Procurement & Tendering Level 1
Procurement
Definition - The Overall act of obtaining goods and services for a construction project.
There are several routes by which the design and construction of a building can be procured. The selected procurement route should follow a strategy which fits the project criteria and objectives
Main factors which govern procurement route selection
Client objectives and key drivers in relation to
1) Time
2) Cost
3) Quality
4) Risk
5) Client experience
Types of procurement routes
1) Traditional route
2) Design & build
3) Management contracting
4) Construction management
Procurement Strategy vs Contract Strategy vs Procurement route
Procurement strategy
Contract Strategy
1) Links the project back to the business
2) Outlines strategic goals
3) Considers constraints, risk, funding into account
4) Is delivered by the selected procurement route
1) Determines relationship/ integration of client/ contractor and design, construction and maintenance
2) Supports the project objectives in terms of time, cost and quality
3) Defines form of contract to be entered
4) Defines roles and responsibilities of parties on the project
Procurement route
Definition - The procurement route sites within the overall procurement strategy which also addresses the Client's business needs. It delivers the project, selects and provides structure to the project team, allocate risk and responsibility and determines the form of contracts
Types of contract
Guaranteed Max price contract
Lump Sum Contract
Measurement contract
Prime cost contract
Prime contract
Contract will not exceed X amount
This is a fixed price but is agreed before construction commences and is based on the information that has been provided to date. This is the most common in construction
Where the contract sum cannot be determined when the contract is entered into, the fee is measured as the works progress
The nature of scope of works cannot be defined at the outset and the risks are high.
This is a cost plus options where there is no contract sum when works start and can be often used where immediate repair works are required
Where a client enters into a relationships with a contractor who provides a single contract for a supply chain to deliver one or more projects.
Types of Procurement route
Design & Build (D&B)
Definition - The contractor is responsible for completing the design and executing the construction phase of the project. This is a completely different approach to delivering a project via traditional procurement, where the client appoints consultants to undertake the design and then a contractor is appointed to construct the works.
Key points
1) Under JCT contracts, the employer's team produce a set of employer's requirements (ERs), the contractor then responds to the ERs with their contractor's proposals (CPs)
2) The original employer's design team may be novated to the contractor for continuity, or the contractor may appoint their own design team
3) The contractor is responsible for the design, planning, organisation, control and construction of the works
4) Design risk is transferred to the contractor
Advantages
1) Single point of responsibility for design and construction (Contractor)
2) Earlier commencement on site is possible if design and construction can be overlapped
3) Benefit of contractor's experience harnessed during design with buildability input
4) Design and construction risk rest with the contractor
5) Provides more cost certainty than traditional procurement
Disadvantages
1) The design is only as good as the employer's requirements
2) More complex to compare tender returns
3) Employer changes can be difficult to value and expensive
4)The employer may have less control over aesthetics and quality
5) The contractor will build in risk premiums into their tender return
When might D&B be appropriate?
1) Where there is a need to make an early start on site as D&B has the potential to overlap design and construction
2) Where the employer wishes to minimise risk profile (design risk is passed onto the contractor)
3) For technically complex projects , the design will benefit from the contractors buildability input
4) Where retaining control of the design is not a priority
Employer Requirements Definition - The expression employer's requirements is used to describe the documents produced by the employer to set out its requirements in relation to the project which will include performance specifications, drawings, initial drawings etc. This is what the design and construction works are based on.
Contractors Proposal Definition - CPs are prepared by the contractor which responds to the employer's requirements.
In these documents, the contractor will set out a more detailed designed which are based on the employers requirements. These will require further development throughout the course of the project
Construction Management
Definition - The employer directly appoints multiple subcontractors instead of employing a single main contractor.
Key Points
1) The employer places a direct contract with each trade contractor and utilises the expertise of a construction manager to coordinate the works
2) The construction manager programmes and coordinates the works
3) The construction manager has no contractual link with the trade contractors
4) The construction manager has no vested interest in the financial outcome of the project and barring professional negligence, carries no risk
Advantages
1) Speed to get to site
2) Overall project duration reduced by overlapping design and construction
3) The construction manager can contribute to the design and project planning processes
4) Changes in the design can be accommodated without paying a premium
5) Prices may be lower due to direct contracts with trade contractors
6) the employer has means of redress with trade contractors through direct contractual links
Disadvantages
1) Price certainty not achieved until the last package has been let
2) The procurement route requires an informed, experienced and proactive employer to work
3) The employer has a lot of consultants and contractors to manage
When might construction management be appropriate?
