Procurement and Tendering - L3 Flashcards
What is procurement?
- The overall act of obtaining goods and services for a construction project.
- There are several routes by which the design and construction of a building can be procured. The selected procurement route should follow a strategy which fits the project criteria and objectives.
What are the main factors which typically govern procurement route selection?
- The key is to identify the client’s objectives and key drivers in terms of time, cost and quality. Other factors such as risk allocation should also be considered.
- It’s unusual to satisfy all these elements with on procurement route. Consideration must be given to the clients list of priorities to identify the most appropriate procurement route.
Which procurement options are you familiar with?
- Traditional procurement.
- Design and Build.
- Management Contracting.
- Construction Management.
What is traditional procurement?
The traditional procurement route involves separating design from construction. The employer first appoints consultants to design the project in detail, contractors are then invited to submit tenders based on a fully developed scheme.
What are the key points of traditional procurement?
- The design is completed by the employer’s design team before competitive tenders are invited. The contractor is then appointed to build what the designers have specified.
- The contractors tender is based on a complete design produced by the employer’s consultants (with exception to Contractor’s Design Portions or CDP).
- Assuming no significant design changes arise, construction costs can be determined with reasonable certainty before works begin.
- The emnployer retains the design consultants during construction. The consultants prepare any additional design information and review CDP designs prepared by the contractor.
What are the key advantages of traditional procurement?
- The employer retains control of the design.
- The design is largely finalised before the contractors tender for the build; this means the employer knows exactly what they are getting.
- All tenderers produce a submission based on the same information (tender returns are much easier to compare).
- Assuming the design is robust, reasonable price certainty is achieved at contract award.
- Minimal built-in contractor risk premium (unlike design and build).
What are the key disadvantages of traditional procurement?
- The overall project duration may be longer than a design and build procurement (limited opportunity to overlap design and construction phases).
- Zero or limited contractor buildability input.
- Design risk is retained by the employer, any changes post-contract will be a variation or compensation event.
- Dual point of responsibility (employer for design and contractor for construction).
When might traditional procurement be appropriate?
– The employer may have specific or detailed design requirements.
– Cost certainty is important (traditional has significant advantages over construction management or management contracting procurement routes).
– The shortest overall program is not the employer’s main priority.
What is design and build?
The contractor is responsible for completing the design and executing the construction phase of the project. This is a completely different approach to delivering a project via traditional procurement, where the client appoints consultants to undertake the design and then a contractor is appointed to construct the works.
What are the key points of design and build procurement?
- Under the JCT contract, the employer’s team produce a set of employer’s requirements (ERs), the contractor and then responds to the ERs with their contractor’s proposals (CPs).
- The original employer’s design team may be novated to the contractor for continuity, or the contractor may appoint their own design team.
- The contractor is responsible for the design, planning, organisation, control and construction of the works.
- Design risk is transferred to the contractor.
What are the key advantages to design and build procurement?
- Single point of responsibility for design and construction (Contractor).
- Earlier commencement on site is possible (if design and construction can be overlapped).
- Benefit of contractor’s experience harnessed during design (buildability input).
- Design and construction risk rests with the contractor.
- Provides more cost certainty than traditional procurement.
What are the key disadvantages to design and build procurement?
- The design is only as good as the employer’s requirements (the employer may find it difficult to prepare a sufficiently comprehensive brief).
- More complex to compare tender returns.
- Employer changes can be difficult to value and expensive.
- The employer may have less control over aesthetics and quality.
- The contractor will build in risk premiums into their tender return.
When might design and build procurment be appropriate?
- When there is a need to make an early start on site (D&B has potential to overlap design and construction).
- Where the employer wishes to minimise the risk profile (design risk is passed on to the contractor).
- For technically complex projects, the design will benefit from the contractor’s buildability input.
- Where retaining control of the design is not a priority.
What additional insurance might be required under a D&B contract?
The contractor and the design team will have design responsibility; therefore, it is likely additional professional indemnity insurance (PI Insurance) will be required.
What are the employer’s requirements (ERs)?
The expression employer’s requirements are used to describe the document(s) produced by the employer to set out its requirements in relation to the project (including performance specifications, drawings, initial designs etc.) and this is what the design and construction of the works will be based on.
