A suitable contractor for a proposed construction project is selected by the client. There are several methods he can follow on this matter. For example, the client can decide whether any or all interested bidders permitted to submit offers. Or else, he can limit it to a selected group. If the decision is for a selected group, then the problem arises on how to identify the group. In addition, if the client probably from the private sector, may negotiate with only a single contractor. Then there is another matter to consider – whether it is necessary to use pre-qualification and post-qualification.
Tendering or bidding is the name of the process or procedure uses to obtain offers which lead to a contract between a client and contractor. Or it may be between a client and a consultant, a contractor and a subcontractor, and so on. Before starting the tendering process, a decision will need to have been made, on the contract arrangements that will have to be entered into on acceptance of a tender. Therefore tendering and a contract are clearly distinguishable in concept. But there is a very close link between them in actual practice.
Pre-qualification / Post-qualification
Pre-qualification is normally applying in large civil works, industrial projects, major equipment, and supply acquisition, specialized services. In addition, we use pre-qualification in turnkey, design and build, or management contracts. This assures that only firms capable financially, technically, and having necessary experience will submit bids. This increases procurement lead-time considerably. Therefore it is not advisable to use this procedure for simple procurement works.
Objectives of Pre-qualification
a. Assure the owner that bidder has the required technical, financial, and managerial background with experience to perform the contract successfully.
b. Assures leading contractors that only qualified contractors will submit bids.
c. Allow unqualified bidders to avoid bid preparation costs.
d. Prevent unqualified bidders from winning the bid.
e. It limits the number of bidders to a manageable size. It helps to conduct the bidding procedure easily and accelerates the evaluation process.
f. To enable prospective bidders, who may be insufficiently qualified on their own, to form a joint venture that may give them a better chance of success.
Principle factors for measuring the qualification of an applicant for pre-qualification
Information requested under pre-qualification procedure;
1. Financial capacity
2. Technical capacity
3. Relevant experience
a. Average annual income from contracting at least in the last 3 years
b. Bid capacity, the approximate value of work in hand
c. Total assets and total liabilities, Balance sheet, P & L statements of the firm
d. Available credit
a. Site management – Project organization & management, Subcontracting
b. Key technical personnel and Project Manager – organization chart & CVs
c. Plant & Equipment
a. Experience as the main contractor or lead partner,
b. Experience with similar works,
c. Experience with similar site conditions,
d. Past performance – List of completed projects with the name of the client, location, type of project, etc.
If a contractor is the apparent low tenderer for a project, then he will be asked to submit information demonstrating its qualifications submitted with the tender. After that, if he can prove his qualifications, then the client will award the contract to him.
If not, the client has two options. One is to go for the second-lowest or the next option is to re-tender. The decision will depend on the project and the prevailing situation.
If the first contractor found unsuitable during the post-qualification, then effort throughout the tender process for selecting him is wasted. The rejected tenderer may also claim that he unjustly rejected as not qualified for favoring some other tenderer.
With a well-written contract document, clients always have the right to choose responsive and responsible tenders and counter any claim against their decisions.
Methods of Tendering
In the construction sector, there are three methods in use for selecting a contractor:
(a) Open tendering,
(b) Selective tendering,
It is a procedure of allowing any eligible construction organization, probably after the following advertisement to submit a tender. Open tendering will secure maximum competition by giving any organization an opportunity to tender.
The major disadvantage in this practice is it can lead to organizations tendering that do not have adequate resources and/or expertise of the work. If there is no pre-qualification requirement, then any interested eligible contractors can submit tenders.
An invitation to tender is issued. Then tenders are received and evaluated. To discourage irresponsible applicants, sometimes the client may ask from bidders to keep a deposit. Normally, the deposit is returnable on the
submission of the bid. Then, if the criteria for selection are based on price alone, the owner must decide whether the lowest bid is both responsive to the tender announcement and responsible. If so, the bidder is qualified to do the work. In addition, if any other measures are used to judge the tender, then consideration of qualification will be a part of this process. In either way, the end result will be an agreement with a qualified contractor.
Normally, the first step in calling bids in this process is client advertising in newspapers or publicly inviting bidders to apply for bid documents to bid in competition for carrying out the work.
- No favoritism is in this method.
- In addition, the client can get the maximum benefit from the competition.
