Traditional Methods of Procurement - Tendering

Traditional Methods of Traditional Methods of Procurement - TenderingProcurement - Tendering

Year 2 Contract Procedures and ProcurementYear 2 Contract Procedures and Procurement

Dr. Margaret NelsonDr. Margaret NelsonRoom M1-06Room M1-06

LECTURE OUTLINELECTURE OUTLINE

Module OverviewModule OverviewTraditional Methods of ProcurementTraditional Methods of ProcurementTendering Tendering

– Types Types Open tenderingOpen tenderingSelective tenderingSelective tenderingTwo-stage tenderingTwo-stage tendering

– ProcessProcess– Documents Documents

TRADITIONALTRADITIONAL

Traditional Methods of ProcurementTraditional Methods of Procurement– Open CompetitionOpen Competition– Selective CompetitionSelective Competition– Two-stage Selective TenderingTwo-stage Selective Tendering– Competition and NegotiationCompetition and Negotiation– Continuity Contractual Arrangements and Continuity Contractual Arrangements and

ProcurementProcurement– Cost Reimbursement ContractsCost Reimbursement Contracts– Measured Term ContractsMeasured Term Contracts

PROCUREMENTPROCUREMENT

TRADITIONAL PROCUREMENTTRADITIONAL PROCUREMENT

Method of procuring a building in which Method of procuring a building in which independent professional (architects, independent professional (architects, engineers, QS) are employed by the Client engineers, QS) are employed by the Client to complete the design work. Separate to complete the design work. Separate contract is entered into with building contract is entered into with building contractor to construct the designed contractor to construct the designed building (Naoum)building (Naoum)

CHARACTERISTICS OF TRADITIONAL CHARACTERISTICS OF TRADITIONAL PROCUREMENTPROCUREMENT

Most common form of procurement for small and medium size projects Most common form of procurement for small and medium size projects – most suitable for buildings that use a traditional form of construction and provide

normal levels of performance – where the client places a high priority on aesthetic appearance and does not need the

new building to be produced very quickly. Authority for design and that for construction are vested in the architect and Authority for design and that for construction are vested in the architect and

builder separately. builder separately. – Architect - keeps a watching brief and monitors construction, but does not have any Architect - keeps a watching brief and monitors construction, but does not have any

responsibility for the construction process: responsibility is divided.responsibility for the construction process: responsibility is divided. Client will normally commission consultants to prepare designs and specifications Client will normally commission consultants to prepare designs and specifications

for works that are then constructed by a contractor engaged separately. for works that are then constructed by a contractor engaged separately. The contractor is likely to engage sub-contractors for actual construction on site. The contractor is likely to engage sub-contractors for actual construction on site. Traditionally, lowest bid would be awarded the contract. Traditionally, lowest bid would be awarded the contract. Once the building contract is finished, the consultants and contractor have limited Once the building contract is finished, the consultants and contractor have limited

long-term responsibility for the subsequent performance of the buildinglong-term responsibility for the subsequent performance of the building Generally, the stages are sequential with little overlap, although in reality, this is Generally, the stages are sequential with little overlap, although in reality, this is

not always practical when some design work is carried out by specialist sub-not always practical when some design work is carried out by specialist sub-contractors.contractors.

CONTRACTUAL RELATIONSHIPSCONTRACTUAL RELATIONSHIPS

ADVANTAGES OF TRADITIONAL APPROACHADVANTAGES OF TRADITIONAL APPROACH

Widely used so most building consultants and contractors understand it and are experienced in using it. – Do not have to learn new roles and relationships

Tenders are on a like-for-like basisTenders are on a like-for-like basis Scheme fully pre-designed and specifiedScheme fully pre-designed and specified Early commitment to maximum priceEarly commitment to maximum price Reduced estimating risk and therefore reduced cost to Reduced estimating risk and therefore reduced cost to

employeremployer Provides contractually agreed prices for valuation of variationsProvides contractually agreed prices for valuation of variations Cost control and analysis Cost control and analysis Standards are easier to control Standards are easier to control Can produce good, even great, architecture because it gives

the lead architect considerable freedom and authority allows for real creativity.

