Construction Contract Administration (CON3372)

Chapter 3 – Tendering Procedures

1. Tendering Procedures

Tendering procedures should facilities the achievement of the client’s objective. The
client may be seeking the lowest price, the shortest contract time, the highest quality
or merely value for money. The tendering process should attempt to secure the most
economic use of building resources.

The objectives are

1. to select a suitable contractor at a time appropriate to the circumstances,

2. to obtain from him at the proper time an acceptance offer.

2. Methods of Tendering

2.1 Competitive Tendering

Competition involves comparison with reference to certain standards or criteria. Some

of these criteria can be easy to define and measure for example, price and time. Others
are more difficult such as quality of workmanship and organization.

There are two types of competitive tendering, namely open tendering and selective
tendering.

2.1.1 Opening Tendering

- An advertisement is placed to advertise the requirements of the tenders and to

invite suitable applicants to tender.

- This method offers a free competition but will results in the submission of large
number of tenders including from firms of inadequate experience or
unsatisfactorily financial standing.

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Advantages

- This tendering procedure enable new contractors to compete with establish

companies on equal basis

- Fulfills the requirement of public accountability, suspicion of favoritism is

removed.

- Should secure maximum benefit from competition

Disadvantages

- It is difficult to determine which tenderer is giving the best offer. The criteria for
acceptance of a tender maybe plentiful and the lowest tender may not always
mean the most economic tender as it may be due to error.

- If the employer does not know anything about the tenderers, the price becomes the
only criterion of competition which maybe too risky. Tenders may be received
from firms who have neither the technical knowledge nor experience of the class
involved.

- In order to win in the competition, unscrupulous contractors will probably keep

down costs in both labor and materials, at the expense of quality. This will not
only be unfair to the reputable firm, it will also increase the running, repair, and
maintenance costs of the completed works.

- Total cost of tendering is increased as all tenderers will have to recoup their cost
eventually through those tenders which are successful. The result can only be an
increase in the general level of construction cost.

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2.1.2 Selective Tendering

To avoid the risk of inadequately experienced contractors tendering a project, a

pre-qualification process is carried out to short list the potential tenderers.

In the pre-qualification process, the potential tenderers have to supply information as

to their:-
- previous experience of the class of work involved,
- the availability of plant and personnel, and
- information as to their financial standing.

The Engineer will then carefully examined such application and recommend to the
Employer which contractors he considers are capable and sufficiently experienced to
be included in the approved list during the pre-qualification process.

Within the public bodies, this shortlist is drawn up based on past performances,
particularly those with government projects. This list will be frequently reviewed to
reflect the current situation.

It is recommended that the number of tenderers should be limited between five and
eight, depending on the size of the contract.

If the firms on the list are the ones which are well established and suitable, the
selection is resolved into a question of price only.

Advantages

- It ensures that only capable and approved firms submit tenders

- It tends to reduce the cost of tendering

- Standard of work should be more reliable as the firms chosen are from reputable
companies.

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Disadvantages

- The cost level of the tenders received will be higher, due to there being less
competition and also to higher calibre of the tenderers.

- Some contractors maybe obliged to tender if they are chosen for fear of being
blacklisted. They may put forward prices that are higher than reasonable and
affect the price level of the tender.

- The other drawback may be that this method is that there is a chance of a tender
ring where group of selected contractors get together, negotiate the price and take
turn to submit the lowest tender and this may lead to high prices in tendering.

2.2 Negotiated Tendering

Contractor is brought in at the design stage and is possibly get involved in the
feasibility of certain design.

Prices are negotiated at the planning stage as the design is evolving.

Negotiations between the employer and a contractor interested in the contract may be
carried out with or without competition beforehand.

One of an example of negotiated tendering is commonly used in the Design and Build
Contract which is the Two-Stage Tendering.

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2.2.1 Two-Stage Tendering

Stage 1

These procedures are similar to those for the selective tendering.

The tenderers may submit their preliminary design proposals with some price basis.
An essential feature of the selection is the establishment of the price basis for
subsequent negotiation.

This can be achieved by the contractor nominating a bill submitted for past project of
a similar nature, pricing an approximate bill or submitting a schedule of prices.

All tenders are first compared on the price basis and their design proposal.

Stage 2

The second stage would mainly concerned with

- developing the project design,

- preparing bills of quantities to be priced on the basis of the first tender, and
- agreeing a final price for the work.

As the design evolves, the data contained in the price basis is used for cost control
purposes.

The bills of quantities are prepared, and negotiation on prices proceeds until the
design is complete and an acceptable total price is agreed.

Normally, if the project was cancelled before the second stage was completed, the
contractor could recover any costs resulting from any contribution he had made to the
design.

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2.3 Serial Tendering

Sometimes, when there is a large project to be carried out in successive stages, a

combination of selective and negotiation tendering is used.

This is called Serial Tendering. The contractor is chosen for the first phase by means
of competitive selective tendering on the understanding that there are several other
construction phases following their tendered work.

However, the employment of other phases will depend on the performance in Phase 1.
If they are successful on Phase 1 of the construction work, with their existing
resources on site, they have the advantages of continuing working on other phases.

