QTS 203 LECTURE NOTE (FIRST SEMESTER)

PRINCIPLES OF TENDERING AND ESTIMATING I

The different procurement methods in construction

The five different procurement methods in construction are general contracting, design
and build, construction management, joint venture, and private financing. Each method
has its advantages and disadvantages and is best suited for a particular type of project.

General Contracting

This is the conventional procurement method used by most construction firms today.
Essentially, a company or individual provides a design and the contractor builds that
design. If a design is completed before construction begins, this procurement method
can provide a clear division of duties and budget.

The primary disadvantage of general contracting is a split division of responsibility and

accountability, which can lead to disagreements about which party is responsible for
any problems that arise later.

General contractors who invest in preventive maintenance may provide higher quality

work at lower costs.

Design and Build

In this procurement method, the contractor takes all the responsibilities, risks, and
management of both the design and build phases. This usually requires that the
contractor has a large internal staff with an excellent facility management staff to
manage all the aspects of the design and build. An alternative would be a company with
a solid and coordinated partnership with other contractors to complete the job.

Construction Management

For developers that specialize in larger, complex projects and that have internal
management resources, construction management may be the best procurement
method. In this system, developers sub-contract every aspect of the project to the
lowest and most qualified bidder.
Although this is a very time-consuming and complex process, companies can save
money by making each component as competitive as possible, as well as maintaining
complete control over the process. This can require a sophisticated supply chain
management process as well. In this situation the construction management consultant
or construction manager joins the design team early in the project. The construction
manager’s services are based on a negotiated fee with the client simply to supervise
and plan the work to be undertaken by the work package contractors.

Management Contracting
As an alternative to the traditional approach, the client may decide to appoint a
management contractor to engage and manage a number of work package
subcontractors. Management contracting enables the client to create a competitive
situation between management contractors at the appointment stage of the project.

Advantages and Disadvantages of these methods

These are suitable for: fast track projects, complex buildings and developing brief
Disadvantages: 1. total cost of the project is not usually known until the project
completion
2. damages for delay are difficult to pin on one subcontractor
3. the client takes all the risk, particularly in the construction management
Joint Venture

Establishing a joint venture is similar to construction management, as it plays off the

strengths of different parties. The big difference is that the main control and
accountability are not in the hands of the client, but are in the control of the joint venture
management team.

An effective joint venture works to break down the barriers and eliminate blame
between the participating members and refocus all energy on accomplishing the client’s
objectives.

Private Financing

The final procurement method is rarely used, but attractive to clients with shaky financial
backgrounds. Private financing essentially takes the privately sourced funds and lays all
construction responsibilities on the contractor until the project is completed. After the
project is done, it is then transferred to the client.

Conclusion

Selecting your construction procurement method should be based on the resources,

budget, and timeline you have in hand. By balancing all those components, you can
choose the procurement method that makes the most sense for your organization.

Project tendering choices

There are a variety of approaches in which a lot feeder may approach the market and
conduct the tender process. These include

Call for Registration (CFR) - A Call for Registration is an approach to market used by
a client to seek details about potential suppliers of a good or service.
Expression of Interest (EOI) - An Expression of Interest is used primarily to determine
the market’s ability or desire to meet the client’s procurement need, after which the
client may need to collect additional information to make procurement decisions. An EOI
is not an invitation to bid, is not binding on either party and is usually followed by a
selective Request for Tender based on a more detailed specification.

Request for Information (RFI) – A Request for Information is commonly used on major
procurements particularly if the client’s requirements could potentially be met through
several alternate means. A RFI is not an invitation to bid, is not binding on either party
and in some circumstances may be followed by a selective RFT, RFP or RFQ.

Request for Quotation (RFQ) – A Request for Quotation is used when detailed
specifications of a good or service are known and competitive bids are to be evaluated,
mainly on price.

Request for Proposal (RFP) - A Request for Proposal is used to directly purchase
goods or services when the client clearly understands its business needs but does not
have defined details of the solution. This approach is often used for the procurement of
professional services.

