Tender in Construction; Comprehensive Guide 2024

What is a Tender?

A tender represents an offer or an invitation to compete for a project or to accept a formal proposal, like a takeover bid. This term typically pertains to the procedure employed by governments and financial institutions when they seek competitive bids for substantial projects, with these bids needing to be submitted within a specified timeframe. Another application of the term “tender” occurs when shareholders present their shares or securities in response to a takeover bid. Shareholders receive a tender offer, which serves as a public request to all shareholders, urging them to offer their stocks for sale at a specific price during a predetermined period.

Usually, this bid offer surpasses the current market value of the shares to incentivize shareholders to release a specific quantity of shares. Conversely, a request for tender (RFT) is a formal request or invitation to suppliers, asking them to submit competitive bids for the supply of products, services, or raw materials.

In the private sector, a request for tenders or RFT is often referred to as a request for proposal (RFP). These requests enable potential bidders to respond to the issuer’s needs. Although “tender” and “RFT” may seem similar, understanding each term individually can make the distinction clearer. An RFT, as discussed earlier, is a document issued by the buyer to invite a supplier’s responses.

The RFT typically comprises various documents, including the conditions of the tender (which outline the rules of the bidding process and response), the form of tender (which includes schedules and necessary response details), the scope of tender (detailing the goods and services required by the buyer), the evaluation criteria (defining how the buyer assesses supplier responses), and the conditions of the contract (specifying the particulars of the legal contract to be awarded to the supplier).

In contrast to the request for tender or RFT, it is a document submitted by a supplier in response to the RFT. In simpler terms, it represents an offer to carry out a specific task or supply goods at a predetermined and fixed price rate. In the initial stages of this process, contractors are invited to submit sealed bids for construction or the provision of goods and services at a predetermined rate during a specific period.

What is Tender in Construction

Tender in Construction involves a client or construction firm releasing a project to multiple contractors and suppliers to obtain proposals for construction work. This can occur privately, where invitations are sent to a select group of preferred contractors, or through an open one, allowing any contractor meeting the criteria to submit a bid.

Tender in Construction encompasses a wide range of projects, spanning from massive government initiatives worth billions to the renovation of a residential property. Regardless of the project’s scale, the primary aim is to select the best company at the most competitive price to carry out the work.

Both private and public bids are available in the market, with them being more common due to the absence of an obligation for private companies to conduct the bidding process. As a result, private companies often maintain long-term relationships with their suppliers.

Benefits of Tendering

A well-executed bidding process offers benefits to both clients and suppliers, including:

1. Enhanced transparency in the process.
2. Opportunities to establish a network of contacts.
3. Improved control over the entire process.
4. Time is saved through established requirements and procedures for comparing bids.
5. A guaranteed outcome of that, ensuring the best value for money.

A common misconception about bidding is that only large companies can secure tenders due to their ability to offer competitive prices for high-quality work. However, in reality, bidding provides excellent opportunities for small and medium-sized enterprises (SMEs). For instance, the UK Government aims to allocate 33% of contracts to SMEs, meaning that one out of every three bids is specifically dedicated to smaller companies.

Steps in the Tendering Process

When a client seeks a supplier, they issue an “Invitation to Tender.” These invitations are used to find suppliers for a variety of contracts involving the supply of goods, works, utilities, or services. Most bidding processes, aside from public procurement, follow similar steps. Key stages in the tender in construction contract process include:

1. Invitation to Tender

An invitation outlines the client’s requirements for the work. It typically includes an invitation letter, pre-construction information, the contract form, a pricing document for bidding, design drawings, and any other necessary specifications.

Clients often group documents into packages to simplify contractor pricing and bid comparison. Pre-qualification questionnaires and interviews, if used, should be completed before releasing the invitation to tender to ensure that only suitable contractors are invited.

Mid-tender interviews may occasionally occur to provide clarifications and maintain fairness. Any changes to the documents must be communicated to all prospective suppliers while preserving the confidentiality of the supplier’s plans to meet the client’s requirements.

