Procurement and Tendering

Question 1

What is procurement?

Answer 1

The overall process of acquiring construction work or services.

Question 2

What should be considered when selecting a procurement route?

Answer 2

• The specifics of the project.
• The client objectives regarding:
  o Cost.
  o Time.
  o Control.
  o Quality.
  o Risk.

Question 3

What are the main procurement methods?

Answer 3

• Traditional Route
• Design and Build.
• Management Contracting
• Construction management

Question 4

What is traditional procurement?

Answer 4

The design is completed by the client’s design team before competitive tenders are invited and a main
contractor is employed to build what the designers have specified.

Question 5

How does traditional procurement it work?

Answer 5

• The client will hire a design consultant to produce the design and specification then hire a contractor to construct the project
  The contractor takes responsibility and financial risk for the construction of the works to the design
  produced by the client’s design team for the contract sum within the contract period.
• The client takes the responsibility and risk for the design and design team performance.

Question 6

When might traditional procurement be appropriate?

Answer 6

• If the employer has had the design prepared.
• If the design is substantially completed at time of contractor selection.
• The client wishes to retain control over the design and specification.
• If cost certainty at start on site is important.
• The shortest overall programme is not the client’s main priority

Question 7

What are the advantages of traditional procurement?

Answer 7

• Retaining control over the design can lead to higher quality.
• It offers increased levels of cost certainty before commencement
• Design changes are reasonably easy to arrange and value.

Question 8

What are the disadvantages of traditional procurement?

Answer 8

• The overall project duration may be longer than others due to lack of overlap between design and
  construction.
• There is no input into design and planning by the contractor.
• A strategy based on price competition can lead to adversarial relations.
• There is a dual point of responsibility with the design team controlling the design and the contractor
  retaining responsibility for the construction.

Question 9

What is design and build?

Answer 9

Where the contractor is responsible for the design, planning, organisation, control and construction of
the works to the employer’s requirements.

Question 10

How does design and build work?

Answer 10

The employer gives the tenderers the ‘Employer’s Requirements’ and the contractors responds with the
‘Contractor’s Proposals’, which include the price for the works

Question 11

When might design and build be appropriate?

Answer 11

• Where there is a need to make an early start on site as there can be overlap between design and
  construction.
• Where the client wishes to minimise their risk as they transfer design responsibility to the Main
  Contractor.
• For technically complex projects requiring the contractor’s expertise.
• Where the employer does not want to retain control over design development.

Question 12

What are the advantages of design and build?

Answer 12

• There is a single point of responsibility for the design and construction.
• There is earlier commencement on site.
• Early price certainty is increased.
• The client can benefit from the contractor’s experience harnessed during the design

Question 13

What are the disadvantages of design and build?

Answer 13

• Clients may find it hard to prepare a sufficiently comprehensive brief.
• The Client has to commit to a concept design early.
• Variations from the original brief are difficult to arrange and are often expensive.
• It is harder to compare tenders and harder to determine whether value for money is being achieved.

Question 14

How much design input will the contractor have?

Answer 14

• This depends on the amount of design work the employer has already had completed at time of tender.
• This can range from full design to production information and coordination only.

Question 15

Who carries out the design for the contractor?

Answer 15

• It may be outsourced to a separate design company (contractor retains responsibility).
• They may have in-house design capabilities or the client’s team may be novated.

Question 16

What is management contracting?

Answer 16

A management contractor is employed to contribute their expertise to the design and to manage
construction with a management fee being paid to them for doing so.

Question 17

How does management contracting work?

Answer 17

• The management contractor has direct contractual links with all of the works contractors.
• They have the responsibility for the construction works without actually carrying them out.
• Not all of the design need be completed before the first works contractors start work.
• The MC selects the works contractors through competitive open book tender.
• The client reimburses the cost of these packages to the MC plus their management fee.

Question 18

When might management contracting be appropriate?

Answer 18

• Where the client does not want cost certainty before commencement.
• Where an early start on site is a priority.

Question 19

What are the advantages of management contracting

Answer 19

• Overall project duration is shorter due to overlapping design and construction.
• There is contractor contribution to the design and planning process.
• Changes can be accommodated in packages not yet let if they have no further impact.
• The works are let competitively at current market prices on a firm price basis.

Question 20

What are the disadvantages of management contracting?

Answer 20

• The price for the works is not received until the last package has been let.
• Changes to the design of later packages may affect packages already let.
• There is little incentive for the Management Contractor to reduce costs.
• In practice, the MC has little legal responsibility for the defaults of the works contractors.

Question 21

What is construction management?