Request for Tender (RFT) - A Request for Tender is used when a client is seeking
potential suppliers for a scope of work that has been designed and specified in detail. A
RFT is often used for building and construction works, plant and equipment and
evaluation is based on price and a range of technical factors. This approach is outlined
in detail below.

Project definition and scoping

The commencement of the Request for Tender (RFT) is the development of the project
definition and scope which will set the scene for the success of the entire process. In
the best interests of the project, it is recommended that the lot feeder ensures the
following

• A Project Brief is prepared that clearly defines the scope of the project for which
Tender Documents are to be prepared.
This document must define all project requirements (including envisaged functional
goals, performance, technical criteria, completion dates or term date requirements) for
the project. Any known constraints associated with the delivery of the contract should be
identified up front (e.g. public access requirements, availability of land, limits to work,
and approval conditions). Failure to include all scoping requirements may result in
expectations not being met, and disputes or increases in cost at a later date.

• A cost estimate is established based on the scope defined in the Project Brief,
which should include the proposed risk allocation between the client and the tenderer.
Costs need to be estimated for all resources associated with the project (including
labour, materials and supplies). In this way, the proposed scope may be adjusted in line
with the budget.

• A time estimate is established based on the scope defined in the Project Brief. This
involves the definition, sequencing and duration estimation of individual project
activities.

• A cost/benefit exercise is carried out, taking into account the initial cost estimate, time
estimate and expected costs/revenues over the life of the project.

• An appropriate budget is allocated and finance arranged to develop the project.

• Appropriate time is allowed to undertake these activities.

Selection process

The four main processes for the selection of tenderers are outlined in
Table 1.

Tender documentation

The content of the tender documentation will vary for particular projects according to
factors such as project size, complexity and delivery method. The documents will
contain the evaluation criteria, the evaluation procedures and the proposed timing of the
evaluation process as outlined in Table 2.

Cost of tender documents

The cost of printing tender documents can sometimes be quite high.

A document fee to cover printing costs is sometimes charged, or a refundable deposit is
charged to encourage the return of complete and undamaged sets of tender
documents.

The amount of any document charge or refundable deposit and the conditions for return
of deposits must be clearly stated in the tender advertisement.

Selection process Description Examples

Open or public tenders

The client invites tenders by way of public advertisement without restriction on the
number of tenders received.

Simple projects that are low risk and low cost.

Selected/ approved/invited tenderers

The client invites a select number of tenderers for a particular project. In some cases,
the client will have an established register of approved contractors for particular types of
work. In these cases, tenderers have a recognised capability to undertake the type of
project planned. Tenderers are generally invited on a rotational basis.

The register of contractors needs to be reviewed and updated on a regular basis.

Repetitive works regularly carried out by a client.

Specialised projects.

Pre-qualified tenders

The client invites expressions of interest by way of public advertisement for pre-
qualification for a specific project or specific types of projects.

Evaluation is carried out against the defined selection criteria.

A selected number of pre-qualified tenderers is then invited to tender.

Complex projects that are high risk and high cost.

Direct negotiation: The client negotiates with a single tenderer. Highly specialised
projects in which only one entity has the required skill and current capacity to undertake
the work.

Table 1. The selection tenderers

This document contains a project summary, a listing of tender documents relating to the
project, key dates, validity period of the tenders submitted, contact details, number of
copies of the tender required and details of tender submission location and timing.

Conditions of tendering

This document details the overall tender process including the delivery method, probity
issues, communication issues, the criteria for selection and the evaluation process.

Tender form and schedules

These documents request specific information from the tenderers concerning the works.
For example, tenderers are generally required to provide an overall cost, a breakdown
of this cost, a program, details of key personnel, plant and equipment, subcontractors to
be used and methodologies. The tender form is a formal statement of the tenderer’s
offer to supply services in accordance with the tender documents. A useful example of a
tender form can be found in Australian Standard AS 2125 - 1992.

Conditions of contract

This document contains the general conditions of contract which sets out the
contractual basis for carrying out the works.

In addition, special conditions are sometimes included which are unique to the lot feeder
and/or project.

Specification Depending on the type of delivery method chosen, this document may be
a project brief or a detailed technical specification of the works. These documents set
out the performance and technical criteria for the project. See Section 46 - Design
drawings and technical specifications.

