recent years and is often used where time is constrained and it enables design and tendering to overlap.
negotiated tendering offers earlier contractor involvement enabling more effective mitigation of risk throughout the design process
Contractors can first be assessed for their suitability for a project by sending them an Enquiry Letter, alongside a Project Information Schedule and a Pre-Qualification Questionnaire assisting to filter the contractors actually suitable to tender for a project
There are three main types of contractor selection techniques, open tendering, selective tendering and single contractor selection
Then once the contractor selection technique has been determined, the tender documents can be issued, which includes Invitation to Tender Letter, Form of Tender, Contract Conditions, Instruction to the tenderers documents, Project Information , Design Information, Pricing Document, Typical Appendices
Then once the tenderers are received, the tender review process can begin whereby the tenders would be reviewed and analysed to ensure consistency for all tenderers and to ensure tender returns are reviewed on a like-for-like basis
And following the full analysis of the tenders and the interviews, a full post-tender estimate should be produced. This will then show the equalised tenders on a like-for-like basis. An appropriate scoring mechanism should then be applied to come up with an overall score for the pricing element of the tender. The findings should then be included in a full tender report, which includes a recommendation for award of contract to the client and the contractors are then informed of who has been successful and also letters of regret to the ones that haven’t.

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Episode 118 - Tendering

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