Avoiding Mistakes in Construction Tenders

Tendering for projects can be fraught with issues for both sides. The organisation issuing the invitation to tender will want to ensure they have clear, concise, and unambiguous information that clearly describes what they are trying to buy. The tenderer will submit a return based on what they consider to be their best offer to win the tender.

However, if the wording in the scope is open to interpretation or generally unclear, things can quickly move sideways once in contract. For the bidder, this could be to their advantage if the client accepts their position and adjusts the contract price. Still, equally, this could be a considerable gamble leading to an acrimonious and costly legal dispute before the possibility of simply rebidding.

So, to avoid such situations occurring, what are the basics that you should cover to prevent mistakes from both a client and contractor perspective when tendering? What does best practice look like, and what are the options if it does go wrong?

Align the business plan with a bidding strategy

As an organisation, you need to be selective about the contracts or frameworks you are trying to win by aligning them with your business model. For example, does the work type suit your company? Do you have the capacity to deliver on the scale required? Are you prepared to work with that client on a project or programme of work?

Suppose you’re tendering for a one-off project. In that case, it doesn’t make sense to return a bid seeking to amend the tender terms, as you run the risk of non-compliance and being discarded by the client when evaluating proposals, plus you will have expended money on the tender resources to prepare it.

An alternative would be to approach the client beforehand to seek permission to submit a variant bid to see if they would consider evaluating it to avoid abortive tendering costs. If the outcome is the terms can not be changed and, as a result, the project’s risk profile does not suit your business model, then it might be that you must decline to tender. Another alternative could be to agree on terms with another organisation and set up a joint venture such that you can sign up to the risk profile, but it is minimised or shared.

Raise Technical Queries:

If you believe information is missing or there are ambiguities, then raise queries and seek clarification. It is better to have clarity for all parties and then incorporate answers to technical questions into the contract so long as the contract documents are not updated to reflect the answers.

For example, if the specification calls for a certain type of materials to be provided irrespective, but the scope asks for those materials or similar approval, what is required?

Notwithstanding the above, there is the contra proferentum rule whereby the person interpreting the documents is deemed to have interpreted such that is most favourable to them. Still, there is also consideration given this applies to amendments or additions to contract terms. As noted above, if this is significant, a client may seek to re-tender the project leading to increased costs for all parties, which is not favourable to either party.

Inaccurate Cost Estimating / Inaccurate Quantities

With the rise in NEC contracts and the lean towards target cost contracts or fixed price lump sum activity schedules, the risk of quantities and errors in take-offs in this type of arrangement resides with the contractor when generating their contract price. However, the principle is broadly similar if you take the JCT standard building contract without quantities.

However, there is an advantage for the client to provide a bill of quantities in so far as they will have a standard method of measurement and the ease upon which they can compare the bidder’s prices. There is also a clear disadvantage, though, in that if you make a mistake and miss out a part of the works, the contractor could seek to vary the contract quantities later to be paid for the missed element. This is fraught with issues and runs the risk of being spotted at the tender stage and ‘loading’ the bills of quantities, i.e., high rates for items that are likely to change. For this reason, contracts are usually varied to state the pricing schedule is deemed to include the contract in totality, i.e., the drawings, terms and conditions, site conditions, specifications etc. For the reason noted above, if an error is found when bidding, it is recommended to raise a technical query to clarify the situation.

For the contractor, if the estimator incorrectly takes off from the client’s design, then produces and prices their bill of quantities to inform a lump sum tendered price, they will find themselves at a disadvantage. If they subsequently choose to subcontract out the works and find there is a discrepancy in their take-off as they have no route to ask the client for additional funds, and the subcontractor will not willingly take on the error, you are left with a problem to descope or value engineer the works down so as not to make a loss.

Also, notwithstanding just the possibility of errors in taking-off from the quantities, care and attention should be taken to read the drawings in full, including any notes and references to the specification, as bidders will be deemed to have taken full cognisance of all information, not just what is depicted on the drawings.

Check supply chain quotations

If tendering works, it is unlikely you will be able to supply all trades directly as the main contractor, and will therefore seek to employ the services of subcontractors. These subcontractors will provide quotations during the tender stage, which can be built into the overall tender return, but it is essential to review the terms upon which the subcontractors have quoted. There is invariably is time pressure to submit the return, but stop to consider if the price quoted is compliant with the client’s specification plus any qualifications.

Other points to watch out for are quotation validation periods, e.g., the quotation period on a supply chain quotation may be as little as 14 days in the current climate of rising material prices. Still, equally, you may have to provide a validation period on the main tender return of 90 days, therefore either seek to get the supply chain to go back-to-back or add in risk for inflation to the overall price submission.

Also, they may require attendant labour to manage part of their works for them, which in their terms and conditions, they have stated they expect the main contractor to provide, which could be a sizeable cost if the duration of the project is long. Equally, they may have qualified their price that the main contractor will provide all access equipment,

Misunderstanding Specialist Trades

If the project you are tendering means that you need to contract with a specialist trade, as mentioned in the specification or through nomination, take the time to understand how they operate and what terms they require to contract. If there is design involved, does their level of insurance provide adequate back-to-back coverage with your own and the clients stipulated levels?

Undertake due diligence by checking what lead times they are working to, what their current workload is versus their capacity to take on new contracts, and what other contracts they have on at the time they will be needed on site. It could be they only have a finite workforce, and therefore rather than instructing them or giving them notice to attend the site, you will need to wrap parts of the programme around their availability.

Allow adequate risk provision

The best practice in this category is to consider all risks that could occur and are the responsibility of either party before properly evaluating them through a quantitative and qualitative assessment.

Also, even if the risk from a commercial perspective resides with the contractor, the client may be best placed to manage that risk. Highlight this through an adequately defined risk register submitted with the bid, aiding post-tender discussions.

However, there will be resource constraints on bidding and carrying out the level of risk analysis referred to above in many instances. Therefore many apply what they consider to be industry-standard percentages for risk, e.g. 5-10% for design and build contracts, 5% for build only contracts, and for the supply chain, it can be either qualified out to submit a lower price or a higher percentage on the basis the price is proportionally lower than a main contractor’s.

If you are a client and receive bids with risk allowance percentages of 4% and below, they should be closely scrutinised to see if this is adequate. It is one thing accepting a low bid, but if this puts undue commercial and financial pressure on an organisation that affects their ability to deliver, it ultimately becomes your problem.

Carry out a peer review (wording and commercials)

A good practice is for a separate person or team to review the submission and ideally at regular intervals on the way through the tendering period. It can be helpful to review technical submissions assuming the bid is not 100% price only evaluation.

There is always the risk of human error, so carrying out the basic checks of grammar and spelling is essential as submitting a bid with these on can be unprofessional from a first pass review by the assessor. Also, peer-reviewing might point out some basic tasks that have not been considered, such as visiting the site to understand the constraints, topography, and if the chosen location for access and egress and site offices is suitable.

Seek to take the lessons from previous unsuccessful bids

If unsuccessful, then one of the hardest parts is to review the failed bid objectively, learn from the reasons it was not successful, and make improvements for future bids. It may have been late submissions, incomplete returns, mathematical errors that made the bid non-complaint or uncompetitive, or equally that your bid was too low and may have been considered to be undeliverable for the price offered.

Through such an approach, it is possible to improve, become more efficient, standardise certain sections and provide better quality bids in a faster timescale.

Photo by Charles Deluvio on Unsplash

About Dean Suttling

A member of the Royal Institution of Chartered Surveyors, Dean has twenty years of experience in commercial management and quantity surveying, undertaking roles for contractors, clients, and consultants.