Procurement and Tendering (Level 3) Flashcards
1
Q
What is Procurement?
A
The overall process of acquiring construction work or services
2
Q
What should be considered when selecting a procurement route?
A
- Project Specifics: Size, Complexity, Location
- Client Objectives: Time, Cost, Quality, Risk Attitude, Control
- Level of Design Information
- Requirement for Contractor Design
3
Q
What are the 4 procurement route types?
A
Traditional
D&B
Management Contracting
Construction Management
4
Q
What is Traditional Procurement?
A
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.
5
Q
When might traditional procurement be appropriate?
A
- If the design is already completed at the time of contractor selction
- Client wishes to retain control over the design
- If cost certainty at start on site is important
- Programme isn’t a priority
6
Q
What are the advantages of Traditional?
A
- 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.
7
Q
What are the disadvantages of Traditional?
A
- 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
8
Q
What is D&B Procurement?
A
Where the contractor is responsible for the design, planning, organisation, control and construction of the works to the employer’s requirements
9
Q
How does D&B work?
A
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
10
Q
When might D&B be appropriate?
A
- 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
11
Q
What are the advantages of D&B?
A
- 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
12
Q
What are the disadvantages of D&B?
A
- Clients may find it hard to prepare a sufficiently comprehensive brief.
- 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.
- Quality may be impacted as the contractor is building to a price
13
Q
How much design input will the contractor have in D&B?
A
- 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
14
Q
Who carries out the design for the contractor in D&B?
A
- 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
15
Q
What is management contracting?
A
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.
16
Q
How does management contracting work?
A
- 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
17
Q
When might management contracting be appropriate?
A
- Where the client does not want cost certainty before commencement
- Where an Early start on site is a priority
18
Q
What are the advantages of MC?
A
- 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
19
Q
What are the disadvantages of MC?
A
- 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
20
Q
What is construction management?
A
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
21
Q
How does construction management work?
A
- 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
22
Q
When might CM be appropriate?
A
- On large, complex projects where the advantages of Construction Management can be utilisied 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
23
Q
What are the advantages of CM?
A
- 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
24
Q
What are the disadvantages of CM?
A
- 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
25
What is the difference between management contracting and construction management?
- 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
26
How do you identify the client requirements before recommending a procurement route?
Through detailed discussions with the client and design team to identify their priorities in terms of cost, time, quality, risk, control requirements and experience
27
If the client wishes to start on site asap, what route would you recommend?
- 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
28
What would you recommend if the client wanted an early start but also cost certainty?
- 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
29
What is GMP and what does it mean to you?
Guaranteed Maximum Price
- 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 their tender price
30
What is PFI?
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
31
What are the three types of PFI projects?
Financially free-standing - Projects costs are recovered by charging users for example toll roads and bridges.
Joint Venture - Public and private sector stakeholders 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
32
What sort of projects might PFI be used on?
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
33
What might be some of the problems associated with PFI?
- 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
34
What is Partnering?
- 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
35
What is project partnering?
- 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
36
What is Strategic Partnering?
- 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
37
What are the key advantages of partnering?
- 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
38
What is tendering?
A structured procedure within the procurement process 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
39
What are the main methods of choosing a contractor?
- Open tendering
- Selective tendering (Single or Two stage)
- Negotiated tendering
- Serial tendering
40
What is open tendering?
- 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
41
What are the advantages of open tendering?
- It provides opportunities for capable firms which the clients may have not previously considered
- It should secure maximum competition from the open market
42
What are the disadvantages of open tendering?
- 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
43
What is selective tendering?
The number of tenderers is restricted by pre-selecting a limited number of contractors to tender for the work
44
What are the two types of selective tendering?
- Single Stage
- Two Stage
45
What is single stage tendering?
A structured process of receiving competitive tenders from a number of pre-selected capable contractors
Contractors are pre-selected based on:
- Financial standing.
- Qualifications and certifications.
- Previous track record.
- References.
- Organisational structure.
- Capacity and resources.
- Size of work previously undertaken.
46
What are the advantages of single stage tendering?
