3 Types of Tendering in Construction You Should Know

The process of asking and receiving a price for a certain scope of work is known as tendering in construction. By using the same selection criteria, the tendering procedure helps guarantee genuine competition. Although the private sector occasionally uses a tender process to find a qualified contractor for a particular project, public bodies typically employ it in their bid process.

An invitation to tender (ITT), also known as a request for proposal (RFP), invitation to bid (ITB), or request for qualifications (RFQ), is the first step in the process. All the information required to provide a price for the suggested scope of work is contained in the tender document. Contractors give the owner a price based on the tender documentation. After reviewing the tendering in construction, the owner or other interested parties choose the one that best suits their requirements.

What is the Tendering in Construction?

When a customer requests bids from interested and qualified contractors to complete particular construction work packages, this is known as a tender process. An invitation to tendering in construction is the first step in a tender procedure.

In order to provide all interested contractors an equal chance to submit their bids, tenders are usually publicized in the local media. They explicitly specify the materials to be utilized and the expected cost of the project.

The bids from the contractors must be submitted by the client’s deadline. The customer then assesses each proposal according to standards like cost and quality. Once the successful contractors and suppliers have been identified, the bidding process comes to an end following a public review procedure.

Importance of the Tendering in Construction Process

The following factors make the building industry’s tendering in construction procedure crucial:

• Preventing Bias: All interested parties have an equal chance of being chosen since bids are assessed according to preset standards, such as price and quality, during a tender process.
• Entry Barriers for New Businesses: As long as they fulfill the established requirements, new businesses can more easily enter the market thanks to the fair and impartial tendering in construction.
• Value for Money: The customer can select suppliers and contractors who will deliver the best quality job at the most affordable cost.
• Healthy Competition: By lowering operating costs and inefficiencies, the tender process incentivizes suppliers and contractors to be more productive and produce work of the highest caliber. Since all possible suppliers and contractors want to be more inventive and creative, this helps to build a competitive market.

Suggested article to read: Tender in Construction; Comprehensive Guide 2024

3 Types of Tendering in Construction

Depending on the type of contract, the complexity of the construction, and the level of skill required, a client might select from a variety of tendering in construction options. Open tendering, selected tendering, and negotiated tendering are the three primary forms of tendering.

1. Open Tendering

Anyone may respond to the owner’s offer to submit a bid during an open tendering in construction. All interested contractors are invited to submit a proposal after the opportunity is posted for contractors to view. Contractors may need to be prequalified before submitting an open offer for some invitations, such as those involving major projects.

The most competitive tender option is open tendering, which lets anybody interested in a chance to bid. It promotes competition and gives up-and-coming contractors a chance to secure work.

The client makes the proposed project available to all interested contractors through public advertising throughout the open tendering in construction process. All applicants may be asked to provide a refundable deposit by the customer. In the public and government sectors, as well as in the construction business, open tendering is frequently utilized.

Advantages

• The application process is open to all interested contractors, making it easier for new competitors to enter the market.
• There is no partiality or bias in the choice of contractors.
• Without requiring the client to accept bids, open tendering promotes competition among possible contractors.
• The customer gets the best deal available.
• It works well in the building sector.

Disadvantages

• Since all interested contractors can submit applications, the tender list might be excessively lengthy.
• When contractors spend time creating bidding documents and are not chosen, their resources are wasted.
• That appear fair but don’t accurately represent the project’s true cost.
• By selecting a contractor that offers the lowest price, the client runs the risk of not receiving the best quality job.
• The contractors might provide a quote without carefully weighing the specifics of the agreement. As a result, the client can receive rates.

2. Selective Bidding

The owner selects a short list of contractors to invite to the tendering in construction in a selective tender. Only those who have been invited may make a tender offer in this situation. When the owner want to restrict the answer to only the specific class of construction businesses they believe are qualified for the job, this kind of tender works well for specialized or difficult projects. Unlike in an open tendering process, an unidentified contractor will not take part.

Selective tendering in construction helps guarantee that only qualified contractors participate and minimizes the effort that could be lost by viewing offers from too many contractors. However, it lowers the total number of competing bids and leaves out small and emerging businesses that might be qualified contractors.