1) The employer is experienced in construction and has suitable resources to manage the project
2) The employer wants to achieve an early start on site
3) The employer wants the flexibility to make minor changes to the design/specification throughout the process with minimal impact on time or finances
4) The project is technically complex and requires detailed engagement of specialist consultants and trade contractors
Which is the riskiest procurement route for the employer?
Construction management. This is because the employer places individual contracts direct with each trade contractor and the construction manager carries no risk barring professional negligence.
Management Contracting
Definition - The employer appoints a management contractor to manage the entire building process who in turn appoints trade contractors to carry out the construction works.
Key points
1) The management contractor is usually paid a fee percentage based on construction costs
2) The management contractor has a direct contractual link with the trade contractors and is responsible for the overall construction works
Advantages
1) Overall project duration can be reduced by overlapping design and construction
2) The management contractor will provide buildability input
3) Single point of responsibility (management contractor)
4) Trade packages are let competitively and transparently
5) There can be considerable flexibility in the design, with changes being made throughout the construction process
Disadvantages
1) Price certainty not achieved until the last trade package is let
2) Requires an informed and proactive employer to be successful
3) Depending on how the construction manager is paid for their services, there may be a built-in disincentive for the construction manager to minimise cost
When might management contracting be appropriate?
1) When an early start on site is a priority
2) Flexibility in design is required
3) Buildability input from the management contractor is required
4) Where cost certainty is not a priority for the employer
Traditional
Definition - The traditional procurement route involves separating design from construction. The employer first appoints consultants to design the projects in detail, contractors are then invited to submit tenders based on a fully developed scheme.
Key points
1) Design is completed by the employer's design team before competitive tenders are invited. The contractor is then appointed to build what designers have specified
2) The contractors tender based on a complete design produced by the employer's consultants with the exception to Contractor's Design Portion (CDP)
3) Assuming no significant design changes arise, construction costs can be determined with reasonable certainty before works begin
4) The employer retains the design consultants during construction. The consultants prepare any additional design information and review CDP designs prepared by the contractor
Advantages
1) Employer retains control of the design
2) The design is largely finalised before the contractors tender for the build, this means the employer knows exactly what they are getting
3) All tenderers produce a submission based on the same information therefore tender returns are much easier to compare
4) Assuming the design is robust, reasonable price certainty is achieved at contract award
5) Minimal built-in contractor risk premium unlike design and build
Disadvantages
1) The overall project duration may be longer than design and build procurement as there is limited opportunity to overlap the design and construction phases
2) Zero or limited contractor buildability input
3) Design risk is retained by the employer, any changes post contract will be a variation/compensation event
4) Dual point of responsibility, employer for design and contractor for construction
When might traditional procurement be appropriate?
1) The employer may have specific or detailed design requirements
2) Cost certainty
3) The shortest overall programme is not the employer's main priority
Frameworks
Definition - This is an umbrella agreement that a party enters with one or more suppliers (Contractors, Sub-contractors, suppliers or consultants) to establishing governing terms. A framework usually sets a strategic partnering relationship for the procurement of goods, works or service
Length of framework
Typically, a framework agreement lasts 4 years. However, this is determined by the buyer. They can range from 2-10 years.
Advantages
1) It can help develop stronger relationships between the parties involved and encourage long term collaboration and co-operation
2) Time saving as can speed up procurement of goods and services
3) Repeat work and continuity of delivery
4) Rates and prices are usually agree upfront
Disadvantages
1) The contractors, suppliers or consultants can become complacent
2) Bidders will invest time and money to be awarded the framework and then potentially not receive any work through the buyer
3) May be restrictive to new suppliers who offer innovative, new, solutions with the changing and evolving nature of technologies for example
When might an employer choose a framework agreement?
