Contractor Document Tendering Process
Cost & Financial Management
Introduction
This paper discusses the contractor’s tendering process and how the estimator deals with the preparation of a tender on behalf of his firm. This includes the period between the initial receipt of the tender documents, up to the time that the estimate is passed to the directors of the firm for adjudication prior to its formal submission on the Form of Tender to the Client. I will also outline the problems that can occur during the tender period, and how they can be dealt with. During the tendering phase, the general vision for a project is translated into specific requirements and a contractor is engaged to deliver the project requirements. It is common for difficulties of setting the proper evaluation criteria, clear communication of requirements to the market, and setting the right parameters for the delivery of the project to arise
General tendering procedure in the UK Construction Industry
The tendering procedure in the UK involves the initial invitation of contractors to tender their bids for a project. It is also possible for a contractor to be approached to negotiate a contract price without needing to invite competitive tenders. A contractor may be chosen by this way based on previous recommendation, performance or familiarity with the job to be done. A contractor may also be selected due to a business relationship, or working closely with the employer or consultants.
Negotiation is another part of the tendering process that allows early contractor selection, and also makes it possible for the general design of the project to benefit from the input of the constructor. This increases buildability, while reducing the overall cost of the project, and tailoring the costs to fit with the employer’s budget. On the other hand, initial prices might be higher or more difficult to compare with competitive market rates. Usually, a lot of public organisations employ some procedures to ensure that goods and services are procured through competitive means, especially when finances are publicly accountable.
During tendering, code should be commenced and the consultant should be informed of the pending submission of the tender. If it is eventually decided to decline the tender invitation, then a verbal response should be given and the already received tender documents should all be returned to the consultant immediately, stating the reason why the tender will be declined. In such a situation, this action has to be carried out as soon as possible after receiving the tender documents. The tender information form should also be filed inside a register with a noting of the decision, which would be circulated to the various departmental managers.
Code could not be applied to every tender and where poor documentation and shorter tender periods are present contractors must decide whether to attempt to produce a competitive bid. For smaller building organisations and trade specialists it would be appropriate to adopt selected parts of the Code and produce more concise forms with the information needed for the business. (Code of estimating practice)
The estimator’s role in the tendering process
The estimator/Quantity surveyor performs some very important duties during the tender process, and thus plays a vital role during the tendering procedure. Once the decision is made to tender for a project, the estimator has to make sure that the complete tender documents are received. “The estimator checks the documents to ensure that all the received drawings are of the revision noted, and that all other documents listed in the invitation letter are provided.” (Code of estimating practice) After receiving the tender documents, the estimator sends a letter to the client on behalf of his firm, to acknowledge that the documents were received, and to confirm that a tender for the project will be sent by the due date. There would also be a record of any discrepancies in the tender documents received, and the estimator prepares a bar chart on a weekly basis to plan the estimator’s workload, and showing the present and the possible future tenders. Copies will then be sent to other departmental managers in order for them to establish their input in the project.
The estimator also has the task of completing the pre-selection questionnaire and providing supplementary data to support any request for pre-qualification. Therefore, the estimator must always be well informed about his firm’s current and completed projects, workload objectives, and have access to the necessary personnel and financial data about the company that is sought from pre-selection questionnaires.
Another role of the estimator during the tendering process is ensuring the quality of the information provided at the enquiry stage.
Inadequate or contradictory information leads to a cautious approach by the estimator. While the estimator should seek further information from the consultants in such cases, the estimator’s approach is often coloured when uncertainties exist and the project is not fully defined. Past experience may well indicate that the uncertainties continue into the construction phase, with dire consequences for both the project and the contractor. Bills of quantity were once fully descriptive of the works in themselves, without the need for reference to other project information. (Code of estimating practice)
During the tendering phase, the estimator co-ordinates the views and ideas of the various members of the contractor’s team who examine the project information. The estimator also provides the management of the firm with a realistic appraisal of this information so that a decision can be made on whether to tender for the project or not. The estimator maintains a tender register for reference. A lot of companies use this register to keep track of their tender performance as compared to their competitors. The estimator has to have considerable personal leadership and management skills in order to co-ordinate and motivate the various staff involved in the preparation of the tender.
