The 3 Methods of Tendering Procedure in Construction

The invitation of contractor to tender for civil/mechanical/electrical etc works is usually performed by either of three methods and subsequently results in the selection of appropriate contractor:

[1] OPEN TENDERING ( by advertising for competitive tenders )

Details of the proposed project are advertised in the local or trade publications. The advert would include:

  • Type of Work
  • Scope of Work
  • Programme of Work

Contractors interested in the work are free to respond to the advertisement and receive the contract documents from the client representative, engineer or architect. In some instances contractors are required to pay a deposit. This covers the cost of documentation and discourages unserious ones. The deposit is refunded upon receipt of a bona fide tender. Any contractor, irrespective of size or capability, may apply for the documents and tender.

The advertisement however is not legally binding and the client is not bound to accept the lowest tender. After completion, all tenders shall be returned latest by the deadline date and time. It is then the decision of the client with advice from the design team to choose the successful contractor. Government authorities generally use open tendering.

 

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Advantages of Open Tendering

[1] Unknown contactor can tender for the work.

[2] There is no restrictive list of tenderers which does not allow favouritism.

[3] There is no obligations to tender therefore all tenders received will be genuine.

[4] Open tendering secures maximum competition.

 

Disadvantages of Open Tendering

[1] Cost of tendering is expensive to the client who must bear the cost of reproducing multiple copies of drawings, bills of quantities, etc.

[2] It is a lengthy operation requiring skilled estimating, the cost of which must be recovered on the job by the contractors. The higher the proportion of unsuccessful tenders the higher the cost to be recovered on the job.

[3] The wrong contractor can be chosen. Little may be known about the contractors, their record, experience, standard of workmanship, etc.

[4] The lowest tender may not necessarily be a “bargain”. Choosing a low tender may result in poor quality and poor organization resulting in late completion, specialist subcontractors delayed, etc.

[5] A contractor may be awarded work for which he has little or no experience and may be ill-equipped to deal with.

[6] A contractor who has underpriced his tender to win the contract may try to recoup this shortfall through claims or hard and unsupported bargaining on the final Account.

[7] The worst scenario is that the contractor may become insolvent due to incompetence or low pricing on jobs. This will involve the client in expense and delay.

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In summary, open tendering is a method which allows new or unknown contractors to break into the market, while maximizing competitiveness, and allowing the client to select a contractor offering one of the lowest prices. However, using unknown contractors without an established record is a risky option, as the client does not know how well the work will be carried out.

 

[2] SELECTIVE TENDERING ( by inviting tenders from selected contractors )

A number of contractors of known reputation are selected by the design team to submit a price for the proposed project. The contractor who submits the lowest tender is generally then awarded the contract. The list of such contractors will be made early enough to allow the contractor to tender for the project if they so wish. This will range from five to ten contractors depending on the type, scope, and value of work.

Areas to consider while compiling a general or tender list would include:

  • Standard of workmanship.
  • Size of Company.
  • Contractors practice to sub-let work.
  • Reputation to meet completion dates; supervise quality of work and settle final account;
  • examination of boards of Directors–‘a sine qua non’.
  • Financial stability–length of time in business, financial checks, bank references, etc.
  • Capacity available in relation to current workload.
  • Labour relations, number of disputes and stoppages in recent jobs.
  • The company’s real willingness to tender.

If a formal list is not maintained an ad hoc tender list can be drawn up of contractors who are known to be suitable for a particular project. Alternatively, contractors can be invited by an advertisement, as in open rendering, to submit their name for inclusion in the list for a particular project–only those genuinely interested would reply.

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[3] NEGOTIATED TENDERING ( by negotiating a contract with a selected contractor )

Under this method only one contractor is approached, normally because the skills of the contractors are that the architect and the other members of the design team wish to take advantage of the contractor’s specialist knowledge at the design stage. Following the completion of the design the contractor will price the bill of quantities and then enter into a negotiation with the quantity surveyor. Selective tendering provides a restricted but adequate list of technically suitable contractors of comparable standing, capable of carrying projects through in a reliable manner.

 

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