Answer 21

The employer places a direct contract with each of the trade contractors and utilises the expertise of a
construction manager who acts as a consultant to coordinate the contracts.

Question 22

How does construction management work?

Answer 22

• The trade contactors carry out the work.
• The construction managers supervises the construction process and coordinates the design team.
• The construction manager has no contractual links with the trade contractors or members of the design
  team.
• Their role includes preparation of the programme, determining requirements for site facilities, breaking
  down the project into suitable works packages, obtaining and evaluating tenders, co-ordinating and
  supervising the works.

Question 23

When might construction management be appropriate?

Answer 23

• On large, complex projects where the advantages of Construction Management can be utilised for
  example using upfront buildability knowledge of the Construction Manager and their programme
  advice including specialist input from trade contractors.
• Where an early start on site date is key.
• Maintenance of flexibility in design and construction strategy.
• Where price certainty before commencement is not considered a key driver.
• Where the client is experienced in construction.

Question 24

What are the advantages of construction management?

Answer 24

• The overall project duration is reduced by overlapping design and construction.
• The construction manager can contribute to the design and project planning processes.
• Roles, risks and relationships for all parties are clear.
• Changes in design can be accommodated without paying a premium.
• Prices may be lower due to direct contracts with trade contractors.
• The Client has a means of redress to trade contractors through direct contractual links.

Question 25

What are the disadvantages of construction management?

Answer 25

• Price certainty is not achieved until the last trade package is let.
• Changes to packages may adversely affect packages that are already let.
• The client must be proactive and hands on.
• The client has a lot of consultants and contractors to deal with.

Question 26

What is the difference between management contracting and
construction management?

Answer 26

• Under construction management the client is in direct contractual relationships with each of the trade
  contractors and the construction manager isn’t.
• Under management contracting, the Main Contractor is in direct contractual relationships with the
  trade contractors and the client is in contract with the Main Contractor only

Question 27

How do you identify the client requirements before recommending a procurement route?

Answer 27

Through detailed discussions with the client and design team to identify their priorities in terms of cost,
time, quality, risk, control requirements and experience.

Question 28

If the client wishes to start on site asap, what route would you
recommend?

Answer 28

• My recommendation would need to take into account their other requirements such as cost and quality.
• If time was their overriding priority, then Construction Management or Management Contracting may
  offer the best solution as they can offer the fastest start on site with overlap of the design and
  construction.
• This is because start on site is not dependent upon a long tender period however the key tradeoff is a
  reduction in cost certainty

Question 29

What would you recommend if the client wanted an early start but also
cost certainty?

Answer 29

• Design and build procurement may offer the best solution.
• This is because it allows the design and construction to be overlapped rather than being sequential.
• Design and Construction risk is transferred to the Main Contractor with their tender being based on a
  lump sum price to offer high levels of cost certainty.

Question 30

What is GMP?

Answer 30

• Guaranteed maximum price.

Question 31

What does GMP mean to you?

Answer 31

• A lump sum contract under which there is no adjustment of tender price unless design changes are
  requested by the client.
• The contractor includes the additional risks involved in the design development process in his tender
  price.

Question 32

What is PFI?

Answer 32

• Private Finance Initiative.
• A government programme launched in 1992 to bring private sector project management and expertise
  into the public sector.
• The private sector is granted a concession to finance, design & build and operate major public projects
  such as schools and hospitals.

Question 33

What are the three types of PFI projects?

Answer 33

• Financially free-standing - Projects costs are recovered by charging users for example toll roads and
  bridges.
• Joint Venture - Public and private sectorstakeholders both invest however the private sector has
  overall control. Contributions and allocation of risk are clearly defined.
• Services Sold – The capital expenditure for the project is financed by the private sector and then sold
  back to the public sector. The public sector requires clear demonstration that this provides better value
  for money than option 1 and 2.

Question 34

What sort of projects might PFI be used on?

Answer 34

• Its use is recommended where it offers clear value for money when compared against traditional public
  sector procurement.
• It is generally considered more appropriate for larger projects of value greater than £20m and where
  there are significant ongoing maintenance requirements.

Question 35

What might be some of the problems associated with PFI?

Answer 35

• High bidding costs are associate with PFI projects can take longer to procure than traditional projects.
• Value for money is hard to achieve as the cost of private borrowing is more expensive than public
  sector borrowing.
• Long term and inflexible contracts are formed which cannot respond to demographic changes. For
  example, a reduction in school cohort numbers can lead to empty classrooms being paid for by local
  authorities.

Question 36

What is Build Lease Transfer (BLT)?

