ABPL30055

Construction Management

Lecture - Selection of Head Contractor

Readings
Brook, M. (2017). Chapter 5
Contractor selection and decision to
tender, pp 68-81 in Estimating and
tendering for construction work. 5th
edition, Abingdon, Oxon; Routledge.

Hackett, M and Statham, G (2016)

Chapter 17 Procedure from Brief to
Tender, 9 pages, in The Aqua Group
Guide to Procurement, Tendering
and Contract Administration, John
Wiley & Sons.
Lecture outline: 1. Introduction
Selection of Head
2. Tendering
Contractor
3. Tender process

4. Qualification

5. Evaluation criteria

6. Tender evaluation

7. Summary
1. Introduction
Head contractor selection

Choosing the most appropriate head contractor is paramount in success of a project.

A formal tender process is used choose a head contractor and form a contract. Similar
processes are also used for choose design consultant and other specialist consultants.

Best value tenderer (‘bang for buck’)?

Client needs to be clear on the objective Technically acceptable lowest priced tenderer?
of this procurement – is it: Most innovative tenderer?

Time overruns
Selection of an unsuitable contractor can Poor quality
lead to: Increased costs to client
Increased number of disputes and possible litigation
2. Tendering

Used on: Tender is offer to Places contractors Tenders invited in

execute work in competition one of three ways

Both public and Tender and bid are Price is generally Open
private sector not synonymous the basis for choice Selected
projects Delivers an By negotiation
Building and civil acceptable price
engineering work
3. Tender Process
Typical selection process

» “The purpose of any tendering procedure is to select a suitable contractor, at a time appropriate
to the circumstances, and to obtain from them at the proper time an acceptable tender or offer
upon which a contract can be let.” Hackett and Statham (2016)
» Choosing a contractor can be a lengthy process depending on project cost and complexity.
» Typically the tender process is such:

Call
Market tenders
Choose
study of using a Evaluate Post tender Form
tendering
potential Request tenders negotiation contract
method
contractors for Tender
(RFT)

Source: Hackett, M and Statham, G. (2016) The Aqua Group Guide to Procurement, Tendering and Contract Administration, John Wiley & Sons.
2. Tendering
Competitive bidding

Favoured by Typically awarded to Free and fair Collusion?

most construction bidder with lowest competition?
clients price
Particularly public sector Clauses normally state Assumed “value for Strict procedures for
clients and large that lowest price tender money” achieved through storage and opening of
corporations does not have to be tenders!
accepted but often is!
3. Tender process
RFT document

Request for Tender Outline of work

(RFT) documents
contain: Conditions of tendering
Evaluation criteria
Proposed Conditions of Contract
Scope of work description
For Tendering Only Drawings
Specifications outlining scope, technical requirements, quality requirements
Schedule of prices
Schedule of requested information from tenderer
(schedule, methodology, team, capability, experience, quality aspects, innovation aspects,
recent safety records, exclusions etc.)

Tender form
3. Tender process
Open tendering

Allows practically any contractor Number of tenderers is unlimited

to submit a tender for the works. Public invitation to tender - newspapers or trade journals

Avoids criticisms of contractors who are not short listed

Advantages Appears to be very competitive

Contractors may be not be fit to carry out the work - financially or technically
Unnecessary burden on industry
Disadvantages
Can be time consuming for the client in sorting many tenders received
Some tenderers may not choose to tender
3. Tender process
Selective tendering

Selected contractors allowed to bid (typically 3 to 6 tenderers invited to bid) but must go
through a pre-qualification process.

Informal Potential contractors short-listed on the basis of satisfaction of specified criteria -

technically and financially able to do work – usually done by an informal check of firms.
Two types Formal Potential contractors screened through a formal “Expression of Interest” (EOI) process.
This allows tenderers to put forward their capabilities and experience and other criteria stated in
the EOI. If they do not meet requirements they are not short listed.

The pre-qualification process allows only suitable tenderers to submit tenders and saves
the client and non prospective tenderers time and effort.

Some clients have a list of potential contractors developed over several years
– they will invite specific contractors to tender depending on project type.
3. Tender process
Negotiated tendering

Used in several different contexts but based on fact that an acceptable tender is arrived at by
discussions with a single contractor (can also be called sole tendering).

Contractor choice is based upon knowledge of satisfactory past performance or recommendation

Two stage tendering option, final decision based on negotiation

Can be used when there is only one contractor available or capable to carry out this specific work

Used when there is a long term relationship formed with a sole contractor

Rarely used in public sector due to probity issues

4. Qualification
Tenderers

Process of Based on set of May be ongoing Must be

determining criteria determined with record of articulated to
candidate’s from the client’s contractor contractors
competence or requirements for performance tendering on
ability to meet the project (approved project and form
the specific contractor list) part of the
requirements of Can change from project to project tendering
the task Normally include: conditions
• Technical,
• Financial,
• Management capability,
• OH & S, IR history,
• Similar project experience etc.
4. Qualification
Pre-qualification

Owners vet contractor All contractors who bid are Final contractor selection
competence before competent to execute work can focus more on
distributing contract comparing and evaluating
documents bids
4. Qualification
Pre-qualification

Identify selection criteria

Gather contractor
Evaluate data
data from sources

No
Pre-qualify? Disqualify contractor

Yes

Qualify contractor
(Issue contract documents)
4. Qualification
National Prequalification System