What are contractors proposals (CPs)?
- CPs are prepared by the contractor which responds to the employer’s requirements.
- In this document(s), the contractor will produce detailed design information (based on the employer’s requirements), which will require further development throughout the course of the project.
Which procurement route poses the least risk to the employer?
Design and build, this is because the design risk is transferred to the contractor.
Why does the employer usually pay a premium for design and build procurement at tender stage?
The contractor will usually factor in an allowance within the tender return in exchange for taking on the design risk.
On the design and build, who executes the design for the contractor?
The contractor may use their own in-house design or they can appoint external consultants. The employer’s original design team can also be novated to the contractor.
What is construction management procurement?
The employer directly appoints multiple subcontractors (referred to as trade contractors) instead of employing a single main contractor. The single feature that makes construction management unique, particularly from management contracting, is that the employer places individual contracts with separate specialist trade contractors themselves.
What are the key points of construction management procurement?
- The employer places a direct contact with each trade contractor and utilises the expertise of a construction manager to coordinate the works.
- The construction manager programs and coordinates the works.
- The construction manager has no contractual link with the trade contractors.
- The construction manager has no vested interest in the financial outcome of the project and, barring professional negligence carries no risk.
What are the key advantages of construction management procurement?
- Speed (early start on site).
- Overall project duration reduced by overlapping design and construction.
- The construction manager can contribute to the design and project planning processes.
- Changes in design can be accommodated without paying a premium.
- Prices may be lower due to direct contracts with trade contractors.
- The employer has means of redress with trade contractors through direct contractual links.
What are the key disadvantages of construction management procurement?
- Price certainty is not achieved until the last trade packages let.
- The procurement route requires an informed, experienced to and proactive employer to work.
- The employer has a lot of consultants and contractors to manage.
When might construction management procurement be appropriate?
- The employer is experienced in construction and has the suitable resources to manage the project.
- The employer wants to achieve an early start on site.
- The employer wants the flexibility to make minor changes to the design / specification throughout the process with minimal impact on time or finances.
- The project is technically complex and requires detailed engagement of specialist consultants and trade contractors.
Which is the riskiest procurement route for the employer?
Construction management. This is because the employer places individual contracts direct with each trade contractor and the construction manager carries no risk (barring professional negligence).
What is management contracting?
- The employer appoints and management contractor to manage the entire building process who in turn appoints trade contractors to carry out the construction works.
- The management contractor is usually paid a fee percentage based on construction costs.
- The management contractor has a direct contractual link with the trade contractors and is responsible for the overall construction works.
What are the key advantages to management contracting?
- Overall project duration can be reduced by overlapping design construction.
- The management contractor will provide buildability input.
- Single point of responsibility (management contractor).
- Trade packages are let competitively and transparently.
- There can be considerable flexibility in the design, with changes being made throughout the construction process.
What are the key disadvantages to management contracting?
- Price certainty is not achieved until the last trade package is let.
- Requires an informed and proactive employer to be successful.
- Depending on how the construction manager is remunerated, there may be a built-in disincentive for the construction manager to minimise costs.
When might management contracting be appropriate?
- When an early start on site is a priority.
- Flexibility in design is required.
- Buildability input from the management contractor is required.
- Where cost certainty is not a priority for the employer.
What is a framework agreement?
- A framework agreement is an umbrella agreement that a party enters with one or more suppliers (who may be contractors, subcontractors, suppliers, or consultants) to establish governing terms.
- A framework usually sets a strategic partnering relationship for the procurement of goods, works or services.
How long can a framework be?
Typically, a framework agreement lasts for 4 years. However, this is determined by the buyer. They can range between 2-10 years.
What are the key advantages to a framework agreement?
- Framework agreements can help to develop stronger relationships between the parties involved and encourage long-term collaboration and cooperation.
- Time-saving (can speed up the procurement of goods and services).
- Repeat work and continuity of delivery.
- Rates and prices are usually agreed upfront.
What are the key disadvantages to a framework agreement?
- The contractors, suppliers, or consultants can become complacent.
- Bidders will invest time and money to be awarded onto a framework and then potentially not receive any work for them.