1) Employers that are continuously commissioning construction work might want to reduce procurement timescales, learning curves and other risks by using framework agreements
2) A framework allows the employer to invite tenders from suppliers of goods and services on a call-off basis as and when required
Difference between a framework agreement & a contract
Framework Agreement - rarely provides specific commitment in terms of project and value of works. It is more focused around being an approved supplier
Contract - is usually for a specific fee, with project scope and timelines allowing you to quote and tailor your product/service for the specific job in hand
Partnering
Definition - Partnering is a broad term used to describe a collaborative management approach that encourages openness and trust between the contracting parties
Key points
1) There is more opportunity for building working relationships, finding improvements and planning investments
2) Ownership of risk is spread between the parties and a collaborative approach is encouraged to delivering the solution and overcoming problems
Advantages
1) The overall construction and design programme can be shortened
2) The likelihood of conflict is reduced
3) Improved communication and mutual objectives
4) Improved customer satisfaction
5) Improved value for the employer
6) Improved buildability
7) Better predictability of time and cost
Disadvantages
1) Less opportunity to understand what other contractors/potential partners have to offer
2) Difficult to find a strong partner which have the same objects, ethics, attitude etc
Tendering
Definition - In its simplest form, tendering is the process by which an organisation who is in need of goods/services invites other parties to submit a proposal or bid to provide these goods/services. This invitation is formally referred to as a Request for Tender (RFT)
Pre-Qualification Questionnaire (PQQ)
Definition - A pre-qualification questionnaire sets out a series of questions for potential tenderers to answer regarding their level of experience, capacity and financial standing etc. prior to being invited to tender
Purpose of a PQQ
The pre-qualification questionnaire has the effect of reducing the number of potential tenderers to those that are genuinely appropriate for the project. This saves a great deal of time for potential tenderers who would not have any realistic chance of winning the contract
What might the PQQ ask for?
1) Company details including legal status
2) Details of insurance cover
3) Financial information such as company accounts
4) Relevant experience
5) Information about technical and professional ability
6) Information about capability and capacity
7) Health and safety policy records
8) Quality assurance policy
9) Environmental management policy
10) Equal opportunities policy
11) References
Credit Check
1) Dun & Bradstreet report
2) Credit agency such as Experian
Single Stage tendering
Definition - 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
Advantages
1) Employer benefits from a competitive tendering process which can lead to more competitive pricing
2) The employer can benefit from a fixed price through this tendering process
Disadvantages
1) No buildability input from the contractor at the point of tender
2) The price is only as good as the design information
3) Contractors may ne unwilling to tender in a good economic climate as too much competition
Two Stage tendering
Definition -
Stage 1
The employer provides an outline project design and contractors then compete for preferred contractor status. The preferred contractor is usually chosen based on quality of their bid, the quality of their team, preliminaries and OH&P allowances. The preferred contractor then joins the design team on a consultancy basis using a pre-construction services agreement (PCSA)
Stage 2
Once the design has sufficiently progressed, the contractor enters into a detailed contract negotiation with the employer to agree the final price, contract conditions and programme
Advantages
1) Early appointment of the contractor to work in parallel with the design team
2) Early involvement of the contractor to benefit from buildability input
3) Earlier start on site if possible
4) Employer involvement in subcontractor selection
5) Increase opportunity to value engineer with the contractor's input
6) Improved opportunity to identify project risk
Disadvantages
1) The contractor has less incentive to price second stage competitively, negotiations may therefore be difficult
2) Additional cost of the contractor's pre-construction fee
3) Potential for the negotiation stage to fail (contract sum not agreed)
Negotiated tender
Definition - This is effectively a single stage tender carried out between the client employer and just one contractor. Negotiated tenders are obtained by the client, inviting one contractor of their choice to submit a tender response for the project.
Advantages
1) Simplicity
2) Speed, a negotiated process can have programme advantages if undertaken in good faith
3) The employer has flexibility in terms of choosing their preferred contractor
4) Time and cost savings involved in comparing and analysing multiple tender submissions
5) The process can allow early contract involvement
Disadvantages
1) Possible delay if contract negotiations are protracted
2) Potential cost premium due to the lack of competition
3) There is heavy reliance on trust between the parties
4) It can be seen as anti-competitive and exclusive
How could you justify value for money in a negotiated tender?
Insist on an open book approach when agreeing subcontract packages and a minimum of 3 quotes to be provided for each element of the works. This would need to be agreed upfront with the contractor.