Australasian Procurement and Construction Council

The National Prequalification System for Non-residential Building (NPS) aims to create certainty and
consistency, and streamline the process of prequalification for contractors working in multiple
jurisdictions. It applies to non-residential government building contracts where the construction cost
estimate is $50 million and above
Guidelines
Prequalification Maintenance of
Conditions of Prequalification Assessment
Categories and Prequalification
Prequalification Requirements Process
Financial Levels Status

Source: Australasian Procurement and Construction Council Inc. - https://www.apcc.gov.au/nps

4. Qualification
Post-qualification

No restriction on Only tenderers Cost to client Need to let Not as common as

who may submit with lowest bid may be less than tenderers know pre-qualification -
bid will be subject to pre-qualification t post qualification but now being
competence - but …….. will be carried used in a different
assessment out and the way!
criteria.
4. Qualification
Post-qualification
Identify selection criteria

Invite tenders
(issue contract documents)

Gather contractor
Evaluate data
data from sources

No
Qualify? Disqualify contractor

Yes

Engage contractor
5. Evaluation criteria
Lowest price

Move away from price as the sole criterion

Price may be low due to:

• Incorrect estimation or poor risk assessment!

• Contractor may have identified inadequacies in documents
• Design inadequacies, potential changes in scope or contract changes. Through claims
boost a low tendered margin!
• Client variations used to boost margins

Claims major cause of disputes

• Lead to mistrust poor team relationships and client dissatisfaction

Alternative methods

• Evaluation more complex

5. Evaluation criteria
Lowest priced

“It is evident that, the practice of lowest evaluate bidder is not

adequate for providing a satisfactory project outcome. Rather, more
emphasis should be placed on contractor’s technical abilities, HS and
management capabilities as they have proven to have significant
correlation with project success”.

Acheamfour et al. (2019: 629)

Source: Acheamfour, V. K., Kissi, E., & Adjei-Kumi, T. (2019). Ascertaining the impact of contractors pre-qualification
criteria on project success criteria. Engineering, Construction and Architectural Management.
5. Evaluation criteria
Multi-parameter models

Pre-qualification Competence considered across a range of

minimum first step different criteria - not just cost
Project success related to project leader and team
Emphasis will vary depending on client
Cost plus quality allowance
• Work in hand
• Senior staff availability
• Accurate financial capability, etc
May integrate quantitative and qualitative assessment
5. Evaluation criteria

Classification of contractor
prequalification criteria

Source: Acheamfour, V. K.,

Kissi, E., Adjei-Kumi, T., &
Adinyira, E. (2019). Review of
empirical arguments on
contractor pre-qualification
criteria. Journal of
Engineering, Design and
Technology.
5. Evaluation criteria
Tender evaluation

Typical evaluation criteria for choosing a contractor:

• Experience in similar projects • Subcontractors and suppliers proposed

• Company technical capability • Schedule to complete work
• Company management capability • Construction methodology submitted
• Safety record • Quality expectations from the contractor
• Head contractor team

Some criteria are mandatory and others are desirable.

• Tender price is often not sole criteria.

Criteria can be weighted, scored, and compared to tender price

submitted
• ie Score/Price ratio is compared between each submission.
5. Evaluation criteria
Performance criteria and measures

Criterion Measures
Capital cost (tender price) Lowest sum tendered
Annual operating cost Lowest annual operating cost
Construction period Shortest construction period
Construction quality potential Perceived rating
Concern for safety, health & environment Perceived rating
Management expertise Perceived rating
Experience with similar projects Perceived rating
Team working relationships Perceived rating An example

Community support experience & corporate ethics Perceived rating

Claims and dispute avoidance Perceived rating
Source: Kumaraswamy and Walker in Rowlinson S and McDermott P (1999) Procurement systems - a guide to best practice. E & FN Spon.
 6. Tender evaluation
Tender assessment

After a tender is submitted, tenders are assessed

in accordance with evaluation criteria.
Negotiations Chosen
Avoid Try to Negotiations Negotiations can be tenderer
unconscious separate often held to be fair, Look for best outcomes complex then
bias by cost with the with one or sensitive, and for client, contractor, and and can becomes
being technical two parties confidentiality project take weeks / the
methodical. offer. of interest. respected months contractor.
depending
on
complexity,
Not terms and
“basement Win win conditions
bargains” (TCs), risks
etc.
6. Tender evaluation
Comparing prices within bids

Comparison of price and Alternative methods? If prequalification used

time factors
If bill of quantities used - Average bid method Price may be sole criteria
methodically compared. Identify project cost range - accept In some case do not take into
Use of internally prepared ‘fair lowest bidder within this range account any other parameters
price estimate’ than price!
Discounted cash flow analysis
Statistical techniques to identify
discordant bids
6. Tender evaluation
Form contract

» Once negotiations are completed the client

makes up a contract which contains the following:
Terms and
For Construction Baseline
conditions of Specifications Baseline costs
drawings schedule
contract

Contractor Payment Execution pages

methodology arrangements (signatures)

» The contract is document which is a result of an offer made by the tenderer

and negotiated outcomes
7. Summary

» A formal tender process is used choose a head

contractor and form a contract.
– Choosing the most appropriate head contractor is paramount in success of a project.
• Determining candidate’s competence or ability to meet the specific requirements of the
task is important
– Prequalification
– Post qualification
– Tenders can be invited in one of three ways
• Open
• Selected
• By negotiation
– Strict procedures for storage and opening of tenders!
– Multiparameter models for selection criteria are now more popular
• Price alone not a ideal
– Once negotiations are completed the client makes up a contract
Questions?

Lecture - Selection of Head

Contractor