2. Submission

In response to the invitation, suppliers will present their bids. This submission includes the proposed cost for carrying out the work and detailed plans on how they intend to fulfill the client’s requirements. Typically, these bids encompass:

• A tender return slip, which, if returned, contains its title and return address.
• A completed tender pricing document outlining the supplier’s rates, costs, and overall financial details. In some cases, a contract sum analysis may be used.
• Schedules of rates, particularly on larger projects where the work’s nature is known but not easily quantified. These schedules encompass all activities required for the project, incorporating profit and overhead costs.
• An initial Construction Phase Plan (CPP) that outlines the health and safety management arrangements for those involved in the construction project. This plan must undergo periodic review, updates, and revisions throughout the project, ensuring clarity and applicability to all on-site.
• Design proposals, if requested, providing design professionals’ outlines for meeting the client’s requirements.
• A program of works that highlights the sequence for task execution.
• Procedures to be employed, such as cost management processes.
• Demonstrations of capability, including the systems to be utilized.
• Key project personnel, as clients often wish to know the team working on the project and may request their CVs.
• Management organization and hierarchy of control.
• Information regarding plant and labor resources and their availability for sourcing.
• Previous experience in successfully executing similar contracts.
• References from completed projects.

3. Tender Negotiation

After the client selects a tender, or sometimes two, they may conduct a settlement meeting. These meetings offer an opportunity for the client to engage in negotiations with their preferred supplier, aiming to reach agreements or clarify aspects of the contract.This may involve submitting a revised bid or adjusting documents. Any agreements reached during this stage require mutual approval, as they will serve as the foundation for the contract documents moving forward.

4. Contract Engrossment and Execution

Contract formation involves creating an agreed-upon contract, encompassing its schedules and attachments. Contracts can be executed either by hand, where they are signed by the involved parties, or under seal, requiring signatures, witnesses, and execution as a deed. Contract execution is the stage where, after the contract is agreed upon and signed, it becomes legally binding for all parties involved in the contract.

Importance of the Process 

The bidding procedure holds great importance in the construction industry for the following reasons:

• Avoiding Biases: Within a process, bids are assessed according to predetermined criteria, such as quality and price, ensuring an equitable opportunity for all interested parties to be considered.
• Optimal Cost-Effective Solutions: Clients can select contractors and suppliers who offer top-notch quality work at the most cost-effective rates.
• Fostering Healthy Competition: The process motivates potential contractors and suppliers to enhance efficiency, deliver superior work, and reduce operational expenses and inefficiencies. This fosters a competitive market environment, with all participants striving for greater creativity and innovation.
• Welcoming New Entrants: The objective and fair nature of the bidding process makes it accessible for new firms to enter the market, provided they meet the established criteria.

Preparation and Issuance of Document

The initial and most critical phase of tender in construction procurement is the preparation of documents. Before these documents can be created, it is essential to define the client’s needs, conduct a feasibility study, and have experts confirm the project’s viability.

The documents are then formulated in alignment with these requirements and the project’s budget. The task of creating documents demands meticulous attention to detail and requires the coordinated input of various specialists due to the document’s complexity.

This approach ensures consistency and clarity within the documents, preventing misinterpretation or potential disputes during the project’s execution. Key components of the documents include the following:

• Instruction to Tenderers: These instructions convey the tender submission deadline, the designated submission location, as well as the necessary documents and information to accompany the proposal.

• Conditions of Contract: Ensuring accurate contract terms and conditions is crucial to align the submitted tender with specific requirements and pricing. Uniform conditions also facilitate equitable evaluation. Errors or inaccuracies in the contract terms can significantly impact the contract’s validity.

• Specifications: Technical specifications outline the project’s scope, quality standards for materials and workmanship, and anticipated product or service performance. They also include testing methods to verify compliance with relevant standards. Additionally, this document provides general information about the site, access, historical weather records for reference, and available services to enhance cost accuracy.

• Drawings: Project drawings should offer a clear and comprehensive depiction of all construction tasks, aiding bidders in more precise cost estimation and preventing potential claims for additional work in the form of variations.

• Bill of Quantities or Schedule of Prices: Schedule This document itemizes the work to be undertaken and associates each item with its corresponding cost in the bid offer. Typically, the rates listed in a bill of quantities or price schedule are used to value variation works. Drawings, bills of quantities, and technical specifications complement each other, ensuring a comprehensive understanding of the project’s scope.

• Appendices: In essence, appendices serve to elaborate and clarify specific aspects of the documents. They supplement rather than replace other document components. Appendices may encompass performance guarantees, project schedules, safety requirements, insurance, bonds, and more.

Types of Construction Tenders

Several types of tender processes may be used to select a contractor:

Open Tendering

In the case of open tendering, contracts are initially advertised, notifying all potential bidders. This approach can attract bids from various suppliers, and even those considered less suitable may submit them.

Consequently, clients who rely on open bidders must invest considerable time and effort. They typically ensure an equal opportunity for any organization to submit a bid, offering increased chances for newer or emerging suppliers to secure contracts.