- Maybe restrictive to new suppliers who offer innovative, new solutions with the changing and evolving nature of technologies for example.
Why might the employer choose a framework agreement to procure goods and services?
- Employers that are continuously commissioning construction work might want to reduce procurement timescales, learning curves and other risks by using framework agreements.
- A framework allows the employer to invite tenders from suppliers of goods and services on a call-off basis as and when required
What’s the difference between a framework agreement and a contract?
- A framework agreement rarely provides any specific commitment in terms of a project and value of works. It is more focused on being an approved supplier.
- A contract is usually a specific fee, with project scope and timelines allowing you to quote and tailor your product/service for the specific job at hand.
What is project partnering?
- Partnering is a broad term used to describe a collaborative management approach that encourages openness and trust between the contracting parties.
- There is more opportunity for building working relationships, finding improvements and planning investment.
- Ownership of risk is spread between the parties and a collaborative approach is encouraged to delivering the solution and overcoming problems.
What are the key advantages of partnering?
- The overall construction design program can be shortened.
- The likelihood of conflict is reduced.
- Improved communication and mutual objective.
- Improved customer satisfaction.
- Improved value for the employer.
- Improved buildability (early involvement of contractors for example).
- Better predictability of time and cost.
What are the key disadvantages of partnering?
- Less opportunity to understand what the other contractors/potential partners have to offer.
- Difficult to find a strong partner which have the same objectives, ethics, attitude etc.
What is tendering?
Tendering is the process by which the employer invites contractors to place a bid for work on a construction project. The overall objective is to obtain a price for the works.
What is the difference between procurement and tendering?
- Procurement is the overall act of obtaining goods and services from external sources and deciding the strategy on how these goods are to be acquired.
- Tendering is a phase in the procurement strategy and deals with obtaining a price through a bidding process and deciding how a contractor is appointed.
What are the three main tendering options for construction projects?
- Single-stage tender.
- Two-stage tender.
- Negotiated tender.
What documents do you include within the tender pack?
- Invitation to tender (ITT), including cover letter with tender return information.
- Form of tender.
- Contract conditions and employer’s amendments.
- Instructions to bidders including how errors will be dealt with.
- Tender scoring matrix.
Project information, drawings, specifications, surveys, planning conditions, etc. - Pricing document.
- Pre-construction information (PCI).
- Quality questions (such as experience a methodology).
- Receipt of tender.
What is a bona fide tender?
- A bid submitted in good faith, complete and in the prescribed form which meets the conditions of the bidding requirements.
- Confirmation that the supplier has not colluded with another party when compiling the tender.
What is OJEU?
- The official Journal of the European Union (OJEU).
- An online portal that houses public sector contracts that are over the stated procurment threshold.
What happens to OJEU now that the UK has left the EU?
- From the 1st of January 2021, the UK is not subject to EU procurement regulations and therefore no longer follow rules outlined for OJEU tenders.
- Tenders will now be published on the new e-tendering portal, called Find A Tender Service (FTS).
Are you aware of any guidance issued by RICS associated with tendering strategies?
Yes. Tendering strategies, 1st edition.
What is a prequalification questionnaire (PQQ)?
A prequalification questionnaire sets out a series of questions for potential tenderers to answer regarding their level of experience, capacity, financial standing etc. prior to being invited to tender.
What is the purpose of a PQQ?
The prequalification questionnaire has the effect of reducing the number of potential tenderers to those that are genuinely appropriate for the project. This saves a great deal of time for potential tenderers who would not have any realistic chance of winning the contract.
What might the PQQ ask for?
- Company details (including legal status).
- Details of insurance cover.
- Financial information (such as company accounts).
- Relevant experience.
- Information about technical and professional ability.
- Information about capability and capacity.
- Health and safety policy and records.
- Quality assurance policy.
- Environmental management policy.
- Equal opportunities policy.
- References.
A credit check is usually part of the PQQ process, where could you get a credit check from?
- Dun & Bradstreet report.
- Credit agencies such as Experian.
What is single-stage tendering?
Tender documents are issued to several competing contractors who were all given the chance to bid for the project based on identical tender documentation.
What are the key advantages of single-stage tendering?