- 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
47
What is two stage tendering?
- 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
48
What is the purpose of the first stage?
- 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:
- A schedule of rates that will be used to calculate the agreed price during stage 2
- A price for assisting the client with design development and buildability expertise during stage 2
- Confirmation of the contractors Overheads & Profits Percentage
- A preferred contractor is then appointed to assist with developing the design further
49
What is the purpose of the second stage?
Following development of the design to a defined stage, a formal negotiation process is undertaken during stage 2 to agree:
- The final price
- The contractors conditions
- Programme
50
What do tenderers return as part of the first stage?
- Detailed build up of prices for the preliminaries items
- Percentage additions for profit and overheads
- A construction programme
- Proposed sub-letting of the works
51
What are the advantages of two stage tendering?
- 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
52
What are the disadvantages of two stage tendering?
- 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
53
Why should you use 2 stage tendering?
- 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
54
What is negotiated tendering?
Where the client has an existing preference for appointing a particular firm and only negotiates with one contractor
55
When might negotiated tendering be used?
When the contractor has carried out work successfully for the client previously where they have an existing relationship
56
How does negotiated tendering work?
- 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
57
What is serial tendering
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.
58
What could selecting the wrong contractor lead to?
- A bad client & contractor relationship
- A dissatisfied client
- An insolvent contractor
59
How would you put together a set of tender documents?
In accordance with JCT practice note 2017 I would include:
- ITT (Invitation to tender letter)
- Instruction to tenderers with:
- The date and time for return, to whom, site visits, programme, errors procedures, scoring matrix
- Conditions of proposed contract
- Pricing documentation
- Drawings & Specifications
- Employers Requirements
- Pre-construction H&S information
- Form of tender
60
What is the form of tender?
- 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
61
What are the employer’s requirements?
- 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
62
What are the contractor’s proposals?
- 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
63
What would you include in the pre-qualification questionnaire (PQQ)?
* 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
64
How would you determine the duration of the tender period?
- 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 their sub-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
65
What is a lump sum contract?
A single ‘lump sum’ price for all the works is agreed before the works begin.
66
What is a cost reimbursable contract?
The contractor is reimbursed the actual costs they incur in carrying out the works, plus an additional fee.
Used when the nature or scope of the work to be carried out cannot be properly defined at the outset, if there is high risk.
67
What is a measurement contract?
Where the design (or type of works) can be described in reasonable detail, but the amount cannot.
68
What is an adequate reason for delaying the tender return date?
- Design Changes or Clarifications
- Scope Adjustments
- Incomplete Tender Documentation
- Insufficient Time for Site Visits
- Client Requests for Value Engineering or Alternative Proposals
- Economic or Market Conditions
69
How do you ensure collusion doesn't occur during the tender period?
70
How is risk considered in procurement?
Time - risk of not starting soon enough, delays
Cost - risk of not getting correct price
Quality - Risk of not getting desired end product
71
How are contractors ranked after PQQ?
Ranked based on weighted categories such as:
Financial info
H&S
Management structure
72
How do you check a companies financial information?
- Companies House
- Credit Safe
- Check if they can get a bond
73
What else do you consider other than cost in tender returns?
- Programme
- Design Input
74
How did you combat the existing building risk on a project?
Contractor had PSUM with a 6 week period to survey conditions then went firm on it.
75
What is included in a tender report
- Executive Summary - recommendation
- As opened tender returns vs PTE
- Adjusted Tender returns and details of movements
- Summary of each of the tenders with advantages and disadvantages vs scoring matrix
- Recommendation and reasoning
- design team input
76
How do you check for frontloading when assessing Tender Returns?
Look at the cashflow
Check it elementally (If demo is unusually high)
77
What do you check for in a tender return?
- Exclusions
- Clarifications
- Prov Sums
- Pricing Errors
- Arithmetical Checks
78
What happens if Tender is late?
Disregard it as it decreases trust in the profession.
It creates and unfair advantage - unethical
79
How do you manage the risk of a single source manufacturer?
Inform the Client, ensure market testing is completed at the time of the estimate, check the company's financial position.
