Procurement & Tendering Flashcards
What is procurement?
Overall process of acquiring construction work or services
What should be considered when selecting a procurement route?
- Specifics of the project
- Client objectives (cost, time, quality, risk, control)
What are the main procurement methods?
Traditional & General Contracting
Design & Build
Management Contract
Construction Management
What is traditional procurement?
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
How does Traditional Procurement work?
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 responsibility and risk for the design and design team performance
When is traditional procurement appropriate?
If the employer has had the design prepared
If the design is substantially complete at the time of contractor selection
If 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
What are the advantages of traditional procurement?
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
What are the disadvantages of traditional procurement?
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 (no buildability advice)
A strategy based on price competition can lead to adverse relations
There is a dual point of responsibility with the design team controlling the design and the contractor retaining responsibility for the construction
What is design and build?
Where the contractor is responsible for the design, planning, organisation, control and construction of the works to the employer’s requirements
How does D&B work?
The employer gives the tenderers the ‘Employer’s Requirements’ and the contractor responds with the ‘Contractor’s Proposals’ which include the price for the works
When is D&B appropriate?
Where there is a need to make an early start on site as there can be an 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
What are the advantages of D&B?
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
What are the disadvantages of D&B?
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
How much design input will the contractor have in a D&B situation?
It depends on the amount of design work the employer has already completed at time of tender
This can range from full design to production of information and coordination only
Who carries out the design for the contractor under D&B?
It can be outsourced to a separate design company (contractor retains responsibility)
They may have in-house capabilities or the client’s design team may be novated
Who carries out the design for the contractor under D&B?
It can be outsourced to a separate design company (contractor retains responsibility)
They may have in-house capabilities or the client’s design team may be notated
What is management contracting?
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
How does management contracting work?
The management contractor has direct contractual links with all the works contractors
They have the responsibility for the construction works without actually carrying them out
Not all of the design needs to 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
When is management contracting appropriate?
When the client does not want cost certainty before commencement
Where an early start on site is a priority
What are the advantages of management contracting?
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
What are the disadvantages of management contracting?
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
What is construction management?
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 manage the contracts
How does a CM contract work?
The trade contractors carry out the work
The construction managers supervises the construction process and coordinates the design team
The CM 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
When is CM appropriate?
On large, complex projects where the advantages of CM can be utilised - e.g. using upfront buildability knowledge of the CM and their programme advice including specialist input from race 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
What are the advantages of Construction Management?
Overall project duration is reduced by overlapping design and construction
The construction manager can contribute to the design and project planning process
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 contacts with trade contractors
The client has means of redress to trade contractors through direct contractual links
What are the disadvantages of construction management?
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
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 MC only
How do you identify 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, experience and control requirements
If the client wants to start on site asap, what route would you recommend?
Need to consider other requirements in terms of cost and quality
If time = paramount, then CM or MC may be the best solution
This is because the start on site is not dependent upon a long tender period, however this results in lower cost certainty
What procurement route would you recommend if the client wanted an early start on site but also cost certainty?
Design and Build procurement may be best
Allows the design and construction to be overlapped rather than sequential
Design and construction risk is transferred to the Main Contractor with their tender based on a lump sum price to offer high levels of cost certainty
What is GMP and what does it mean?
Guaranteed Maximum Price
A lump sum contract under which their is no adjustment in 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
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.
What are the three types of PFI projects?
- Financially free-standing - Project costs are recovered by charging users (e.g. 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
What sort of projects is PFI used for?
Recommended where it offers clear value for money when compared against traditional public sector procurement
Generally considered more appropriate for projects with large values over £20m and where there are significant ongoing maintenance requirements
What are the disadvantages of PFI?
High bidding costs are associated with PFI as 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. E.g. a reduction in school cohort numbers can lead to empty classrooms being paid for my local authorities
What is Build Lease Transfer (BLT)?
A facility is designed, financed and constructed by the private sector and then leased back to the government for a predetermined period of time and 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 during the lease period is usually the government’s responsibility
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
Primary disadvantage is that legal ownership remains with the private sector
What is Build Operate Transfer (BTO)?