- The employee benefits from a competitive tendering process which can lead to more competitive pricing.
- The employer can benefit from a fixed price through this tendering process.
What are the key disadvantages of single-stage tendering?
- No buildability input from the contractor (at the point of tender).
- The price is only as good as the design information.
- Contractors may be unwilling to tender in a good economic climate (too much competition).
If you have a £25m new build project under design and build procurement (single-stage tender), how long would you allow for the tender period?
The tender period is largely dependent on the complexity of the project; however, 10-12 weeks would be reasonable as it will take some time to interpret the employer’s requirements.
What is a two-stage tendering?
Stage one – The employer provides an outline project design and contractors then compete for preferred contractor status. The preferred contractor is usually chosen based on the quality of their bid, the quality of the team, preliminaries, and OH&P allowances. The preferred contractor then joins the design team on a consultancy basis using a pre-construction service agreement (PCSA).
Stage two – Once the design has sufficiently progressed, the contractor enters into a detailed contract negotiation with the employer to agree the final price, contract conditions, and programme.
What are the key advantages of two-stage tendering?
– Early appointment of the contractor to work in parallel with the design team.
– Early involvement of the contract to benefit from buildability input.
– Earlier start on site is possible.
– Employer involvement in subcontractor selection.
– Increased opportunity to value engineer with the contractor’s input.
– Improved opportunity to identify project risk.
What are the key disadvantages of two-stage tendering?
– The contractor has less incentive to price the second stage competitively, negotiations may therefore be difficult.
– Additional cost of the contractor’s pre construction fee.
– Potential for the negotiation stage to fail (contracts sum not agreed).
What is a negotiated tender?
A negotiated tender is effectively a single-stage tender carried out between the client employer and just one contractor. Negotiated tenders are obtained by the client, inviting one contractor of their choice to submit a tender response for the project.
What are the key advantages of negotiated tender?
– Simplicity.
– Speed, a negotiated process can have programme advantages if undertaken in good faith.
– The employer has flexibility in terms of choosing their preferred contractor.
– Time and cost savings involved in comparing and analysing multiple tender submissions.
– The process can allow early contractor involvement.
What are the key disadvantages of negotiated tender?
– Possibility of delay if contract negotiations are protracted.
– Potential cost premium due to the lack of competition.
– There is a heavy reliance on trust between the parties.
– It can be seen as anti-competitive and exclusive.
How could you justify value for money in a negotiated tender?
Insist on an open book approach when agreeing subcontract packages and a minimum of 3 quotes to be provided for each element of the works (this would need to be agreed upon upfront with the contractor).
What is a “Form of tender”?
– The contractor usually signs and returns with their proposed tender submission.
– It is formal acknowledgement that the tenderer understands and accepts the terms of conditions of the tender documents and any other requirements that are stipulated. The document also includes the contract price and programme
What information is typically included in the form of tender?
– Tender sum.
– The date until which the price remains valid.
– Construction period.
– Confirmation of the tender being genuine and bonafide.
– Tenderer details and signature.
– Acceptance of terms and conditions.
When seeking tenders for construction work, in addition to the actual price for the work, what additional information might be requested from the contractor?
– Track record of previous experience (For example, case studies).
– Proposed team and hierarchy.
– Methodology or approach.
– References.
– Programme.
– Health and safety information.
– Value engineering proposals.
– Logistics plans.
– Social value strategy.
– Diversity and inclusion policy.
Once tenders have been submitted, what should be examined for compliance with the invitation to tender and tender instructions?
– Arithmetical errors.
– Pricing errors (Items not priced).
– Pricing method (Frontloading).
– Compare the contractor’s proposals against the employer’s requirements for compliance (D&B Procurement).
– Check the form of tender is complete and signed.
– Resolve any qualifications.
What happens if a tender is submitted late?
Public sector project – the document should not be accepted.
Private sector project – the matter should be discussed with the employer to understand if they would like to accept. The safest option is not to consider (Potential fraud, collusion, bid-rigging risk etc).
Would you open a late tender submission for a school project?
The tender should be discarded on the basis the project is funded by the public sector.
What is the danger of accepting a very low tender submission?
– The contract and maybe trying to ‘buy’ the project with a view to recover the cost with variations and/or claims.