Drawings The number and standard of drawings provided is dependent on the chosen
method. See Section 46 - Design drawings and technical specifications.

Additional information
Additional information concerning the project may include Development Approval
Conditions,

Environmental Impact Study (EIS) reports and other documents relevant to the
development of the project.

Table 2. Tender documentation

A non-refundable charge may in some instances discourage the collection of

documents by parties who have no interest in submitting a tender.

Clients should consider the following issues relating to refundable tender deposits

• administrative costs of issuing receipts and securing the money

• financial accountability

• damaged documents or alterations to tender documents that make them unsuitable for
use in construction or contract management at a later date.

Tender timeframes

The timeframe for tender preparation by the contractor and evaluation by the client will
vary depending on factors such as project size, complexity or external pressures. The
client should ensure that the time allowed for tenderers to prepare tenders and for the
client to evaluate and select tenders is reasonable. Due regard should be given to the
costs of tendering.

When preparing tenders, tenderers need time to request prices from their
subcontractors and suppliers and to review all the detailed tender documents and
specifications. Contractors who are keen to win the project will usually take longer than
contractors who are not. As a guide allow four weeks minimum. A longer period would
be appropriate for complex or large contracts and for tenders requiring a pre-tender
meeting.

Criteria for selection

Before calling tenders, the client (or consultant) must establish project-specific
qualification criteria and decide the relative importance of each. Such criteria need to
cover the critical factors on which the success of the project is based. The qualification
criteria must be clearly stated in the tender documentation and their order of importance
may be indicated e.g. with a simple list. The actual weighting of the criteria need not be
disclosed.

Typical criteria for selection include

• Conformity – does the tender conform to the requirements outlined in the tender
documents?

• Capability – this would include previous experience, financial resources, technical

resources, quality assurance system, workplace health and safety record,
environmental compliance

• Innovation

• Price – the tendered cost may include whole-of-life as well as capital costs

• Construction period

Call for tenders

In the case of open or public tenders called by public advertisement, advertisements

must be placed in appropriate newspapers, publications or electronic media at
appropriate times so as to attract suitable applicants.

In cases where tenders are advertised, it is recommended that the

advertisement includes the following

• an appropriate summary description of the work required

• details of when and where the documents may be obtained

• details of when and where tenders will close

• details of any tender documentation purchase price or deposit and if applicable, the
method of obtaining a refund of that cost
• The name, address, telephone number, facsimile number and email address of the lot
feeder’s contact person.

With respect to procedural issues, it is recommended that the lot feeder ensures that

• A written record is kept of all persons to whom the tender documents are issued. It is
also recommended that each tender set be numbered for identification and tracking
purposes.

• Tender document deposit monies collected and receipts issued (if required).

• In the case of selected, pre-qualified and invited tenders, the tenderers are informed of
the number of tenders being invited.

• No tender price offered orally is received.

Responding to invitations to tender and developing the commercial

offer

In the case of selected or invited tenders, where a tenderer decides not to proceed with
the tender, the tenderer should promptly advise the lot feeder. In the case of pre-
qualified tenders, tenderers should be required to provide an undertaking to tender if
selected.

Tenderers should formally acknowledge the receipt of tender documents in writing and
promptly advise the client if they become aware of errors, omissions, ambiguities or
discrepancies in the documents.

The tenders submitted should conform to all aspects of the requirements defined in the
tender documents.

Tender meetings and enquiries

It is recommended that all information provided between the parties is treated as

confidential and commercial-in-confidence. The client should ensure that

• All briefing meetings held for tenderers are minuted. Minutes are then forwarded to all
tenderers and are included as part of the tender documentation.

• The lot feeder contact person responsible for dealing with enquiries from tenderers is
to document all such inquiries, noting the time, the date and the issue discussed.
• Information provided to one tenderer is also promptly given to all other tenderers.

• In the case where an enquiry reveals a significant error, omission, ambiguity or

discrepancy in the tender documents, the information provided to resolve the issue is
promptly forwarded in writing to all tenderers.