As the manager responsible for the production of the estimate, the estimator ensures that there is an established timetable that highlights important dates during the production of the tender. This timetable is an essential document for all the professionals involved in the tendering process.
The following dates must also be established by the estimator without any ambiguity:
• Latest date for despatch of enquiries for materials, plant and subcontracted items.
• Latest date for the receipt of quotations.
• Bills of quantity production for design and build, drawings and specification contracts.
• Visit to the site and the locality.
• Finalization of the method statement.
• Completion of pricing and measured rates.
• Finalization of the tender program
• Intermediate co-ordination meetings within the contractor’s organisation.
• Review meetings.
• Submission of the tender.
(Code of estimating practice)
The estimator examines the tender documents thoroughly to highlight any queries about the project and the construction method. It is essential for the estimator to make a list of these queries and others that are brought up by other members of the construction team who have examined the documents. All queries concerning the tender information have to go through the estimator for to be resolved.
During the tender process, the estimator is also responsible for ensuring that the other members of the construction team, especially those with specialist interests or knowledge, are sent a copy of all relevant project information.
The terms of the purchase contract – JCT ’80 provides for the nominated supplier to allow the contractor a discount (for payment in full within 30 days of the end of the month during which delivery is made) of 5 per cent. This discount is normally deducted from the estimate in order to include net costs in the summaries for the final review meeting. Since this discount is not available through the terms of all main contracts, the estimator must check the relevant contract conditions and not assume a discount is available. The estimator must also assess the risk which would arise if the final value of PC sums for nominated suppliers is not achieved and too much discount may be deducted from the value of the contract at tender stage. (Code of estimating practice)
Problems that may occur during the tendering process
A project is considered to be successful if the project is delivered within the budget and on time. Also, the specifications for the project should be met, and the project objectives achieved, including all environmental, social and economic benefits. With a detailed understanding of the market, requirements can then be described in such a way as to give prospective tenderers maximum certainty to manage the risks they perceive in doing business, and meet the project objectives.
It is important to reduce avoidable uncertainties and manage unavoidable ones so they do not result in unnecessary cost. Industry and market knowledge is also essential to form a view about the reasonableness of what is on offer from tenderers. Ensure that the proposed way of engaging with the market is going to be the most productive in finding the right supplier, facilitating competition and enabling an outcome that will meet all the project requirements (Project Tendering Guideline 2007)
The tendering process is subject to some legal and policy requirements and breaching of these requirements can cause delays, complaints, criticism and even litigation. There might be criticism from the Auditor General or other tenderers. Any failures during the request for tender (RFT) phase can cause problems during the operating or delivery phase. Steps should therefore be taken to avoid problems as much as possible during the tendering period. Risks involved in the tender process need to be managed carefully. The estimator should strive to identify and deal with any prospective conflicts of interest and also ensure that breaches of confidentiality are avoided. “A tender process, especially for a complex or novel project, is likely to involve discovery of new information and new perspectives. Tender process risks may best be managed through a risk plan or the probity plan, depending on the circumstances.” (Project Tendering Guideline 2007)
There are a lot of hazards which the estimator must locate and rectify before sending the documents to the computer assistants. The BOQ might need some simple changes or modifications so as to comply with any estimating software that will be used. This is because page numbers on the tender documents may be difficult for a computer system to accept. In such a case, the estimator has to re-number the bill pages with simpler references. The estimator also checks for, insert any missing item references.
