Traditional Methods of Procurement - Tendering

Traditional Methods of Procurement - Tendering Year 2 Contract Procedures and Procurement Dr. Margaret Nelson Room M1-06

LECTURE OUTLINE • Module Overview • Traditional Methods of Procurement • Tendering • Types • Open tendering • Selective tendering • Two-stage tendering • Process • Documents

TRADITIONAL • Traditional Methods of Procurement • Open Competition • Selective Competition • Two-stage Selective Tendering • Competition and Negotiation • Continuity Contractual Arrangements and Procurement • Cost Reimbursement Contracts • Measured Term Contracts

PROCUREMENT

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

CHARACTERISTICS OF TRADITIONAL PROCUREMENT • 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 builder separately. • Architect - keeps a watching brief and monitors construction, but does not have any responsibility for the construction process: responsibility is divided. • Client will normally commission consultants to prepare designs and specifications for works that are then constructed by a contractor engaged separately. • The contractor is likely to engage sub-contractors for actual construction on site. • Traditionally, lowest bid would be awarded the contract. • Once the building contract is finished, the consultants and contractor have limited long-term responsibility for the subsequent performance of the building • 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-contractors.

CONTRACTUAL RELATIONSHIPS

ADVANTAGES 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 basis • Scheme fully pre-designed and specified • Early commitment to maximum price • Reduced estimating risk and therefore reduced cost to employer • Provides contractually agreed prices for valuation of variations • Cost control and analysis • 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 APPROACH • Difficulty in utilising the full range of skills and experience of those involved in the time available • Focus on initial rather than lifetime costs • Potentially adversarial contractual relationship with greater risk of cost and time overruns • Blame culture built into the system • Difficult 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 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 result in lengthy design and construction periods • Poor communication between clients and the project team • 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. • 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.

TENDERING

COMPETITIVE 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 TENDERING • Allows any contractor to submit a tender to an advertised project • Process • Client advertises openly in the press or the trade publications inviting contractors to apply for the project • Contractor that is able to under take the project would request a tender document • 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 done to filter out the contractors who are not interested in submitting a tender. • Note: • Tenders are costly and time consuming overheads on successful tendering will be passed on to the client. • When assessing tenders the client will probably look for a cheap option or the best tender if quality is wanted • Client could also refuse all of the applicants if they don’t suit the job.

OPEN TENDERING 2 • Advantages • Maximum competition • Lowest price obtained • Disadvantages • Large waste of effort because too many contractors are tendering • Contractor submitting lowest tender may not be properly equipped to undertake the contract • Client may be inclined to accept lowest tender irrespective of reputation of contractor • Poor quality building or bankruptcy may occur

SELECTIVE TENDERING • Where contractors of known reputation are selected to submit a tender • The cheapest among them is selected to deliver the project • Commonest method of awarding a tender. • Process • A design team select a number of contractors (normally 6) that are already known to them and invite them to tender for the project • Contractors’ tenders are usually based on a completed design • Project is awarded to the contractor with the lowest tender. • Note: • The National Joint Consultative Committee (NJCC) for Building provides a useful Code of Procedures for single stage tendering, to help with the awarding of contracts to contractors

SELECTIVE TENDERING 2 • Advantages • As tenderers are known, selection of cheapest bid is not as high a risk as in an open tender • Disadvantages • Limiting the number of tenderers may exclude new bidders who may offer more innovative ideas or slutions

TWO-STAGE TENDERING • Aim - to speed up the procurement process by getting the architect and the contractor to start the project as soon as possible. • With this approach the contractor will be able to start work (e.g. excavation, foundations) on site as soon as possible. • Improve buildability - utilising skills of architect and contractor • Process • Usually a contractor will be chosen through a form of selective competition with a simple bill of approximate quantities, these will be: • The preliminary items • Major items of measured work • 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 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 stage • Specialist items used included as Prime Cost Sum, upon which contractors are given the opportunity to include sums for profit and attendance. • 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. • Notes: • first stage of the two-stage tendering proceedings, initial tenders containing their proposals without a tender price

TWO-STAGE TENDERING 2 • Advantages • Allows contractor to have input into design and buildability and helps team-building, thereby helping avoid future adversarial attitudes • Fast tendering • Speed of construction (build-ability) • Costs are known for quick negotiation • Disadvantages • The architect and contractor might not agree on designs • Due to problems with architect and contractor the project completing time could suffer

CODE OF PROCEDURES • A certain level of standards needs to be placed where all parties in the construction industry are familiar • No alteration to tender price without justification • Prior to the tendering all errors and alterations must be dealt with • For selective tendering, the number of firms invited to tender must be limited • Selection process should consider: • The firms final standing order • The experience and reputation of the firm for the type of project envisaged • The suitability of the management structure of the firm • Whether the firm will be able to undertake the contract at this time, taking in to account its other commitments • Adequate time given for tendering, minimum 4 weeks • All conditions of tendering must be absolutely clear • All clients must be given all the necessary details about the project

CODE OF PROCEDURES (2) • All tenders shall be submitted on the same basis • Tenderers should not be allowed to qualify their tender • All tenders must be submitted so that they have all been received by the specified time. • A tender can be withdrawn at any time before a tender is accepted (British Law permits) • Tenders must be placed into a hierarchy of the top 3 and the rest must be notified that they have been unsuccessful • When the tender has been awarded, every tender should be supplied with a list of the tender prices received • When the lowest tender exceeds the employers’ budget it is recommended that the project continues and negotiation takes place with the lowest tender. The client might not accept any tenders price, and will not be responsible for the cost of tender preparation • Procedures should include measures for safeguarding the confidentiality of all documents

TENDER EVALAUTION • Evaluation may be 2 stages • Pre-tender or Pre-Qualification (Pre-Qual) • Ensure that contractors are • Reputable • Capable • Experienced • Pre-Contract • Ensure that contractors • Fully understand the contract • Bid is realistic • Proposed resources are adequate

TENDERING • Invitation to Tender • must 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 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. • Receipt, Custody and Opening of Tenders • 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. • 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. • 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 and the value of each tender. • Acceptance of Single Quotation or Tender Received • 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 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. • 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 considered. • Nominated Sub-Contractors and Suppliers • Where nominated sub-contractors are to be used, they must go through a similar process to the main contractor

TENDERING (2) • Tenderers shall certify and give undertakings that: • 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 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 the return of the tender, any of the following: • 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 necessary to obtain insurance premium or other quotations necessary for tender preparation; • 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 conditions on which the tender is made; • 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 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; • cause or induce any person to do any of these things

TENDER DOCUMENTS • Covering letter • An invitation to tender • Instructions to bidders • Specifications and detailed descriptions of the goods and services to be purchased including criteria for evaluation • Details of other professionals and parties involved • Draft of basic terms and conditions of contracts • Standard forms for tenders, including the quality and price schedules, health & safety questionnaires • Details of information required from the tenderer as part of the submission

READING LIST • http://www.nilta.org.uk/NILTA/groups/CIS/documents/tenderin.doc • Bower, D. (ed) (2003), Management of Procurement, London: Thomas Telford. • Cartlidge, D. (2004), Procurement of Built Assets, Oxford: Elsevier Butterworth Heinemann. • CIC (1993), The Procurement of Professional Services: Guidelines for the application of competitive tendering, London: Thomas Telford • Naoum, S.G. Procurement and Project Performance: A comparison of management and traditional contracting, 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? Next Lecture Competition and Negotiation Continuity Contractual Arrangements and Procurement

Traditional Methods of Procurement - Tendering