Tendering for Construction

Construction is a highly technical industry with multiple trades and areas of expertise, making it near impossible for anyone to understand all the different specialities. Tendering for construction work is, therefore, incredibly difficult and requires the buyer to have a clear comprehension of both the technical elements of the product being purchased and the most appropriate route for tendering the work.

There are many different tender processes a construction buyer can go through, but before all that, how do we as an industry define what tendering is?

The National Building Specification (NBS) define tendering as:

“… the process by which bids are invited from interested contractors to carry out construction work. It should adopt and observe the key values of fairness, clarity, simplicity and reinforce the idea that the apportionment of risk to the party best placed to manage it is fundamental to the success of a project.”

In my opinion, the latter point is the pivotal one: it is critical that risk is apportioned to the party best placed to manage it, and often, it is not.

When you tender for construction work, it is much more than just getting prices back for elements of work. Instead, I believe tendering is more of a risk management process. Risk management involves:

• Identifying the major risks of a project.
• Assessing their likelihood of occurring.
• Deciding how best to manage them.

In construction, there are many different options for dividing the risk between stakeholders; that is why we have many tender processes. When you tender for construction works, there are many ways you can do this as listed below:

• Competitive Tendering
• Selective Tendering
• Negotiated Tendering
• Framework Tendering
• Two-Stage Tendering

The question is, which one is right for your project? Let’s assess each option in depth.

Open Tendering

Open Tendering allows anyone to submit a tender to complete the works. Typically, a project notice will be placed by the client, giving notice that a package of works is being tendered and requesting that organisations register interest to submit a tender.

Open Tendering in construction is the procurement route that offers the most significant competition and allows SMEs to reach a broader client base. This encourages innovation and will enable buyers to view more proposals.

The challenge with Open Tendering is that in this format anyone can submit a tender for the works that are required and often, this leads to unsuitable contractors tendering for the works or multiple contractors tendering, and thus, the buyer is unable to suitably reply to each of them.

Selective Tendering

Selective Tendering differs from Open Tendering in allowing contractors to submit tenders by invitation only.  Selective Tendering is not ‘open’, and a pre-selected list of possible contractors is prepared based on the client’s initial pre-qualification.

Once the buyer has determined a list of contractors suitable to tender for the construction works required, the client will invite them to tender. The exact number will differ from contract to contract and package to package, and we advise that this is no more than 4 to 5.

When tendering for construction work, most Quantity Surveyors and buyers opt for the Selective Tendering procurement method.

Why?

Selective Tendering is perceived well as it involves pre-qualification. Prequalifying the supply chain ensures that the buyer quickly identifies contractors capable of delivering the scope of work. One challenge with this process is that it can lead to a ‘stale’ procurement list of prospective contractors as the pre-qualification process takes time and can exclude contractors unknown to the buyer from the process.

Negotiated tendering

Negotiated tendering is when the client approaches a single supplier, and the contract terms are negotiated with this company and this company alone. It is often considered most appropriate when the tender is for highly technical or specialist construction work.

On many public projects, negotiated tendering is not permitted as it can be perceived as being anti-competitive. For these reasons, you more commonly see it in the private sector.

Negotiated tendering for construction works can result in both a reduced tender period and cost for the tender, with both parties able to confidently get to the detail of the package quickly. Despite this, it can be seen as anti-competitive and exclusive and often is not permitted due to a perceived lack of accountability.

Two-stage tendering

Two-stage tendering for construction work occurs in two separate and clearly defined stages. In the first stage, a limited appointment is issued by the client to allow the contractor to commence work, and in the second stage, a fixed price is negotiated for the agreed scope of work.

The focus of two-stage tendering is early contractor engagement. The focus is on enhancing buildability and increasing cost certainty in an advisory capacity before the scheme is fully designed. Two-stage tendering is typically applied to complex projects where the client wants to appoint a Main Contractor, or more commonly by the Main Contractor in their employment of a subcontractor for a design-oriented package such as M & E, cladding or curtain walling.

Framework tendering

A framework agreement is an agreement between one or more businesses or organisations. In entering into a framework agreement, a contractor is usually one of many contractors contractually bound to deliver the client’s requirements.

Clients with a continuous line of work to tender can reduce timescales and other risks using framework agreements. Such arrangements allow the client to invite tenders for construction work from contractors on a call-off basis as and when required.

A call-off contract is a framework agreement allowing the client to place bulk orders over time. This type of agreement is often used in tendering for construction maintenance works, where projects can last for months or even years.

For clients, framework tendering is a really efficient procurement route when they have repeat work.  Where appropriate, the client will complete one tendering exercise over the life of the contract arrangement, which reduces administration and costs while also establishing a long-term working relationship with its supply chain, which promotes operational efficiency.

How do you know which is best for your project?

As a client tendering for construction works, ascertaining the correct tender process for a given project will be based on a balance of factors, including the level of specialism required, local market and budget.

If you consider construction work in three headline categories; standard projects; technical projects, and maintenance projects, our advice for the most appropriate tenders for construction is as follows.

On a relatively standard project, our advice is always to undertake a level of pre-qualification of the supply chain before issuing Invitations to Tender. In doing this, you ensure that you have appropriate, interested contractors with whom to tender, and as a result, you should receive at least 4 to 5 tenders back to ensure the process is competitive. An Open Tender can result in too many tenders being returned and returned by contractors whom you consider unsuitable: this is neither effective use of your nor the contractors’ time, and therefore, we advise against this.

Where the scheme or package involves more technical elements, two-stage tendering can deliver good results owing to the early specialist engagement and should always be considered. With maintenance work, specifically longer-term maintenance work, we recommend exploring Framework agreements which can often result in both time and cost efficiencies.

In conclusion, however, we contend there is no simple off-the-shelf tender process to choose from. Each construction project is unique, with different risks, opportunities and stakeholders. Therefore, the client should always tender for construction works with their specific scheme to ensure they best manage and allocate the risk.

Photo by Greyson Joralemon on Unsplash

About Paul Heming

Paul was a Quantity Surveyor who gained 10 years experience of managing £200 million worth of flagship UK projects, including 20 Fenchurch Street and Battersea Power Station. In 2015, Paul founded C-Link with the intention of sharing his expertise of managing major projects with the SME market.