Tendering Process in Construction: Methods & Key Steps

What is the Tendering Process in Construction?

 

The National Building Specification (NBS) defines 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.

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. The tendering process in construction work is, therefore, incredibly difficult and it necessitates a firm grasp of both the technical aspects of the project and the most suitable tendering method.

Whether the process used is one of  the more common methods employed in construction tendering like single-stage tendering or two-stage tendering, each with its advantages depending on project complexity, project duration, and other factors. There are also cost management procedures, performance specifications to consider. Then there is the selection of an appropriate contract method. All of which are vital considerations to take during the tendering process. These procedures directly impact factors like competitive pricing.

But before all that, there are many a different tendering process in construction that a buyer has to consider. 

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 strategy 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. There’s a multitude of ways to approach construction tendering, as explored below:

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.

Serial Tendering

Serial tendering involves preparing tenders based on a typical or notional bill of quantities or schedule of works. The rates submitted can then be used to value works over a series of similar projects, often for a fixed period of time. Serial tendering can reduce tender costs and may encourage suppliers to submit low rates to secure an ongoing programme of work. This type of tender is particularly useful for projects where the scope of work is repetitive or ongoing, allowing for a more streamlined and cost-effective approach.

Single-Stage Tendering

Single-stage tendering means all the necessary information needed to calculate the service price is already provided in the Invitation to Tender. Potential suppliers submit their offers, and clients choose the best one directly from these submissions. There is no need for additional steps. In contrast, two-stage tendering involves at least two steps. The contractor can be appointed even before all information required to set the price is submitted. Initially, the contractor prepares a framework for the project with design input, which can later improve communication regarding the final price.

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 an 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.

Key Steps in the Tendering Process

The tendering process in the construction industry typically involves several key steps to ensure a fair and competitive selection of contractors. Understanding these steps can help streamline the process and achieve better project outcomes:

1. Invitation to Tender: The process begins with an invitation to tender (ITT) or a request for proposal (RFP), which includes detailed tender documents. These documents typically contain the project specifications, design drawings, and contract sum analysis. The invitation may be open to all or selective, depending on the tendering method chosen.
2. Clarification: Potential contractors may seek clarification on the tender documents to understand the project’s requirements better. This phase helps ensure that all bidders have a clear and uniform understanding of the project’s scope.
3. Submission of Tenders: Contractors submit their bids, including their pricing, schedules of rates, initial construction phase plans, and any design proposals or method statements requested. The submission should also include the contractor’s capability demonstration, such as prior experience, key project personnel, and management organization.
4. Tender Evaluation: The client or an evaluation panel reviews the submitted tenders. This involves assessing the bids against pre-determined criteria, such as cost, quality, and project timelines. The evaluation process may also involve mid-tender interviews to clarify aspects of the submissions.
5. Tender Settlement and Negotiation: Once the preferred tenderer is identified, negotiations may take place to finalize the terms of the contract. This stage may involve further adjustments to the tender documents to align with the agreed conditions.
6. Contract Execution: The final contract is prepared and signed by both parties. This contract outlines the agreed-upon terms, conditions, and scope of work, making it legally binding.

 

Benefits of the Tendering Process

The tendering process offers several benefits, including competitive pricing, quality assurance, and transparency. It ensures that the most suitable contractor is selected based on a thorough evaluation of their ability to meet the project’s requirements. By encouraging competition, the process helps keep project costs within budget while ensuring high-quality outcomes.

Key documents for the tendering process

tender documentation, design drawings, and the final construction contract. Keeping a record of the correct documentation ensures a smooth and efficient tendering process. Something which our construction management software C-Link does very well! Book a demo to find out more.

How Construction Management Software Can Support the Tendering Process

Proper Construction Management Software can significantly improve your tendering process by:

• Accelerating the process through automated tendering platforms.
• Providing quick access to a contact base with all suppliers fitting specific categories.
• Storing all tenders, their status, and detailed information in one place for easy access.
• Supporting the selection of the best supplier through automated evaluation criteria.
• Offering transparent company finances and tender impact through real-time financial dashboards.

Conclusion

In conclusion, tendering in construction is a complex yet essential process that ensures fair competition and the selection of the most suitable contractor for a project. By understanding the various tendering methods and their applications, clients can make informed decisions that align with their project goals and risk management strategies. Each construction project is unique, and selecting the appropriate tendering process is crucial for its successful delivery.

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.