The accepted tender for Phase 1 forms the basis of prices for the subsequent phases.
Provision may be made for inclusion of a formula for updating the prices.

Advantages

- Obtain the benefits of continuity. The contractor in Phase 1 will have his site
organization set up, his offices, storage etc already in use. When Phase 2
commences, these facilities will be available allowing a smooth transition.

- In addition, then contractor workforce will be familiar with details of the

construction after Phase 1 and should be able to work more efficiently.

Disadvantage

- May result in higher rates in Phase 1 project, because of the anticipation of using
these prices for other phases in the future.

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3.0 Nominated Sub-Contractors (NSC)

Nowadays, it is unusual for a single contractor to undertake all the contract works
directly with his own work force. Even in the event of minor works, the contractor
will need others to assist him for other specialist trades.

The Employer and/or Engineer may want to influence the selection of the
specialist sub-contractors, but without taking on the responsibilities for liabilities,
management and control of the specialist sub-contractors.

In order to achieve such arrangement, the Employer will use the system of
nomination.

In a nomination process, the Employer and the Engineer will select the
appropriate Nominated Sub-Contractors (NSC) and shall instruct the Main
Contractor to enter into a Sub-contract with the selected NSC.

It shall be noted that there is no direct contractual relationship between the

Employer and the NSC.

Nomination of NSC may arise from the following means:

- expenditure of Prime Cost Sums

- instruction from the Engineer (EI) regarding a variation (usually for extra
works to the contract)
- by agreement between the Contractor and the Engineer on behalf of the
Employer

It is the Engineer’s job to nominate firms to undertake the works. The selected
firms should, by return, meet the approval of the contractor. If the contractor has
a reasonable objection to a proposed NSC, he should inform the Engineer in
writing as soon as possible (preferably within 7 days).

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Relationship of a Main Contractor with respect to a Nominated Sub-Contractor

in respect of:

(a) Payment
- Normally the contract will require contractor to submit invoices (payment
application) to the Engineer.
- It is the responsibility of the Main Contractor (MC) to include invoice of the
NSC in their application (provided their invoice is submitted, and
complying to the time frame as set out).
- The Employer’s Quantity Surveyor (QS) shall check, evaluate and assess
the payment application and make recommendation to the Engineer.
- Engineer shall issue the interim payment certificate to the Main Contractor
and it must also state the amount due to the NSC (if any).
- It must be stated also whether those monies are interim or final payment
due.
- Individual NSC shall be notified accordingly
- Main Contractor shall pay to the NSC within 14 days upon receipt of
payment from Employer.
- Engineer/QS may require the MC to produce documentary proof of the
payment due to the NSC. If fail to do so, the Employer may make direct
payment to the NSC.

(b) Time
- The MC is not able to grant extension of time (EOT) without the written
consent of the Engineer.
- If any NSC fails to complete the sub-contract within the period allocated,
the MC shall inform the Engineer of such event. The Engineer shall then
certify the period of delay (if any) and apply liquidated damages (LD)
where the case becomes appropriate.

(c) Disputes
- If disputes arise, NSC shall in the name of the MC commence the
proceedings of Litigation or Arbitration. He shall not act against
Employer/Engineer directly since the contract is between the MC and the
NSC.

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(d) Facilities
- The NSC shall be allowed to use the MC’s site facilities or plant as from
time to time, but MC shall not guarantee existence of such items (Tower
crane, hoist, scaffolding, etc).
- In return the Main Contractor is entitled under the main contract to claim
for Attendance as he has incurred cost in providing for the NSCs.

(e) Indemnity
- NSC shall carry out and complete those works in every respect to the
reasonable satisfaction of the MC and Engineer in accordance with the
sub-contract conditions.
- The NSC shall indemnify MC against claims in respect of negligence,
omission or default as those for which the MC is liable to indemnify the
Employer under the contract.

3.1 Nominated Suppliers (NS)

Nominated of firms to supply materials may arise in:

- expenditure of Prime Cost Sum (PC Sum) in the contract for the supply of
goods
- Engineer’s Instruction is issued

The origin of the nomination system is that the Employer or Engineer may want
to choose a particular brand material, and they want to ascertain that those
materials supplied conform to their requirements, but at the same time, they do
not want to take part in the management, control of the contract (to a certain
extent only)

The process of NS is similar to the NSCs with the contractual relationship

formed between the MC and the NS.

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3.2 Domestic Sub-Contractors

Domestic sub-contractors are employed to undertake the general portion of work

in a project
- for which the Main Contractor has no such trade provision within his
company for example concreting, steelwork, plastering, etc.
- his (MC) own employed labour are busy elsewhere

Domestic sub-contractors are regarded as part of the Contractor’s organization in

respect of the construction works.

The MC is entirely responsible for the work carried out by the domestic
sub-contractors as well as for supervision and payment.

If the MC has any disputes with his domestic sub-contractors, he does so at his
own risk. The MC is fully responsible for the default of the domestic
sub-contractor and they are seen as one entity by the Employer.

Typical Organization Structures in a Large Construction Site

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