Methods of Tendering

Methods of Tendering

 

The Owner / Client / Employer has some choices in its approach to selecting a contractor. Will any and all interested contractors be permitted to submit proposals? Will the list be limited to a selected group of contractors, and, if so, how will the list be identified? Will the owner negotiate with only a single contractor? Will some sort of pre-qualification or post-qualification be used?

 

Tendering

 

Tendering is the name given to the process or procedure that is used to obtain offers leading to a contract between a client and contractor, a client and consultant, a contractor and subcontractor, and so on. Before starting the tendering process, a decision will need to have been made, on the contract arrangements that will have to be entered into on acceptance of a tender. Therefore 'tendering' and a 'contract' are clearly distinguishable in concept. But they are very closely linked in practice.

 

Pre-qualification / Post-qualification

 

 

Prequalification is normally applied for large civil works, industrial projects, major equipment and supply acquisition, specialized services and contracts to be let under turnkey, design and build, or management contracting. This assures that only firms capable financially, technically and with experience will submit bids. This increases procurement lead-time considerably. Therefore it is not advisable to use this procedure for simple procurement works.

 

Objectives that could be achieved through Pre-qualification;

 

a.      Assure the owner that bidder has the technical / financial / managerial background with experience to perform the contract successfully.

b.     Allow unqualified bidders to avoid bid preparation cost.

c.      Assures leading contractors that only qualified contractors will submit bids.

d.     Prevent unqualified bidders from wining the bid.

e.      To limit the number of bidders to a manageable size for conducting the bidding procedure and evaluation process.

f.       To enable prospective bidders, who may be insufficiently qualified on their own, to form a joint venture that may give them a better chance of success.

 

Principle factors that are being used to measure the qualification of an applicant for pre-qualification - Information requested under pre-qualification procedure;

 

1                   Financial capacity

2                   Technical capacity

3                   Relevant experience

 

 

Financial capacity

 

a.      Average annual income from contracting at least in last 3 years

b.     Bid capacity (Total assets and total liabilities / approximate value in hand / balance sheet / P & L statement)

c.      Available credit

d.       Site management - Project organization & management, Sub contracting

e.      Key technical personnel and Project Manager (organization chart & CVs)

f.       Plant & Equipment

 

 

Experience          Experience as main contractor / lead partner, Experience with similar works, Experience with similar site conditions, Past performance (List of completed projects with name of the

 

employer/ location/ type of project and all projects in hand).

 

Post-qualification - If a contractor is the apparent low tenderer for a project, then he will be asked to submit information demonstrating its qualifications submitted with the tender. If he can prove his qualifications, then the contract will be awarded to him. If not, the client has two options, either to go for the second lowest or re-tender, depending on the situation. The major disadvantage is, if the first contractor found unsuitable, then effort throughout the tender process for selecting him is wasted. The rejected tenderer may also claim that he unjustly rejected as not qualified for favouring some other tenderer. However, owners do have the right to choose ‘responsive’ and ‘responsible’ tenders, according to all well-written contract documents. There is always the chance for claims of unfairness when the owner decides whether a contractor’s tender is ‘responsible’.

 

In most cases, an open pre-qualification process would appear to be the fairer method for all concerned. Certainly pre-qualification requires contractors to meet only a minimum level of qualification. In evaluating tenders, owners can then rank contractor qualifications according to specified criteria in deciding which one of the qualified contractors to select.

 

There are three principal methods for choosing a contractor:

 

(a) Open tendering,

(b) Selective tendering,

(c)Nomination

Open tendering

 

Open tendering is a procedure of allowing any eligible organization, probably following advertisement(s) to submit a tender. Open tendering will secure maximum competition by giving any organization an opportunity to tender.

 

Major disadvantage in this practice is it can lead to organizations tendering that do not have adequate resources and/or expertise of the work. If there is no pre-qualification requirement, then any interested eligible contractors are allowed to submit tenders. An invitation to tender is issued, and tenders are received and evaluated. Usually a deposit is required to discourage irresponsible applicants. Normally, the deposit is returnable on the submission of the bid. If the criteria for selection are based on price alone, the owner must decide whether the

 

 

low bid is both ‘responsive’ to the tender announcement and ‘responsible’. It means that the contractor is qualified to do the work. If criteria in addition to price are used to judge the tender, then measurements of qualification will be a part of this process. In either path, the end result will be an agreement with a qualified contractor.