- Another advantage is that any capable firm can submit bids under this method
- Since this method is open to all eligible bidders, a firm inexperienced in preparing bids also may submit erroneously prepared lower bid.
- There is no guarantee that the lowest bidder is sufficiently capable or financially stable.
- This method increases the total cost of bidding.
Selective tendering is a process or procedure for selecting a limited number of firms and then inviting them to tender. This method is also a recommended method where competition is wanted, but the work may be
routine in nature or have a lesser value.
Initially, the consultant prepares a shortlist of tenderers who are suitable to carry out the proposed work. The consultant selects names for this shortlist using an approved list of bidders maintained by the client. It is recommended that the number of bidders should be limited to a manageable number, depending on the size of the contract. If all the bidders on the shortlist are all reputable, well established, and suitable for the proposed work, then the selection of suitable bidder comes to a question of price only.
- When using this method, it is certain that only capable firms submit bids.
- Since there are fewer bidders, it reduces the cost of bidding.
- Under this method, there is less competition due to fewer bidders.
- Because of the higher quality of the bidding firms, it may lead to a higher cost level of bids
After receiving tenders, the consultant will evaluate those in a manner similar to those received through the open tender process.
Sometimes in the private sector, clients may invite bids from firms with whom he has confidence based on their reputation, past experience, or other criteria. Or else, clients may select construction firms based on
the recommendation of the design professionals. However, this approach is probably not appropriate in the public sector. This is because, in the public sector, accountability to the public requires credibility and transparency.
Another name for this method is single tendering. We can consider this method as a special case of selective tendering, having only one name in the shortlist. Normally this happens when the contractor has done previous
construction work satisfactorily for the client. Therefore the client may prefer to award the next construction to the same bidder. In this method, there will be no competition. As a result, it will lead to a higher price. Here, the contract sum agrees after negotiation by the client with the contractor.
If there is a large project to carry out in several stages, a method combining selective tendering and nomination can be used. This method is called serial tendering.
Serial tendering is the term used where tenders are invited for a project or series of projects, each of which will become a contract or contracts in their own right. The contractor is chosen for the first phase by means of
selective or open competitive tendering. The accepted tender outlines the basis of payment for the resulting contract. For the later stages, the same tender will use. However, a provision has to be made for so doing in the initial contract by the inclusion of a formula for updating prices.
Gaining the benefits of continuity is the main purpose of serial tendering. All the site facilities of the first stage will continue for the latter phases of the project. When the second phase commences, these facilities are already available. It allows a smooth transition with less additional expenses. After finishing the first stage, the contractor’s workforce is familiar with the details of the construction. It is a major advantage. In addition, it helps speedier and more efficient progress of works in the latter stages.
We may use bills of quantities or schedules of rates for this process. Negotiations will carry out using unit rates in the bill of quantities and resulting amounts until reaching an agreement about the total bid price. Usually, the contractor’s quantity surveyor and the project quantity surveyor will participate in this process. Firstly, one quantity surveyor will price the tender document. Then the other quantity surveyor goes through the document and marks the unit rates which are acceptable. After that, both quantity surveyors negotiate for balance unit rates and finalize the tender. After reaching an agreement by both parties, the client and contractor will enter into a contract. This process is sometimes called Single-stage negotiation. However, the disadvantage of this process is the absence of competition. This usually results in a higher contract price.
include competition to negotiated contracts
To gain the benefits of competition as well as the advantages of negotiation, limited competition for the selection of contractors is sometimes used. And then follows the negotiation with the successful contractor. Usually, this process is known as two-stage negotiation.
Firstly, the client will inform the bidders about the intention of the second stage. Then bidders will submit bids on the basis of Schedule of rates.
However, this schedule of rates consists of main and cost-significant items only.
They may include followings;
- Prices for the main preliminary items.
- Unit rates for cost-significant work items.
- Details of all labor rates, material prices, and discounts, etc.
- Construction program showing estimated times.
- Labor and plant resources and construction methods.
Because of the competition, the bidders will submit their lowest offers. Then, on the basis of the above information, one bidder will be selected. After that, negotiation will follow with the selected bidder, using a detailed tender document similar in single-stage negotiation.
This method normally uses to select a contractor to carry out management contracts. In management contracts, the general contractor does little or none of the construction work. For instance, he organizes sub-contractors to do the work.