DISADVANTAGES OF TRADITIONAL DISADVANTAGES OF TRADITIONAL APPROACHAPPROACH

Difficulty in utilising the full range of skills and experience of those Difficulty in utilising the full range of skills and experience of those involved in the time availableinvolved in the time available

Focus on initial rather than lifetime costsFocus on initial rather than lifetime costs Potentially adversarial contractual relationship with greater risk of cost Potentially adversarial contractual relationship with greater risk of cost

and time overrunsand time overruns– Blame culture built into the system– Difficult for developing and integration of project participantsDifficult for developing and integration of project participants– Contractor may look for mistakes in the designs or documentation in order to

make claims for additional moneys through variations – result - clients being faced with demands for extra time and money.

Many public sector organisations tend to restrict their tender lists to four or five “old reliables” – Advantage in reliability!– Ignores the potential benefits a new supplier could bring in terms of

innovation and reduced costs. Few organisations have formal systems for pre-qualifying companies and

even fewer monitor supplier / contractor performance and feed the information back into the tender process for subsequent contracts.

DISADVANTAGES OF TRADITIONAL DISADVANTAGES OF TRADITIONAL APPROACH (2)APPROACH (2)

The separation of the contractor from the design can mean missed opportunities for contractor input (Mohsini and Davidson, 1992).

The sequential and fragmented nature of the procurement system can The sequential and fragmented nature of the procurement system can result in lengthy design and construction periodsresult in lengthy design and construction periods

Poor communication between clients and the project teamPoor communication between clients and the project team Problems of buildability- Problems of buildability- It separates design from first hand experience

of construction and so tends to produce designs that are difficult and therefore expensive to construct.

Uncontrolled design changes can lead to increased cost and delay. Uncontrolled design changes can lead to increased cost and delay. Selection of contractors based on lowest price tendering is not in the

best interests of the client The contractor or the clients professional team who spend time and

expense in negotiating to try to keep the job down to the agreed lowest price.

The quality of traditionally produced buildings can be patchy with too many defects when the building is handed over to the client, not all of which can be put right.

TENDERINGTENDERING

COMPETITIVE TENDERINGCOMPETITIVE TENDERING

Invites contractors to submit the lowest price for which they are willing to carry out a project

Relies on the information contained in drawings, specifications and bills of quantities prepared on behalf of the construction client.

Types– Open– Selective

One or two stages

OPEN TENDERINGOPEN TENDERING

Allows any contractor to submit a tender to an advertised project Allows any contractor to submit a tender to an advertised project ProcessProcess

– Client advertises openly in the press or the trade publications inviting Client advertises openly in the press or the trade publications inviting contractors to apply for the projectcontractors to apply for the project

– Contractor that is able to under take the project would request a tender Contractor that is able to under take the project would request a tender documentdocument

– After receiving the tender from the architect, the contractor may be After receiving the tender from the architect, the contractor may be required to give a deposit and to ensure a bona fide tender. This is required to give a deposit and to ensure a bona fide tender. This is done to filter out the contractors who are not interested in submitting a done to filter out the contractors who are not interested in submitting a tender.tender.

Note:Note: Tenders are costly and time consuming overheads on successful Tenders are costly and time consuming overheads on successful

tendering will be passed on to the client. tendering will be passed on to the client. When assessing tenders the client will probably look for a cheap When assessing tenders the client will probably look for a cheap

option or the best tender if quality is wantedoption or the best tender if quality is wanted Client could also refuse all of the applicants if they don’t suit the job.Client could also refuse all of the applicants if they don’t suit the job.

OPEN TENDERING 2OPEN TENDERING 2

AdvantagesAdvantagesMaximum competitionMaximum competitionLowest price obtainedLowest price obtainedDisadvantagesDisadvantagesLarge waste of effort because too many Large waste of effort because too many

contractors are tenderingcontractors are tenderingContractor submitting lowest tender may not be Contractor submitting lowest tender may not be

properly equipped to undertake the contractproperly equipped to undertake the contractClient may be inclined to accept lowest tender Client may be inclined to accept lowest tender

irrespective of reputation of contractorirrespective of reputation of contractorPoor quality building or bankruptcy may occurPoor quality building or bankruptcy may occur

SELECTIVE TENDERINGSELECTIVE TENDERING

Where contractors of known reputation are selected to submit a Where contractors of known reputation are selected to submit a tender tender – The cheapest among them is selected to deliver the project The cheapest among them is selected to deliver the project

Commonest method of awarding a tender. Commonest method of awarding a tender. ProcessProcess

– A design team select a number of contractors (normally 6) that are A design team select a number of contractors (normally 6) that are already known to them and invite them to tender for the project already known to them and invite them to tender for the project

– Contractors’ tenders are usually based on a completed design Contractors’ tenders are usually based on a completed design – Project is awarded to the contractor with the lowest tender. Project is awarded to the contractor with the lowest tender.