During evaluation, it might become necessary to clarify various aspects of the tender. This clarification is usually carried out before the commencement of negotiations. If the pre-tender budget is unrealistically low, it may lead to certain complications and problems at a later stage. For example, a project could get cancelled after tenders are received. If the available funds are in sufficient, there might be a perception of ‘cost blow-out’
If the client is asked for additional capital or recurrent funding or if tenderers are required to cut scope to fit within an unrealistically low budget, there will be delays and the outcome may be below expectations. Also, a soundly based pre-tender cost estimate can assist in the evaluation of tenders. It may be appropriate to include a schedule of separable portions that can be excluded by the client from the project scope to manage cost and schedule growth (Project Tendering Guideline 2007)
Below is a list of possible problems and mistakes that can occur during the process of tendering for a project:
1. A situation might arise in which request for tender (RFT) documents would contain ambiguities or errors, thus necessitating amendments to be made and causing difficulties for evaluation
2. The project requirements can change in the period between the RFT release and when the tender is evaluated
3. It is possible that the number of conforming tenders received would be too low
4. Sometimes, the required endorsements are not obtained from probity auditors
5. The criteria for evaluation might not be sufficient to distinguish between tenderers, or even inappropriate.
6. Misleading representations are made to tenderers in RFT documents or otherwise
7. Favouritism towards one or more tenderers is displayed or perceived
8. Responses received fail to meet need or to fit within approved budget
9. Referee checks, site visits and other checks are not conducted or not conducted well
12. Evaluation is not completed within timeframes
10. Security of tender documents is not maintained
11. Tender evaluation team does not have required expertise/competence or does not function well; technical specialists not used for evaluation where required
13. Tenderers’ queries are not answered sufficiently
14. Communications with tenderers are not restricted to the nominated individual; procedures for responding to enquiries are not adopted or followed
15. The validity periods for tenders expires before a decision is made
16. Late tenders are not handled correctly
17. Formal evaluation procedures are not established or not understood by evaluation teams; the evaluation is not conducted in accordance with the evaluation plan; tenders are not evaluated consistently
18. The tender process is not designed with sufficient flexibility to allow the best value most suitable offer to be selected
Solutions
Some possible solutions to the above mentioned problems include:
- Imputing of appropriate prime cost and provisional sums
- Examining the preliminaries bill for prime cost and provisional sums
- Input of new details involving the project
- Trading of code bill items
- Proper checking of the numbering system used in the bills of quantity
- Ensuring the integrity of summaries and collections
When calculating unit rates to be included in the bills of quantity, factors that might affect the total cost of the work must be carefully considered. Other specifics that do not fall into the general attendance category must also be measured in the bill of quantity specifically, as ‘special attendance’.
This may include:
• Unloading, distributing, hoisting and placing in position, giving in the case of significant items the weight, location and size.
• The provision of covered storage and accommodation, including lighting and power thereto.
• The provision of temporary access roads and hardstandings in connection with structural steelwork, pre-cast concrete components, piling, heavy items of plant and the like.
• Power supplies giving the maximum load.
• Special scaffolding or scaffolding additional to the contractor’s standing scaffolding.
(Code of estimating practice)
During the tendering process, the estimator should also allow for any alterations or variations to standing scaffolding or for any extension to the time period, providing such items are described and measured in the bills of quantity. The tender evaluation criteria should also be pre-determined and applied fairly. It is also essential to use engagement and selection procedures that are transparent, auditable and accountable during the process of tendering. Tenders should be assessed by professionals who have the relevant knowledge and skills for the assessment. The intellectual property rights of all parties involved must be respected and all intellectual property that are submitted with the tender must not be used to negotiate with, or obtain prices from other tenderers for any similar scope.
References
Code of estimating practice, Sixth edition. Endorsed by the Procurement Committee of
The Chartered Institute of Building LONGMAN Addison Wesley Longman
Limited Edinburgh Gate, Harlow Essex CM20 2JE, England
Project Tendering Guideline (2007) prepared by the Capital Planning & Review Division
of the Victorian Department of Infrastructure, on behalf of the Gateway Unit of
the Victorian Department of Treasury and Finance. (Retrieved from )