Tender Returns and Analysis
Form of Tender
Definition - The contractor usually signs and returns with the proposed tender submission. It is formal acknowledgement that the tenderer understands and accepts the terms of conditions of the tender documents and any other requirements that are stipulated. The document also includes the contractor's price and programme.
Information included in form of tender
1) Tender sum
2) The date until the price remains the same
3) Construction period
4) Confirmation of the tender being genuine and bona fide
5)Tenderer details and signature
6) Acceptance of terms and conditions
Information requested from the contractor as part of a tender
1) Track record of previous experience i.e. case studies
2) Proposed team and hierarchy
3) Methodology or approach
4) References
5) Programme
6) H&S information
7) Value engineering proposals
8) Logistics plans
9) Social value strategy
10) Diversity and inclusion policy
11) Price
What should be examined for when reviewing tenders?
1) Arithmetical errors
2) Pricing errors - Items not priced
3) Pricing method - Front loading
4) Compare the contractor's proposals against the employer's requirements for compliance - applicable if D&B procurement
5) Check the form of tender is complete and signed
6) Resolve any qualifications
Late tender submissions
1) Public sector project - the documents should be rejected
2) Private sector project - the matter should be discussed with the employer to understand if they would like to accept. The safest option is not to consider. there could be potential fraud, collusion, bid-rigging risk etc
Low tender submissions
1) The contractor may be trying to 'buy' the project with a view to recover their costs with variation and/or claims
2) It could indicate the contractor is in poor financial or cash flow position and they are eager to win the work at any cost
3) Areas of the project may not be priced accurately, potential for an adversarial relationship to develop post contract
Dealing with Qualifications
1) Procedures associated with qualifications should be outlined in the tender instructions
2) If the qualifications are unathourised it might invalidate the tender leading to disqualification
3) The employer team and contractor should look to resolve the qualifications prior to signing the contract. Any outstanding matters should be clearly documented in the contract to avoid future disputes
Dealing with errors in the tender submissions
JCT have produced a tendering practice note where two options are suggested to deal with errors, one of these options is usually drafted into the tender pack
Alternative 1
Alternative 2
1) The tenderer should be given the details of the errors and afforded opportunity of confirming or withdrawing tender
2) If they withdraw, the next lowest bid is considered
1) The tenderer should be given the opportunity of confirming their offer or amending it to correct genuine errors
What could you do if this was the case?
1) As part of the evaluation process, the company accounts would be reviewed to assess the financial stability of the contractor if already not complete at the PQQ stage. This could lead to disqualification if the contractor is having financial difficulty
2) Consider a performance bond. In the event the contractor fell insolvent, the employer would be able to call on the bond and appoint another contractor to complete the project
3) Consider a parent company guarantee
When would you advise the client to re-tender?
1) Not enough tenderers returned tenders
2) The tendering procedure is compromised for some reason
3) If tenders were not at cost level required and it was believed that re-tendering to different tenderers would provide a different result
4) Design changes or VE has been carried out that has significantly changed the design that was originally tendered on
How to deal with front-loaded tenders?
2) Request the contractor removed front loading, if the contractor refuses, this may be grounds for disqualification
1) Front loading is generally not a pricing error
How could you reduce the risk of this happening?
1) Ensuring the tender information is as accurate as possible
2) Ensure tender period is long enough and extend if required
3) Go through the PQQ to ensure the correct tenders are selected
4) Check the contractor has the time capacity to complete the tender
Information typically within a tender analysis report
1) List of tenders received
2) Initial tender sum totals
3) Any qualification identified
4) Post-tender adjustments
5) Revised tender sum
6) Issues to be resolved
7) Comparisons of tender returns
8) Comparison with pre-tender estimate
9) Recommendation
Dealing with provisional sums
I would seek further information from the contractor and request this to be removed subject to the tender instructions, this may invalidate the submission
What is the purpose of a pre-tender estimate?
1) A pre-tender estimate (PTE) is the last cost check of the project before it is issued to tender. The design should be sufficiently developed at this stage; therefore the PTE should be an accurate reflection of the works
2) The estimate can then be sued to compare against the tender submissions
What if the tender prices are higher than the pre-tender estimate?
1) This could be down to market conditions or some external factor such as COVID-19 or Brexit
2) The employers team should reconcile the tenders against the pre-tender estimate to identify where the major differences are
3) The team could look at value engineering the project if prices are over budget