Note:Note: The National Joint Consultative Committee (NJCC) for Building The National Joint Consultative Committee (NJCC) for Building

provides a useful Code of Procedures for single stage tendering, to provides a useful Code of Procedures for single stage tendering, to help with the awarding of contracts to contractors help with the awarding of contracts to contractors

SELECTIVE TENDERING 2SELECTIVE TENDERING 2

AdvantagesAdvantagesAs tenderers are known, selection of As tenderers are known, selection of

cheapest bid is not as high a risk as in an cheapest bid is not as high a risk as in an open tenderopen tender

DisadvantagesDisadvantagesLimiting the number of tenderers may Limiting the number of tenderers may

exclude new bidders who may offer more exclude new bidders who may offer more innovative ideas or slutionsinnovative ideas or slutions

TWO-STAGE TENDERINGTWO-STAGE TENDERING

Aim - to speed up the procurement process by getting the architect and the Aim - to speed up the procurement process by getting the architect and the contractor to start the project as soon as possible. contractor to start the project as soon as possible. – With this approach the contractor will be able to start work (e.g. excavation, foundations) With this approach the contractor will be able to start work (e.g. excavation, foundations)

on site as soon as possible. on site as soon as possible. Improve buildability - utilising skills of architect and contractor Improve buildability - utilising skills of architect and contractor ProcessProcess

– Usually a contractor will be chosen through a form of selective competition with a simple Usually a contractor will be chosen through a form of selective competition with a simple bill of approximate quantities, these will be:bill of approximate quantities, these will be:

The preliminary itemsThe preliminary itemsMajor items of measured workMajor items of measured work

– Where contractors’ tenders are based on a partially developed consultants design (Stage 1 Where contractors’ tenders are based on a partially developed consultants design (Stage 1 tender). The contractor then assists with the final development of the design and tender tender). The contractor then assists with the final development of the design and tender documents, against which tenders for the construction works are prepared (Stage 2 documents, against which tenders for the construction works are prepared (Stage 2 tender). The first stage tenderer has the opportunity to tender or negotiate the second tender). The first stage tenderer has the opportunity to tender or negotiate the second stage stage

– Specialist items used included as Prime Cost Sum, upon which contractors are given the Specialist items used included as Prime Cost Sum, upon which contractors are given the opportunity to include sums for profit and attendance.opportunity to include sums for profit and attendance.

– The client will also ask the contractor to state their overheads and profits. These prices will The client will also ask the contractor to state their overheads and profits. These prices will determine the price agreement that will be negotiated with the successful contractor. determine the price agreement that will be negotiated with the successful contractor.

Notes:Notes: first stage of the two-stage tendering proceedings, initial tenders containing their proposals first stage of the two-stage tendering proceedings, initial tenders containing their proposals

without a tender price without a tender price

TWO-STAGE TENDERING 2TWO-STAGE TENDERING 2

AdvantagesAdvantages Allows contractor to have input into design and Allows contractor to have input into design and

buildability and helps team-building, thereby helping buildability and helps team-building, thereby helping avoid future adversarial attitudesavoid future adversarial attitudes

Fast tenderingFast tendering Speed of construction (Speed of construction (build-abilitybuild-ability)) Costs are known for quick negotiationCosts are known for quick negotiationDisadvantagesDisadvantages The architect and contractor might not agree on designsThe architect and contractor might not agree on designs Due to problems with architect and contractor the project Due to problems with architect and contractor the project

completing time could suffercompleting time could suffer

CODE OF PROCEDURESCODE OF PROCEDURES

A certain level of standards needs to be placed where all parties in A certain level of standards needs to be placed where all parties in the construction industry are familiarthe construction industry are familiar

No alteration to tender price without justificationNo alteration to tender price without justification Prior to the tendering all errors and alterations must be dealt withPrior to the tendering all errors and alterations must be dealt with For selective tendering, the number of firms invited to tender must For selective tendering, the number of firms invited to tender must

be limitedbe limited Selection process should consider:Selection process should consider:

– The firms final standing orderThe firms final standing order– The experience and reputation of the firm for the type of project The experience and reputation of the firm for the type of project

envisagedenvisaged– The suitability of the management structure of the firmThe suitability of the management structure of the firm– Whether the firm will be able to undertake the contract at this time, Whether the firm will be able to undertake the contract at this time,

taking in to account its other commitmentstaking in to account its other commitments Adequate time given for tendering, minimum 4 weeksAdequate time given for tendering, minimum 4 weeks All conditions of tendering must be absolutely clear All conditions of tendering must be absolutely clear All clients must be given all the necessary details about the projectAll clients must be given all the necessary details about the project

CODE OF PROCEDURES (2)CODE OF PROCEDURES (2)

All tenders shall be submitted on the same basis All tenders shall be submitted on the same basis Tenderers should not be allowed to qualify their tenderTenderers should not be allowed to qualify their tender All tenders must be submitted so that they have all been received by All tenders must be submitted so that they have all been received by

the specified time.the specified time. A tender can be withdrawn at any time before a tender is accepted A tender can be withdrawn at any time before a tender is accepted

(British Law permits)(British Law permits) Tenders must be placed into a hierarchy of the top 3 and the rest Tenders must be placed into a hierarchy of the top 3 and the rest

must be notified that they have been unsuccessfulmust be notified that they have been unsuccessful When the tender has been awarded, every tender should be supplied When the tender has been awarded, every tender should be supplied

with a list of the tender prices receivedwith a list of the tender prices received When the lowest tender exceeds the employers’ budget it is When the lowest tender exceeds the employers’ budget it is

recommended that the project continues and negotiation takes place recommended that the project continues and negotiation takes place with the lowest tender. The client might not accept any tenders price, with the lowest tender. The client might not accept any tenders price, and will not be responsible for the cost of tender preparationand will not be responsible for the cost of tender preparation

Procedures should include measures for safeguarding the Procedures should include measures for safeguarding the confidentiality of all documentsconfidentiality of all documents

TENDER EVALAUTIONTENDER EVALAUTION

Evaluation may be 2 stagesEvaluation may be 2 stagesPre-tender or Pre-Qualification (Pre-Qual)Pre-tender or Pre-Qualification (Pre-Qual)

– Ensure that contractors are Ensure that contractors are ReputableReputableCapable Capable ExperiencedExperienced

Pre-ContractPre-Contract– Ensure that contractorsEnsure that contractors

Fully understand the contractFully understand the contractBid is realisticBid is realisticProposed resources are adequateProposed resources are adequate

TENDERINGTENDERING

Invitation to TenderInvitation to Tender– must state the place where and the date and time by which the tender must be receivedmust state the place where and the date and time by which the tender must be received– that the tender must be enclosed in a sealed envelope or package marked with the word 'Tender' followed that the tender must be enclosed in a sealed envelope or package marked with the word 'Tender' followed

by the subject to which it relates and the deadline for tender receipt. by the subject to which it relates and the deadline for tender receipt. – Adequate time must be allowed for the preparation and return of tenders depending on size of project.Adequate time must be allowed for the preparation and return of tenders depending on size of project.

Receipt, Custody and Opening of TendersReceipt, Custody and Opening of Tenders– All tender envelopes or packages received must be marked with the date and time of receipt and the initials All tender envelopes or packages received must be marked with the date and time of receipt and the initials

of the receiving officer, and recorded. of the receiving officer, and recorded. – All tenders shall remain sealed in secure custody until the time appointed for their opening. All tenders shall remain sealed in secure custody until the time appointed for their opening.

Any tender received after the specified time shall be recorded as such but must not be considered.Any tender received after the specified time shall be recorded as such but must not be considered.– Tenders shall be opened at one time and in the presence of at least two officers who shall be independent Tenders shall be opened at one time and in the presence of at least two officers who shall be independent

of each other and shall sign a complete record of all tenders opened, showing the date and time of opening of each other and shall sign a complete record of all tenders opened, showing the date and time of opening and the value of each tender.and the value of each tender.

Acceptance of Single Quotation or Tender ReceivedAcceptance of Single Quotation or Tender Received– Where only one tender or quotation is received, the Project Director could determine for contracts up to a Where only one tender or quotation is received, the Project Director could determine for contracts up to a

certain price whether or not to accept the quotation or tender. For high value projects decisions need to certain price whether or not to accept the quotation or tender. For high value projects decisions need to made jointly with project sponsors. The tendering exercise may be repeated.made jointly with project sponsors. The tendering exercise may be repeated.