Some clients may implement pre-qualification questionnaire interviews to ensure that only qualified parties submit them, effectively reducing wasted time and energy in the process. It’s important to note that pre-qualification questionnaires or pre-tender interviews differ from selective bidding, where only pre-approved suppliers are allowed to bid.

Selective Tendering

This method provides a more tailored response to contract needs, inviting pre-approved potential suppliers to tender. These suppliers have been assessed and deemed capable of fulfilling the required work.

Selective bidding is a more streamlined process compared to open one and is often suitable for specialist projects or cases where only a limited number of firms are appropriate.

While it can expedite the bidding process by eliminating the need for pre-qualification questionnaires, it may introduce bias and exclude smaller suppliers, potentially limiting competition and innovation. Experienced clients or consultants often maintain lists of “approved” prospective suppliers, necessitating periodic updates.

Negotiated Tendering

Negotiated bidding occurs when a client directly contacts a single supplier, often due to past collaborations or the supplier’s specialization. This approach can instill confidence in the client and reduce time and costs, especially for highly specialized or contract extensions.

However, it may eliminate the competitive aspect of bidding, potentially leading to difficulties in achieving fair outcomes and causing disputes during the project. In some cases, such as public projects, negotiated bidding is not permitted, and contracts must be publicly advertised.

Serial Tendering

Serial bidding involves submitting tenders based on standardized quantities or work schedules, typically for ongoing projects or maintenance contracts. The documents detail the buildings covered by the work, the work period, an estimated work value, and order size. Serial bidding can reduce bidding costs and encourage suppliers to submit competitive rates for ongoing work. While it may be argued that serial bidding reduces competition from other suppliers, it promotes innovation and stability, giving winning contractors the confidence to invest in their businesses.

Framework Tendering

For continuous construction contracts, clients may employ framework agreements to mitigate risks and expedite the process. Framework bidding involves documents specifying the scope of work or services required over a defined period. Clients may provide pricing or risk adjustment mechanisms for various types of work. The client then selects the most suitable supplier for each specific project within the framework. When multiple qualified suppliers are available, a secondary selection process may be introduced, reducing tendering costs and expediting individual projects. However, suppliers on the framework might face additional bidding processes, consuming their time and energy.

Single-Stage and Two-Stage Tendering

Single-stage bidding follows the traditional approach, whereas two-stage bidding is gaining popularity, enabling the early appointment of suppliers or specialists.

It may be advantageous when project requirements are not fully defined. The first stage involves creating a custom agreement or a consultancy agreement, with an appendix detailing the requirements for the second-stage bid. The second stage is not obligatory, and pricing is negotiable.

Two-stage tendering allows clients to transfer design risk to the contractor, fostering early collaboration and reducing competition. However, clients should consider having backup bids in case negotiations fail.

Public Procurement

Public projects and those partially funded by the public are subject to EU regulations, promoting free supplier movement within the European Union and the procurement of public projects. Contracts exceeding a specified financial threshold must be advertised in the Official Journal of the EU.

Public procurement encourages the best value for money through healthy competition, aligning with international and national obligations. Even for tenders below the relevant threshold, principles of transparency, proportionality, non-discrimination, equal treatment, and mutual recognition must be upheld.

Early involvement and standardized pre-qualification processes streamline the process, fostering innovation, supply chain integration, and alignment of interests among designers, contractors, occupiers, and operators.

Conclusion

The tender in construction plays a pivotal role in the project lifecycle, serving as the link between project planning and execution. Contractors and suppliers submit their bids to secure contracts, making the structure and transparency of this process highly significant.

A well-structured tender process ensures that projects are awarded to the most qualified and cost-effective entities, promoting efficiency, quality, and value for all stakeholders. Efficient bidding not only saves costs but also encourages healthy competition, fostering innovation and performance improvements in the construction industry.

Striking a balance between cost considerations and work quality is essential for successful project outcomes. Advancements in technology, such as digitalization and automation, have streamlined the process, making it more accessible and transparent.

Effective bidding transcends mere paperwork; it embodies a strategic approach encompassing meticulous planning, accurate estimation, and astute risk assessment. The emphasis on sustainability, innovation, and compliance underscores the contemporary trends shaping bidding practices, necessitating a forward-thinking mindset in the construction sphere.

Embracing these technological advancements is key to enhancing the efficiency and fairness of the tender in construction process, contributing to the growth and sustainability of the construction sector.