Tendering is the process by which bids are invited from interested contractors to carry out specific packages of construction work.
Types of tendering
- Competitive tendering
- Negotiated tendering
- Open tender
Open tendering is the main tendering procedures employed by both the government and private sector. The client advertises the tender offer in the local newspaper. Giving detail and key information about the proposed works and inviting interested contractor to tender. In the legal sense such tender notices constitute invitation to treat, a mere request by the employer for suitable contractor to submit their bids or offers.
If the pre-requisite to tendering on the form of possession of the necessary registration has been identified in the tender notice, then the advertisement is directed to only that particular class of the public having the said qualifications. In order to reduce number of enquirers, earnest money is deposited (for private project). Until the receipt of a bone fide tender selected then it will be returned. Although price is very important in the decision on which tender or bid to accept, it is not the only factor taken into account. Client does not bind to accept the lowest or any offer. The advantages and disadvantages of open tender are stated below:
- It allows any interested contractor to tender. Therefore it gives opportunity for an unknown contractor to compete for the work.
- The tender list can be long as too many contractors tendering for one job.
- Allowing the tender list to be made without bias. Client will obtain the bargain possible. No favoritism in selecting contractors.
- Uneconomic use of source.
- Ensuring good competition not obliged to accept any offers.
- Public accountability may be questioned if the lowest offer is not accepted.
- Traditional method of tendering, familiar to all sector of the engineering and construction industry.
- Does not attract reputable and established contractor unless they are forced to, due to lack of work.
2. Selective tender
Selective tendering is the one alternatives developed to address the limitations of the open tendering procedure. In this method, a short list of contractor is drawn up and they are invited to submit tenders. The purpose of the elective tendering are to improve the quality of the bids received, to ensure that contractors with the necessary experience and competence are given the opportunity to submit the necessary bids, due to urgency work involved, for specific reasons of the employer, e.g. security reasons in government projects, Etc. and to make the tendering procedure more manageable and less a burden on the parties involved. Such list may be prepared through recommendation from the Client’s professional adviser whom have knowledge of the Contractors undertaking the work in the past or advertisement through the newspaper (pre-qualification).
The advantages and disadvantages of the selective tendering are stated below.
- Only the competent contractors were invited to tender, then the lowest can be accepted.
- Reduces the availability of work for other contractors especially new contractors.
- It reduced the cost of tendering (economic use of resources, reduced tender documentation, shorter tender periods, better management of the tender process, etc.)
- Tender Price may invariably higher than would have been in open tendering.
- Greater chance of collusion.
- Tendering period longer because it involved two distinct stages.
- Favoritism’s may occur in the short listing.
A problem with both open and selective tendering is that a contractor’s circumstances can change after he has submitted his tender. He can make losses on other contracts which affect his financial stability; or may be so successful at tendering that he does not have enough skilled staff or men to deal with all the work he wins. Neither method of tendering nor any other means of procuring works can therefore guarantee avoidance of troubles.
3. Negotiation Tender
Negotiation tendering is extensively used in the engineering and construction industry commencing from tendering till dispute resolutions, i.e. under the styles of pre-contract negotiations and post contract negotiations. Usually with single contractor but may be up to three contractors.
Negotiation process involves are as follows:
- Identification by the employer of a suitable contractor to negotiate with.
- The contractor can be selected either from the employer’s own list of preferences or on the advice of the professional team.
- The contractor being apprised of the work scope.
The selected contractor is issued with details such as the scope of work involved, relevant drawings, design and /or information to enable him to appreciate the extents of obligations and the employer’s actual needs. Some employers prepare and issue to the contractor proper tender documents inclusive of a nominated bills of quantities to assist contractor in pricing the works for the forthcoming negotiations.
Negotiations can be applied to the following type of contract:
- In Partnering type of contracts under the so called win-win formula.
- Where the employer has a long term business relationship with the contractor.
- In situations where the parties are in a relationships of holding and subsidiary companies.
Where the contractor is involved in the financing of the project.
- In situations where the employer finds it advantages to employ the same contractor to continue an initial or existing contract for the new works
- Where there is a pressing need to have a very early start of work on the site and to complete the works on a fast tract basis.
- In special circumstances e.g. Security reasons, emergencies etc where it is expedient to secure the services of a particular contractor only.
- Where there is only a single contractor who is the only one available or with ether the special skill or resources to carry out the particular works.
- The employer’s resources are either limited or constrained thereby making the use of the other tendering impractical.
- Only reputable contractor are invited for negotiation.
- The cost work is likely higher than competitive tender.
- The Contractor can contribute his expertise during design stage.
- Reduces the availability of work for other contractors.
- Early Commencement of work on site. It shortens the period involved in appointing the contractor.
Selection of suitable contractor
- This involves the selection of a suitable contractor and the establishment of a level of pricing for subsequent negotiations.
- The objective is to select suitable contractor as early as possible is to work together with the professional team and to establish a level of pricing for subsequent negotiation.
- The criteria for short listing is normally confined to items such as technical and financial capability, experience in similar works and extent of resources (manpower, plant and equipment).
- The pricing document should be flexible enough to cater for adjustment of price fluctuation for the period between two stages and the pricing of the second stage.
- In selecting a suitable candidate, a basis for pricing the subsequent second stage should be established accordingly.