– Tenders should be opened as soon as possible after the latest time for receipt of tenders. Tenders should be opened as soon as possible after the latest time for receipt of tenders. – In the event of the lowest tenderer withdrawing his offer, the second and third lowest tenderers should be In the event of the lowest tenderer withdrawing his offer, the second and third lowest tenderers should be

informed that their tenders were not the most favourable received but their offers are being actively informed that their tenders were not the most favourable received but their offers are being actively considered.considered.

Nominated Sub-Contractors and SuppliersNominated Sub-Contractors and Suppliers– Where nominated sub-contractors are to be used, they must go through a similar process to the main Where nominated sub-contractors are to be used, they must go through a similar process to the main

contractorcontractor

TENDERING (2)TENDERING (2)

Tenderers shall certify and give undertakings that:Tenderers shall certify and give undertakings that: the tender is genuine and intended to be competitive; the tender is genuine and intended to be competitive; they have not fixed or adjusted the amount of the tender by or under or in accordance they have not fixed or adjusted the amount of the tender by or under or in accordance

with any agreement or arrangement with any other person*; with any agreement or arrangement with any other person*; they have not done and will not do, at any time before the time and date specified for they have not done and will not do, at any time before the time and date specified for

the return of the tender, any of the following: the return of the tender, any of the following: inform any person the amount or approximate amount of the proposed tender, except inform any person the amount or approximate amount of the proposed tender, except

where the confidential disclosure of the approximate amount of the tender was where the confidential disclosure of the approximate amount of the tender was necessary to obtain insurance premium or other quotations necessary for tender necessary to obtain insurance premium or other quotations necessary for tender preparation; preparation;

enter into any agreement or arrangement with any other person with the aim of enter into any agreement or arrangement with any other person with the aim of preventing tenders being made or as to the amount of another tender or the preventing tenders being made or as to the amount of another tender or the conditions on which the tender is made; conditions on which the tender is made;

offer to pay or give or agree to pay or give any sum of money or valuable offer to pay or give or agree to pay or give any sum of money or valuable consideration directly or indirectly to any person for doing or having done or causing consideration directly or indirectly to any person for doing or having done or causing or having caused to be done in relation to any other tender or proposed tender for the or having caused to be done in relation to any other tender or proposed tender for the Council any of the actions specified and described in this section; Council any of the actions specified and described in this section;

cause or induce any person to do any of these thingscause or induce any person to do any of these things

TENDER DOCUMENTSTENDER DOCUMENTS

Covering letter Covering letter An invitation to tender An invitation to tender Instructions to biddersInstructions to bidders Specifications and detailed descriptions of the goods and Specifications and detailed descriptions of the goods and

services to be purchased including criteria for evaluationservices to be purchased including criteria for evaluation Details of other professionals and parties involvedDetails of other professionals and parties involved Draft of basic terms and conditions of contractsDraft of basic terms and conditions of contracts Standard forms for tenders, including the quality and Standard forms for tenders, including the quality and

price schedules, health & safety questionnaires price schedules, health & safety questionnaires Details of information required from the tenderer as part Details of information required from the tenderer as part

of the submissionof the submission

READING LISTREADING LIST

http://www.nilta.org.uk/NILTA/groups/CIS/documents/tenhttp://www.nilta.org.uk/NILTA/groups/CIS/documents/tenderin.docderin.doc

Bower, D. (ed) (2003), Management of Procurement, Bower, D. (ed) (2003), Management of Procurement, London: Thomas Telford.London: Thomas Telford.

Cartlidge, D. (2004), Procurement of Built Assets, Oxford: Cartlidge, D. (2004), Procurement of Built Assets, Oxford: Elsevier Butterworth Heinemann.Elsevier Butterworth Heinemann.

CIC (1993), The Procurement of Professional Services: CIC (1993), The Procurement of Professional Services: Guidelines for the application of competitive tendering, Guidelines for the application of competitive tendering, London: Thomas TelfordLondon: Thomas Telford

Naoum, S.G. Procurement and Project Performance: A Naoum, S.G. Procurement and Project Performance: A comparison of management and traditional contracting, comparison of management and traditional contracting, Occasional paper No:45, Berkshire: CIOB.Occasional paper No:45, Berkshire: CIOB.

Sarah Peace and John Bennett, How To Use A Traditional Approach For A Construction Project: A Client Guide

Any Questions?Any Questions?

Next LectureNext LectureCompetition and NegotiationCompetition and Negotiation

Continuity Contractual Arrangements and Continuity Contractual Arrangements and ProcurementProcurement