What is tendering?

Tendering is used in construction to find a suitable contractor prepared to provide a service under contractable terms in an acceptable amount of time.

Quantity surveyors play a significant role from identifying the suitable tendering process to executing it. Because the type of tendering method depends on the project, duration, and client preference. These are major driving forces that create this diversity.

Contractors may take on extra duties such as design and management, depending on the various procurement approaches.

Tendering methods

1. Competitive
   1. Open
      1. National
      2. International
   2. Selective
      1. One stage
      2. Two stage
2. Negotiated

How to choose a suitable tendering method?

Tendering is done to match the correct contractor to the project at hand. The selection of tendering methods depends on the

• Type of construction
• Time frame
• Client requirement
• Level of involvement of the contractor in the project

Common types of tendering in construction

• Open-competition tendering method
• Selective tendering
  • Single-stage selective tendering
  • Two-stage selective tendering
• Negotiation method tendering
• Serial tendering
• Joint venture method

This invites any eligible candidate to apply for the acquisition of goods and services. This may attract a large group with and without the relevant experience and capabilities. Also, this ensures maximum competition that could be beneficial to the client economically as high competition drives the rates lower.

This can be further classified as

• National competitive tendering
• International competitive tendering

National competitive tendering only allows local entities to participate in the process. The goal is to promote local businesses as some infrastructure projects are more likely to be accepted by locals. Government projects are more likely to use this to provide equal opportunity to all firms in the nation.

International competitive tendering allows any global entity from bidding to the project.

This is selected when

• The capabilities and capacity of domestic contractors are inadequate for the project.
• Foreign funding agencies or governments specify the tendering method while providing funds.

International competitive tendering requires more advertisements to attract global competition and this requires a considerable budget as well. Organizations such as IMF (International Monetary Fund) and ADB (Asian Development Bank) are known to specify a tendering method during a funding

• Unfair favoritism is impossible
•  High competition drives the prices lower
•  Due to a large number of participants, there is a lot of competitiveness.
•  Suitable for a government project that requires maximum participation of most local contractors.

Disadvantages

•  Time and effort required to comb through all applications
•  The general cost of tendering increases with the no of applicants
•  Difficulty in choosing the best from a large pool of combinations
•  This method is unsuitable for Complex tasks
•  The difficulty in identifying all the required qualifications to be expected from the bidder

Selective tendering

Compared to open tendering, selective tendering only allows certain groups of pre-selected candidates to present their bids. Used when the project is more complex and requires specialized contractors.

The invitation to bidders document is used to inform bidders about the project and to encourage them to submit their documents. The PE must set a guideline to select a suitable bidder from the group. This group is usually limited to 6 (industry norm) Also, bidders are informed through advertisements to pre-qualify for tendering. Bidders can send their information regarding experience, capacity, and specialization to the PE so that they can participate in the tendering process.

Advantages

•  Less cost of tendering
•  Reduced time consumption
•  Only capable entities can participate
•  Less participation eases the screening process
•  High accuracy in tender comparison

Disadvantages

•  Less competition drives the prices high
•  Bidders may collude and drive the prices high
•  Less opportunity for new firms
•  Complains filed from rejected bidders, due to close competition
•  Complete design must be available at the time of bidding

Single-stage selective tendering

Both contractor’s technical capabilities and financial capabilities are evaluated at once. All design and specifications must be available at the time of tendering to perform this kind of evaluation.

The selected bidder is not required to participate in the design process.

Two-stage selective tendering

Used to obtain the benefit of competition along with the involvement of the contractor in the design process. This is done in two stages as the name suggests.

This is beneficial compared to one stage as the contractor has more practical knowledge on construction compared to consultants. This involvement gives rise to a better design and early start of the project.

• The first stage of two-stage selective tendering is focused on selecting the contractor from a shortlist. PE must be responsible for informing the contractor about the second phase and how the contractor is going to contribute to both stages and Selection of a contractor at this stage helps with

1. Design
2. Programming
3. Cost comparison and projection

Finally, a complete tender document can be obtained for original prices without competition.

• The second stage of this tendering method revolves around negotiation with the contractor regarding the tender document formed from the first stage. Then the design is finalized with the consultancy of the contractor.

Negotiation is important for the parties to agree upon acceptable prices and for the client to gain confidence in the contractor. The client may also be interested in uncovering facts about the contractor regarding

• Experience
• Reliability
• Speed
• Trustworthiness

Negotiation tendering method

This method is used when the client proposes a contractor rather than sticking to a selection process. A tender sum is agreed upon with a single contractor. Then the process occurs traditionally from the preparation of the tender document to the contractor pricing the documents. Lastly, a negotiation stage occurs to settle on agreeable prices for both parties.

This method is appropriate for the following circumstances.

• Pre-existing relationships between the client and the contractor firm
• Client prefers an early finish
• Only a single or a handful of contractors are specialized in the given type of work. (sound proofing, water-proofing )

Contractor participates in the design stage which benefits the project

Advantages

•  Focus more on the functionality of the project
•  Post contract administration is smooth as the contractor’s policies and methods are more evident
•  Rapid construction
•  Contractors’ involvement in the design stage

Disadvantages

•  Lack of competition causes the tender price to be relatively high.
•  Lack of accountability

Serial tendering

Serial tendering is a combination of negotiated tendering and selective tendering. Commonly used when a large project is done in successive phases or if the project consists of several phases of the construction of the same nature.

The first phase of the tendering process consists of the selection of a suitable contractor using selective competitive tendering.

This tender document shall be used in the upcoming stages as well. The adjustments to update the prices for inflation and material price changes are included in the initial contract specifying methods to calculate them.

Most of the payment methods and dispute resolutions, negotiations for consecutive phases must be included in the contract.

The focus of this tendering method is the benefit of continuation. The contract becomes more familiar with each phase as the workforce becomes more familiar with each phase and transition from one phase to another is relatively smooth and efficient.

Advantages

•  Less cost in tendering
•  Less documents required
•  Client and contractor becomes for familiar to each other
•  Less time required for tendering
•  Smooth administration
•  Easy to keep track of the process

Disadvantages

•  Less opportunities for new contractors
•  Lack of accountability
•  Administrative issues due to less formality

Joint venture method

Joint venturing has picked up popularity in recent years. Countless tenders have also been offered to joint ventures due to their advantages.

A joint venture is a commercial partnership in which two or more parties join forces to combine their resources to obtain a certain contract for a specified length of time. A joint venture is a separate legal entity from the individual participants’ businesses. As a result, a joint venture must have its legal entity.

This is known as a Joint Venture Agreement, and it has its own set of regulations by which it is administered. If more formality is required, the parties can go for a contract.

But this will lead to less flexibility and opportunity to leave the partnership. If a certain project requires a set of skills unprocessed by the contract, they can join forces with another entity to bid for the project without getting trapped in a permanent partnership with another company or buying selling shares to acquire another company

Advantages

•  Better resources
•  More insight into the project
•  Temporary partnership
•  Both profit and risk are shared by parties

Disadvantages

•  Unequal involvement, but equal division of profit
•  Massive pre-planning required
•  Difficult to exit when its contracted
•  Unreliable partners