Amendments to tender documents

A structured review of the tender documents prior to issue will minimise the requirement
to amend tender documents due to errors or omissions.

Where significant issues arise that make it necessary to amend the tender documents
during the tender period, the amendments are advised as an addendum, forwarded to
all tenderers. Each addendum is issued in sufficient time for all tenderers to consider
the amendments properly and fully before tenders close. The tender period may need to
be extended, particularly if the addendum is issued late in the tender period.

Each addendum contains a returnable covering sheet so that tenderers can

acknowledge its receipt in writing. A statement of confirmation that allowance has been
made for each addendum is required in the submission of the tenders.

The lot feeder should ensure that each tenderer acknowledges receipt of each
addendum in writing and confirms in their tenders that allowance has been made for
each addendum.

Submission and closing of tenders

It is recommended that the client ensures that

• The security and confidentiality of all tenders received is achieved following the closing
of tenders. Procedures for the security of documents, access to documents and the
availability of price-sensitive information are to be developed in advance of the closing
of tenders.

• Tenders are generally received in a secure tender box and opened in the presence of
a specially qualified team (not less than two people).

• One copy of each of the tenders (the original) is separately stored in a secure location
from working copies, for reference purposes.

• Typically, the timing of the closing of tenders is

– not earlier than 2.00 pm.

– not on a Monday or day following a public holiday.

• Each tenderer is informed in writing that its tender has been received.

• In the event that the client is prepared to consider late tenders and non-conforming
offers, the conditions in the tender documentation should describe how the client will
treat late tenders and non-conforming or alternative offers.

Opening and recording tenders

Tenders should be opened and recorded in a way that maintains the security of the
tenderer’s intellectual property and that offers no advantage to one tenderer over
another. It is good practice to open and summarise tenders as soon as possible after
the closing time.

The tenders should be opened, checked and recorded by at least two people.

Non-conforming tenders

Tenders which fully comply with tender requirements should be given preference. The
client may consider non-conforming tenders where the tenderer can demonstrate that

• their bid will be more cost effective without jeopardising the desired outcomes and
levels of service; and

• the rights and interests of both parties are protected; or

• superior levels of service can be achieved whilst conforming with (a) and (b) above; or

• new cost effective technologies, procedures or techniques are offered which can meet
the requirements of (a) and (b) above.

Tenderers who seek to reduce costs by compromising workplace health and safety,
service or other factors which would reduce the rights or interest of the client should be
deemed non-conforming and be excluded.

Tender analysis

The importance of assembling an experienced and competent tender evaluation team is

critical to the success of the tender process.
Above all, a consistent approach to the evaluation of all tenders is required.

After receipt of tenders, submissions are comparatively assessed against the Criteria for
Selection defined in the tender documents.

Tenders are likely to contain significant differences, particularly in areas of design, time,
cost, risk allocation, durability and operation.

Tenders may also differ in terms of certainty of delivery and clarity of content.

A tender that does not comply with the tender documents should be rejected. If a tender
is rejected, the reasons for such action are to be clearly documented and
communicated to the tenderer.

Tender clarifications

The evaluation team may seek clarification of any issues from applicants, verbally or in
writing, but may not solicit new information. The tender clarifications need to be carefully
managed to ensure that confidentiality is maintained and tenderers are treated equitably
and ethically.

Tender selection and award

The client should ensure that unsuccessful tenderers are advised in writing that their
tenders have been unsuccessful.

In the finalisation of the contract documentation, the client and successful tenderer shall
ensure that the contract incorporates the tender submission of the successful tenderer
and any qualifications during the tender process. It is noted that this phase of the
process is to settle all outstanding technical, commercial and/or legal issues necessary
for finalisation of the contract. It is not an opportunity for either party to vary the final
contract price or to materially alter the proposal.

References:

David, R. & Stafford R. (2016). Project Tendering. Feedlot Design and Construction
https://www.upkeep.com/answers/facility-management/what-are-the-different-
procurement-methods-in-construction (2019) accessed on 26th January, 2022.
@2:16pm
https://slideplayer.com/slide/4715939/ accessed on 26th January, 2022 @ 2:40pm