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
What is Build Own Operate Transfer (BOOT)?
A variation on BOT where ownership stays with the concessionaires until the end of the concession period at which time it is transferred free of charge to the host government
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
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
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 drawn down on a project-by-project basis
What are the key characteristics of partnering?
More trust is achieved between the parties
There is a reduced rusk 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
What are the benefits of partnering?
Overall construction and design programme is shortened as their is prior understanding of the Client and their needs from previous projects
Potential for conflict is reduced
Communication is improved
Pooling of resources and ideas should result in innovative solutions
Improved client satisfaction
Protection of profit margin for contractors and suppliers
Team environment is formed
Improved buildability
Better predictability of time and cost
What is tendering?
A structured procedure for generating quotations from suppliers or contractors looking to obtain an award of business activity either under competition or negotiation with a single contractor
What are the main methods of choosing a contractor?
Open tendering
Selective tendering (single or two stage)
Negotiated tendering
Serial tendering
What is open tendering
This is an indiscriminate request for tenders to be submitted to the open market
Could be achieved by advert placement in local papers or technical press inviting contractors to apply for the tender documentation
There are little to no barriers to entry needed to submit a tender
What are the advantages of open tendering?
It provides opportunities for capable firms which the clients may not have previously considered
It should secure maximum competition from the open market
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 client’s 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
What is selective tendering?
Restricting the number of tenderers by pre-selecting a limited number of contractors to tender for the work
What are the two types of selective tendering?
Single stage and two stage
What is single stage tendering?
A structured process of receiving competitive tenders from a number of pre-selected capable contractors
Contractors are preselected based on:
- financial stability
- qualifications and certifications
- previous track record
- references
- organisational structure
- capacity and resources
- size of work previously undertaken
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
What is two stage tendering?
Where the client seeks to appoint the contractor based on an outline scope of works 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
What is the purpose of the first stage (in two stage tendering)?
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 usually 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 OH&P percentage
What is the purpose of the second stage (in two stage tendering)?
Following development of the design to a defined stage, a formal negotiation process is undertaken during stage 2 to agree:
- The final price
- The contract conditions
- Programme
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
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
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 risk of retendering
When should you use two 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
What is negotiated tendering?
Where the client has an existing preference for appointing a particular firm and only negotiates with one contractor
When is negotiated tendering used?
When the contractor has carried out work successfully for the client previously where they have an existing relationship
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
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 of rates will be applied
What could selecting the wrong contractor lead to?
A bad client & contractor relationship
A dissatisfied client
An insolvent contractor
How would you put together a set of tender documents?
In accordance with JCT practice note 2017 I would include:
An ITT (Invitation to Tender) letter
Instruction to tenderers with:
- The date and time for return, to whom, details for site visits, programme etc
- Conditions of proposed contract
- Pricing documentation
- Specifications
- Drawings
- Employers Requirements
- Pre-construction H&S info
- Form of tender
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
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 include the current state of planning permission
It should also detail the level of design, structure, and specification information to be provided by the tenderers
What are the Contractor’s Proposals?
The contractor’s response to the Employer’s Requirements
They are the key documentation for the client to consider the tender review
They often include plans, elevations, sections and typical details
Layout drawings and specification materials and workmanship are also provided
What would you include in a PQQ (Pre-Qualification Questionnaire)?
Details of contract particulars
Company turnover & accounts
Previous relevant experience and references
Management and organisational structure
Health and safety records
Quality systems and environmental policy
Provision of bonds, warranties and PCGs
How would you determine the duration of the tender period?
It depends on the procurement process and size of the project
Traditional procurement with a BOQ - allow usually a month for contractors to obtain pricing information from sub contractors
Large complex schemes will need a longer tender period
If it is the first of a two stage tender, then it may be shorter, around 2-3 weeks.
It is better to ensure there is sufficient time so contractors can price the project correctly than rush and encourage contractors to price a high risk element into the tender