Only a shortlist of contractors is invited by the client to submit proposals in a selective tendering in construction. The purpose of selective tendering is to lessen the drawbacks of the open tendering process. Only capable and skilled contractors are allowed to participate since a shortlist of qualified contractors is created beforehand.

Advantages

• It encourages contractors to use their resources efficiently.
• lowers the cost of the tendering process since the client asks fewer contractors to submit offers.
• Managing the tender process is simpler.
• Because only a shortlist of contractors is invited, there is less paperwork involved in the tender.
• Because the tender procedure is shorter, time is saved.
• Since only qualified contractors are taken into consideration, the client can choose the lowest bid.

Disadvantages

• For other contractors, particularly new contractors, it creates an obstacle to entry.
• It intensifies partiality.
• Contractors run the danger of charging too much for their services.
• There is a chance that contractors will band together.
• There may be a lengthier tendering time.

3. Negotiated Tendering

Only one dealer or contractor is chosen to make a bid in a negotiated tendering in construction, and the owner works with that dealer or contractor to come to an agreement. For extremely specific contracts or the expansion of an existing contract, this version is utilized. Because only one bid needs to be reviewed, this tendering approach drastically lowers the cost.

Since negotiations begin during the tendering process and continue through the dispute resolution phase, the construction sector frequently uses negotiated tendering. Pre-contract and post-contract negotiations are the two stages of negotiated tenders. Although a maximum of three contractors are permitted, this tendering procedure normally involves just one contractor.

Finding a qualified contractor to work with is the first step in the negotiated tendering in construction process. The contractor may be chosen by the employer from their list of preferences or with the assistance of a qualified team. The client provides the contractor with the project information after selecting one. Negotiation tendering works well for the following kinds of contracts:

• The construction project is financed in part by the contractor.
• There is a long-standing business relationship between the contractor and the employer.
• There is an urgent need to expedite the construction project.

Advantages

• In the construction sector, negotiated tendering reduces the chance of failure.
• Because the best contractor may be chosen much more quickly, the tendering process is greatly shortened.
• Early project involvement allows the contractor to offer their design skills.
• In certain situations, like crises, it is the most effective tendering approach.

Disadvantages

• This approach lowers the amount of business available to non-selected contractors and raises the entry hurdle for new contractors.
• Compared to more competitive tendering processes, contractors are likely to provide higher price quotes.

When Would Construction Use Tendering?

The methods used to acquire commodities, labor, and services in the construction industry generally fall into four categories:

1. Conventional Contracts

The most popular approach to construction management procurement is traditional contracts, which entail an agreement between the contractor, consultants, and client. The client selects the building contractor to complete the project according to the design, within the predetermined budget and time limit, after a tendering in construction procedure. Because of the cost certainty and time predictability, this is a low-risk choice.

2. Design and Build Contracts

In this type of construction procurement, the contractor is in charge of both the design and the building. For projects where the client is ready to pay a little bit more for one-on-one communication, this would be beneficial since it provides a single point of contact for the duration of the project.

3. Management Contracts

Under a management contract, a contractor is paid a fee by the customer to oversee the construction process, and designers are appointed independently. This approach has less pricing certainty because construction can frequently start before the design phases and changes can be made as the project progresses. Nevertheless, compared to other building procurement processes, the entire process may be shorter.

4. Contractor-led Contracts

Under this approach, a design team is supplied by the contractors to develop a concept design as bids for the bidding process. Before one construction company is chosen as the preferred bidder, this typically results in two teams moving on to the next phase of the project. Although this path may be more complicated than others, it may ultimately result in lower expenses.

The Procedure of Tendering in Construction

In the engineering and construction sector, the majority of tendering in construction follow this procedure: invitation, clarification, submission, settlement, and contract execution.

1. Request for Bids

Potential dealers and contractors receive tender bids from the owner that include details about the work that needs to be done. These documents for tender requests could contain:

• Invitation letter to tendering in construction
• preliminary data (such as the site waste management plan and pre-construction data)
• Information needs of the employer if BIM is being used
• Contract sum analysis for design and build projects, or tender pricing document
• Contractual terms, conditions, and revisions
• Schedule for drawing
• Specifications, design drawings, and maybe an existing building information model

2. Clarification

In order to better understand the task, potential tenderers provide queries and clarifications in response to the tender notice. All potential bidders receive responses, and the tendering in construction documents may be modified. To provide bidders more time to examine the details and obtain the required pricing, the bid deadline could be extended.