Answer 36

• A facility is designed, financed and constructed by the private sector and then leased back to the
  government for a predetermined period of time at a pre-agreed rental cost.
• The facility is owned by the private sector partner during the lease period, at the end the government
  can renew the lease, buy out the private sector partner or walk away from the deal.
• Operation and maintenance of the facility during the lease period is usually the government’s
  responsibility.
• This provides the public sector with a way of financing large-scale infrastructure projects based on
  ongoing revenue rather than using high levels of capital expenditure.
• The primary disadvantage is that legal ownership remains with the private sector.

Question 37

What is Build Operate Transfer (BOT)?

Answer 37

• The facility is designed, financed, operated and maintained by a concession company, for the period of
  the concession.
• Ownership of the facility is vested in the host government from the time of construction completion.
• At the end of the period, the concessionaire’s involvement in the project ends and all operating rights
  and maintenance responsibilities revert to the host government.
• The concessionaire retains all toll income during the agreed period.

Question 38

What is Build Own Operate Transfer (BOOT)?

Answer 38

A variation on Build Operate Transfer where ownership stays with the concessionaries until the end of
the concession period at which time it is then transferred free of charge to the host government.

Question 39

What is Partnering?

Answer 39

• A long term approach of structuring business relationships.
• It involves two or more organisations working together to achieve specific mutual objectives and
  deliver continuous measurable improvements.

Question 40

What is project partnering?

Answer 40

All members of the professional team become involved in the partnering process at the design stage including contractors.
* Ownership of risk is spread between the parties and a collaborative approach is encouraged to delivering the solution and overcoming problems.

Question 41

What is Strategic Partnering?

Answer 41

• A long-term relationship that is established with a view to undertaking a number of projects over a long
  period.
• Framework agreements are used to set out the overriding contractual terms with fixed terms and
  conditions for future purchases.
• Projects and services are then draw down on a project-by-project basis.

Question 42

What are the key characteristics of partnering?

Answer 42

• More trust is achieved between the parties.
• There is a reduced risk of adversarial relationships as pre-determined contract conditions are agreed by
  all parties in advance.
• Increased cost certainty and speed of calling off contracts is gained.

Question 43

What are the benefits of partnering?

Answer 43

What are the benefits of partnering?
* The overall construction and design programme is shortened because there is a prior understanding of
the Client and their requirements from previous projects.
o The potential for conflict is reduced.
o Communication is improved.
o Pooling of resources and ideas should result in innovative solutions.
o Improved clientsatisfaction is gained.
o Recognition of protection of profit margin for contractors and suppliers.
o A team environment is formed that encourages innovation and technical development.
o Improved buildability with early involvement of contractors.
o Better predictability of time and cost.

Question 44

What is tendering?

Answer 44

A structured procedure for generating quotations from suppliers or contractors looking to obtain an
award of business activity either under competition or via negotiation with a single contractor.

Question 45

What are the main methods of choosing a contractor?

Answer 45

• Open tendering.
• Selective tendering:-
  o Single or Two Stage.
• Negotiated tendering.
• Serial tendering.

Question 46

What is open tendering?

Answer 46

• This is an indiscriminate request for tenders to be submitted to the open market.
• This could be achieved by advert placement in local papers or technical press inviting contractors to
  apply for the tender documentation.
• There are little or no barriers to entry needed to submit a tender.

Question 47

What are the advantages of open tendering?

Answer 47

• It provides opportunities for capable firms which the clients may have not previously considered.
• It should secure maximum competition from the open market.

Question 48

What are the disadvantages of open tendering?

Answer 48

• There is a danger of increased errors within the tender submission due to a risk of inexperienced
  contractors that have no prior understanding of the clients requirements.
• There is no assurance that the lowest tenderer is capable or financially stable.
• The total cost and time needed to review the tenders is increased.

Question 49

What is selective tendering?

Answer 49

This restricts the number of tenderers by pre-selecting a limited number of contractors to tender for the work.

Question 50

What are the two types of selective tendering?

Answer 50

• Single stage.
• Two stage.

Question 51

What is single stage tendering?

Answer 51

• A structured process of receiving competitive tenders from a number of pre-selected capable
  contractors.
• Contractors are pre-selected based on:-
  o Financial standing.
  o Qualifications and certifications.
  o Previous track record.
  o References.
  o Organisational structure.
  o Capacity and resources.
  o Size of work previously undertaken.

Question 52

What are the advantages of single stage tendering?

Answer 52

It ensures only capable and approved firms submit tenders.
* It tends to reduce the aggregate cost of tendering.
* It reduces the risk of receiving tenders from unsuitable contractors

Question 53

What is two stage tendering?

