What is a tender?
A tender can be defined as an offer to do work or supply goods at a fixed price. The initial step of a tender process in which qualified contractors are invited to submit their sealed bids for the construction or for the supply of specific and clearly defined goods or services over a specified period of time. The tender process is designed to ensure that the work to be done for the client/government is done on the street.
In construction, the main bidding process is generally for the selection of the main contractor who will do the job. However, as procurement paths have become more complex, tenders can be searched for a wide range of goods and services (for example, in a construction management contract, the works are constructed by several different commercial contractors, each contracted by the client) and contractors can take on additional functions such as design and administration.
There is also a growing trend for suppliers to be added to single contracts, for example, ‘integrated supply teams’ in public projects may include; the main contractor, designers, subcontractors, suppliers, facility managers, etc.
The tender process involved some kind of complicated process and procedure. Before any tender process can be carried out, a professional team and an employer must ensure that all necessary bidding documents have been prepared, verified, and approved. The source of the funding must also have been identified, and the project funding established. Procedures for subsequent stages should have been concluded with the express consent of the employer to ensure that the bidding process runs smoothly.
Regardless of the nature of the goods or services being sought, the process for calling tenders can take several different basic forms:
Open Bidding allows anyone to submit a bid to supply the required goods or services. In general, an advertisement will be placed, notifying that the contract is being tendered and offering an equal opportunity to any organization to submit a bid.
In larger projects, there may be a prequalification process that produces a shortlist of suitable suppliers who will be invited to prepare bids. This type of prequalification process is not the same as selective tendering (see below).
Open Bidding has been criticized for attracting tenders/expressions of interest from a large number of suppliers, some of which may be totally unsuitable for the contract and, as a result, can waste a great amount of time, effort, and money. However, open Bidding offers the most competitive and has the advantage of allowing new or emerging providers to try to get work.
Advantages & Disadvantages of Open tender
- Allows any interested contractor to tender. Thus, it gives an unknown contractor a chance to compete for the job.
- The bidding list can be long, as many contractors bid for a job.
- Allow the offer list to run smoothly. The client will get the possible deal. No favouritism in the selection of contractors.
- Inexpensive use of the source.
- Guarantee good competition not obliged to accept any offer.
- Public liability can be questioned if the lowest offer is not accepted.
- Traditional tendering method, familiar to all sectors of the engineering and construction industry.
- It does not attract accredited and established contractors unless they are forced to do so, due to lack of work.
Selective Bidding only allows suppliers to bid by invitation. A pre-selected list of potential suppliers is prepared, which, based on their history, are suitable for a contract of the required size, nature, and complexity. Consultants or experienced clients can maintain “approved” lists of potential suppliers and then periodically review performance to evaluate whether suppliers should remain on the list.
Selective Bidding can give customers greater confidence that their requirements will be met and should reduce the wasted effort that perhaps involved in open Bidding. It may be particularly appropriate for specialized or complex contracts, or contracts where there are only a few suitable companies. However, it can exclude smaller providers or those trying to establish themselves in a new market.
Negotiating with only one contractor may be appropriate for highly specialized contracts or to expand the scope of an existing contract. It can reduce bidding costs and allow for early contractor participation. Still, the competitive element is reduced and, unless the negotiating structure is clearly established, there is a possibility of an atmosphere of confrontation developing even before the contract has been awarded.
Serial Bidding involves the preparation of bids based on a typical or notional list of quantities or work schedule. The rates presented can be used to value works on a number of similar projects, often for a fixed period of time, after which the tender procedure can be repeated.
Series bidding can reduce bidding costs and can encourage suppliers to submit low rates to ensure a continuous work schedule.
See also Serial Tender and Measured Term Contract.
Customers who continually commission work can reduce deadlines, learning curves, and other risks by using framework agreements. Such agreements allow the customer to invite tenders from suppliers of goods and services to be held during a cancellation period and when necessary.
The tender framework documents are likely to include a request for a schedule of rates and time charges and a breakdown of the resources and overhead to be applied (including details of any proposed subcontractors or sub-consultants).
One or more providers are selected and named. When specific projects come up, the customer can simply select a suitable framework provider and direct them to start working. When there is more than one suitable bidder or supplier in the framework, the customer can introduce a secondary selection process to evaluate which supplier is likely to offer the best value for a specific project. The advantage of this process for the client is that they can start a selection procedure for individual projects without having to carry out a time-consuming prequalification process. This should also reduce bidding costs.
One and two-stage Bidding
One-stage Bidding is used when all the information necessary to calculate a realistic price is available when the Bidding begins. A tender is issued for potential suppliers; bids are prepared and returned, a preferred bidder is selected, and, after negotiations, they can be named.
Two-stage Bidding is used to allow the early designation of a supplier, before completing all the required information so that you can offer a fixed price. In the first stage, a defined appointment is agreed to allow work to start, and in the second stage, a fixed price is negotiated for the contract.
Public projects or publicly subsidized projects may be subject to DOUE procurement procedures, enacted in the UK by the Public Contracts Regulations. The regulations establish rules that require contracts to be announced in the Official Journal of the EU (DOUE). This is of specific importance due to the time required to announce contracts can be up to 52 days. The regulations also describe permitted procedures for the selection of contractors.