3. Submission

The owner receives competitive bids from contractors that include price and details about each contractor’s plan of action. The following documents could be included in the tendering in construction:

• Tender return slip with contract data, including the tender checklist and return address
• finished contract total analysis for design and build projects, or the tender pricing document
• Rate schedules
• A preliminary plan for the building phase
• Requests for method descriptions or design proposals
• Protocols to be implemented, including cost management and procurement protocols
• Capability demonstration, such as systems utilized, design capability, etc.
  
• If building information modeling is being used, the BIM execution plan
  
• Important project participants, who might need to submit applications or CVs
  
• Organization of management
  
• The availability of plant and manpower resources
  
• Prior experience
  
• References

4. Variant Bids

The owner may choose to accept noncompliant or alternative bids from contractors. Generally speaking, these choices are less costly than those suggested in the bidding documents. Variant bids are often only offered upon request and in conjunction with a proposal that complies with regulations.

5. Tenders that are Qualified

If the contractor is unable or unwilling to perform the services listed in the proposal documents, they may submit a proposal with certain reservations or limited liability.

6. Settlement

Following a review of the submitted bids, the owner makes a formal offer to the selected bidder in order to start discussions. The proposal and tendering in construction documents may be altered during this process to satisfy the terms of the contract.

7. Contract Execution

After being developed and approved by both sides, the final contract is signed.

FAQs 

What is tendering in construction, and why is it important?

• Answer: The process by which a customer solicits bids from qualified and interested contractors to finish specific building work packages is known as tendering in construction. By evaluating bids according to predetermined criteria like price and quality, it guarantees fair competition. In addition to promoting value for money and preventing bias, the procedure also lowers obstacles to entry for new businesses and encourages healthy competition between suppliers and contractors.

What are the three types of tendering in construction?

• Answer: In the construction industry, there are three main types of tendering: negotiated, selective, and open. For specific projects or contract extensions, negotiated tendering entails direct negotiations between the owner and a single contractor; selective tendering invites just a shortlisted group of competent contractors; and open tendering permits all interested vendors to make bids.

What are the advantages and disadvantages of open tendering in construction?

• Answer: Open tendering in construction promotes competition, provides opportunities for new contractors, and ensures fairness by eliminating bias. The danger of choosing the lowest-priced bid, which could lower quality, an unnecessarily lengthy tender list, and resource loss for non-selected contractors are other drawbacks.

What are the main steps involved in the procedure of tendering in construction?

• Answer: The process of invitation, clarification, submission, settlement, and contract execution is what most construction tenders go through. The procedure begins with a call for bids, in which the owner sends out tender bids to prospective dealers and contractors. This is followed by clarification, in which prospective tenderers ask questions and offer clarifications. Subsequently, the owner gets competitive bids from contractors; qualified variant bids and tenders may then be taken into consideration. Settlement, in which the owner chooses a bidder, and contract execution, in which the final contract is signed following mutual approval, mark the end of the process.

What documents are typically included in a request for bids in tendering in construction?

• Answer: The owner sends tender bids with information about the work that needs to be done to potential dealers and contractors. An invitation letter to tender in construction, preliminary data, the employer’s information needs if BIM is being used, a contract sum analysis or tender pricing document, contractual terms and conditions, a drawing schedule, specifications, design drawings, and perhaps an existing building information model are all possible inclusions in these tender request documents.

Conclusion

A written document that outlines the project’s specifics and the work that will be required is called tendering in construction. It is made public in order to solicit bids from capable suppliers and contractors. Contractors and suppliers who are qualified and eager to work on the project may also receive invitations to tender directly from clients.

Because it outlines the buyer’s criteria for choosing qualified suppliers and contractors, a tender document is essential to the tendering in construction process. When selecting suppliers and contractors for a project, a customer must take quality and cost into account.

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