Answer 53

• Two stage tendering is where the Client seeks to appoint the Contractor based on an outline scope of
  work that is not fully defined.
• The client then works with the appointed contractor to develop the scope of work and reaches an
  agreed price.
• It can be used when it is useful to obtain the contractors buildability expertise on the planning of the
  project and gain an earlier contractor involvement.

Question 54

What is the purpose of the first stage?

Answer 54

• The client provides an outline project design to each of the tenderers.
• The tendering contractors will submit prices for helping the client develop and finalise the design using
  their buildability expertise.
• Tender submissions will typically consist of:-
  o A schedule of rates that will be used to calculate the agreed price during stage 2.
  o A price for assisting the client with design development and buildability expertise during stage
  2.
  o Confirmation of the contractors Overheads & Profits Percentage.
• A preferred contractor is then appointed to assist with developing the design further.

Question 55

What is the purpose of the second stage?

Answer 55

Following development of the design to a defined stage, a formal negotiation process is undertaken
during stage 2 to agree:-
o The final price.
o The contract conditions.
o Programme.

Question 56

What do tenderers return as part of the first stage?

Answer 56

• Detailed build up of prices for the preliminaries items.
• Percentage additions for profit and overheads.
• A construction programme.
• Proposed sub-letting of the works.

Question 57

What are the advantages of two stage tendering?

Answer 57

• Early involvement of the contractor.
• Encouragement of collaborative working.
• Potential for an earlier start on site.
• Greater client involvement in selecting the supply chain.
• The contractor can help identify and manage risk

Question 58

What are the disadvantages of two stage tendering?

Answer 58

• Cost certainty may not be achieved before construction starts.
• Additional pre-construction fees are incurred for the main contractor.
• The contractor could take advantage of second stage negotiation and increase costs.
• There is the potential for parties to not agree the contract sum with a risk of retendering.

Question 59

Why should you use 2 stage tendering?

Answer 59

• With a complex building.
• Where the magnitude of work is unknown at time of contractor selection.
• If early completion is required.
• Where the design team would like to make use of contractors expertise on buildability issues.

Question 60

What is negotiated tendering?

Answer 60

Where the client has an existing preference for appointing a particular firm and only negotiates with one contractor.

Question 61

When might negotiated tendering be used?

Answer 61

When the contractor has carried out work successfully for the client previously where they have an existing relationship

Question 62

How does negotiated tendering work?

Answer 62

• There is no competition and only one contractor is invited to tender.
• The contract sum is arrived at by a process of negotiation.
• Schedule of rates or prices from previous projects may be used as the basis of agreeing a price.

Question 63

What is serial tendering

Answer 63

Contractors are asked to bid for a project on the basis that if they complete the initial project satisfactorily, other projects of a similar type will follow and the same bill rates will be applied.

Question 64

What could selecting the wrong contractor lead to?

Answer 64

• A bad client & contractor relationship.
• A dissatisfied client.
• An insolvent contractor.

Question 65

How would you put together a set of tender documents?

Question 66

What is the form of tender?

Answer 66

• A preprinted formal statement in which the tenderer fills in the blank spaces.
• The tenderer provides their name, address and the sum of money for which they offer to carry out the
  works.

Question 67

What are the employer’s requirements?

Answer 67

• They set out the client’s requirements including the function, size, accommodation and quality
  requirements of the project.
• Their level of detail depends on how much design development has been carried out prior to tender.
• They normally includes the current state of planning permission.
• It should also detail the level of design, structure and specification information to be provided by the
  tenderers.

Question 68

What are the contractor’s proposals?

Answer 68

The contractor’s response to the Employers Requirements.
* They are the key documentation for the client to consider at the tender review.
* They often include plans, elevations, sections and typical details.
* Layout drawings and specification for materials and workmanship are also provided.

Question 69

What would you include in the pre-qualification questionnaire?

Answer 69

• Details of contract particulars.
• Company turnover.
• Previous relevant experience and references.
• Company accounts.
• Management and organisational structure.
• Health and safety records.
• Quality systems and environmental policy.
• Provision of bonds, warranties & PCGs.

Question 70

How would you determine the duration of the tender period?

Answer 70

• It depends on the procurement process and size of the project.
• If a traditional procurement route with a BoQ is being adopted then I would usually allow around a
  month in order for the MC to obtain pricing information from theirsub-contractors.
• For large complex schemes the tender period would need to be longer.
• If the tender is the first stage of a two stage tender then the tender period may be a shorter duration of
  2-3 weeks.
• It is better to ensure there is sufficient time so contractors can price the project correctly rather than
  rush and encourage contractors to price a high risk element into the tender.