– It could indicate the contractor is in a poor financial or cash flow position and they are eager to win the work at any cost.
– Areas of the project may not be priced accurately, potential for an adversarial relationship to develop post contract.
How do you deal with qualifications within the tender submission?
– Procedures associated with qualifications should be outlined in the tender instructions.
– If the qualifications are unauthorised it might invalidate the tender (lead to disqualification).
– The employer team and contractor should look to resolve the qualifications prior to signing the contract. Any outstanding matters should be clearly documented in the contract to avoid future disputes.
How would you deal with errors identified in the tender submissions?
JCT have produced a tendering practice note where two options are suggested to deal with errors, one of these options is usually drafted into the tender pack.
Alternative one:
– The tenderer should be given the details of the errors and afforded the opportunity to confirm or withdraw their tender.
– If they withdraw the next lowest bid is considered.
Alternative two:
– The tenderer should be given the opportunity of confirming their offer or amending it to correct genuine errors.
What would you do if you considered a contractor submitting the lowest tender to be in financial difficulty?
– As part of the evaluation process, the company accounts will be reviewed to assess the financial stability of the contractor (If not already completed at PQQ stage). This could lead to disqualification if the contract is having financial difficulty.
– Consider a performance bond. In the event the contractor falls insolvent, the employer will be able to call on the bond and appoint another contractor to complete the project.
– Consider a parent company guarantee.
On what grounds would you advise the client to re-tender?
– Not enough tenderers returned tenders.
– The tendering procedure is compromised for some reason.
– If tenders were not at the cost level required and it was believed that re-tendering to different tenderers would provide a different result.
– Design changes or VE has been carried out that has significantly changed the design that was originally tendered on.
How do you deal with a front-loaded tender?
– Front loading is generally not a pricing error.
– Request contractor removes frontloading, if the contractor refuses, this may be grounds for disqualification.
How could you reduce the risk of contractors pulling out during the tender process?
– Ensuring the tender information is as accurate as possible.
– Ensure the tender period is long enough (extend if required).
– Go through the PQQ to ensure that the correct tenders are selected.
– Check the contractor has time capacity to complete the tender.
On what grounds would you advise your client to re-tender the project?
– Not enough tenders returned.
– The tender procedure was compromised in some way (potential fraud, collusion, bid-rigging etc).
– Significant design, methodology or programme changes after issuing the tender documents.
What is a contract sum analysis document under design and build procurement?
A contract sum analysis (CSA) is an alternative pricing document to the schedule of works (SoW) or bill of quantities (BoQ). It is often prepared in a standard format by the employer’s team to support the tender analysis. The employers team usually request that all tenders be returned on the same CSA format.
What information is typically included within the tender analysis report?
– List of tenders received.
– Initial tender return totals.
– Any qualifications identified.
– Post tender adjustments.
– Revised tender sum.
– Issues to be resolved.
– Comparison of tender returns.
– Comparison with pre-tender estimate.
– Recommendation.
If the tender was received on time, but the project is delayed for a few months, what would you need to check?
Check the form of tender, this would show how long the price (the offer) is valid. For example 60 or 90 days after the tender return date.
If the contractor (in their tender return) put a cost against an item and marked it provisional, what would you do?
I would seek further information from the contractor and request this be removed. Subject to the tender instructions, this may invalidate the submission.
If you think the delivery program is tight, how can you give comfort to the contractor regarding liquidated damages (To avoid them excessively pricing in the tender sum)?
The contract can be amended to include a liquidated damage-free period. For example, damages would not be levied for the first three weeks or levied at 50% for a defined period.
What is the purpose of a pre-tender estimate?
– A pre-tender estimate (PTE) is a last cost check of the project before it is issued to tender. The design should be sufficiently developed at this stage; therefore, the PTE should be an accurate reflection of the works.
– The estimate can then be used to compare against the tender submissions.
What happens if the tender prices are higher than the pre-tender estimate?
– This could be down to market conditions or some external factors such as COVID-19 of Brexit.
– The employer’s team could reconcile the tender against the pre-tender estimate to identify where the major differences are.
– The team could look to value engineer the project if the prices over budget.