 

This process is initiated by client advertising in newspapers and / or inviting contractors to apply for bid documents and to bid in competition for carrying out the work.

 

Advantages		– There can be no favoritism / can get the maximum benefit from competition / an opportunity
		is provided for any capable firm.
Disadvantages		– There is a danger that a firm inexperienced in preparing bids may submit the lowest bid /
		there is no guarantee that the lowest bidder is sufficiently capable or financially stable / total
		cost of bidding is increased.

 

Selective Tendering

 

Selective tendering is a process or procedure for selecting a limited number of firms and then inviting them to tender. Selective tendering is a recommended method where competition is wanted.

Initially, a short list of contractors who are considered to be suitable to carry out the proposed work is prepared. Names may be selected from an approved list or ‘panel’ maintained by the client. It is recommended that the number of bidders should be limited to a manageable number, depending on the size of the contract. If the firms on the list are all reputable, well established and suitable for the proposed work, then the selection is resolved into a question of price only.

 

Advantages		– Ensures that only capable and approved firms submit bids / reduce the cost of bidding.
Disadvantages		– Cost level of the bids will be higher due to less competition and also due to the higher caliber
of the bidders.

 

Once the tenders are received, they are evaluated in a manner similar to those received though the open tender process.

Another version of the invited tender, sometimes used in the private sector, involves the owner, or its design professional, in inviting tenders from firms it believes to be qualified, based on their reputations, past experience and other criteria. This approach is probably not appropriate in the public sector, where accountability to public requires credibility and transparency.

 

Nomination – Sometimes referred as ‘single tendering’. It is a special case of selective tendering where the short list has only one name. Used when the client has a preference for a particular firm, often because it has done satisfactory works for him before. In this method, competition is eliminated and that will lead to a higher price. Contract sum will be arrived by a process of negotiations. When a large project is to be carried out in successive phases, a combination of selective tendering and nomination is employed – this is sometimes called “serial tendering”.

 

 

 

Serial Tendering

 - 'Serial tendering' is the term used where tenders are invited for a project or series of projects, each of which will become a contract or contracts in their own right. The contractor is chosen for the first phase by means of selective or open competitive tendering. The accepted tender outlines the basis of payment for the resulting contract. The tender is also used for the second and later phases. However, a provision has to be made for so doing in the initial contract by the inclusion of a formula for updating prices. The purpose of serial tendering is to gain the benefits of continuity. The contractor for the first phase of the project will have his site organization set up, his offices and storage huts, etc., already in use and plant of various kinds on the site. When the second phase commences, these facilities will be already available. It allows smooth transition with less additional expenses. In addition, the contractor’s workforce will be familiar with the details of the construction after building the first phase, and it helps to work more speedily and efficiently.

 

Negotiated Contracts

 

This may be done using bills of quantities / schedules of rates. The rates and prices are discussed and agreed until eventually a total price is arrived. Usually negotiation will be conducted between the contractor’s quantity surveyor and the project quantity surveyor. One party will usually price the tender document first of all, and then the other party goes through the rates and prices ticking off those which are acceptable. When agreement is reached, a contract will be entered between the client and the contractor. This process is sometimes called Single stage negotiation. In this procedure, absence of competition usually results in a higher price. Therefore, with a view to gaining the benefits of competition as well as the advantages of negotiation, a process of limited competition for the selection of contractor, followed by negotiation with him on the details of his tender, is used. This process is usually known as two-stage negotiation.

 

In the first stage tenderers are informed of the second stage intention and are asked to tender on the basis of Schedule of rates consisting of the main/ significant items only.

 

-         Prices for the main preliminary items.

-         Construction program showing estimated times.

-         Labor and plant resources/ construction methods.

-         Details of all labor rates / material prices / discounts, etc.

 

Discussion with each of the tenderers may be conducted in order to clarify their proposals. Having selected a contractor at the end of the competition stage, negotiation will follow on the basis of a detailed tender document as in single stage negotiation.

Two-stage negotiation is the method normally used to select a contractor to carry out management contract, in which the general contractor does little or none of the construction work himself but organizes sub-contractors to do the work.

 

Negotiation is a skilled process and requires skilled clients, consultant advisers and contractors and those participating in it should be adequately trained and experienced.