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C - Procurement and Tendering Flashcards

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1
Q

What is Procurement?

A

Relates to how the services of a contractor are purchased

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2
Q

What is Tendering?

A

Relates to how the successful contractor is ultimately selected

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3
Q

What Australian Standard provides guidance to tendering practices?

A

AS 4120 - 1994 Code of Tendering

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4
Q

What is the purpose of the Code of Tendering?

A

To encourage high ethical standards in tendering in the construction industry.
It imposes an obligation on all parties to refuse to condone unethical behaviour by others in the industry.

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5
Q

What is a procurement strategy?

A

Entails weighing up the benefits, risks and financial constraints of a project which will be reflected in the choice of contractual arrangements

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6
Q

What is required to determine the most appropriate procurement strategy?

A

QS must identify the client’s attitude to risk in the following areas:

1) Time
2) Cost
3) Quality

The following should be addressed:

  • What are the risks?
  • What will their impact be?
  • What is the likelihood of the risks occurring?
  • Who will be responsible for the management of the risk?
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7
Q

What considerations should be addressed when selecting a procurement route?

A

Clients attitude to the following:

1) Exposure to financial uncertainty
2) Requirement of control over the design & construction
3) Extent of design information at tender
4) Required extent of involvement of contractor / supply chain
5) Distribution of risk, responsibility and accountability
6) Client resources and knowledge
7) Complexity of the project
8) Timing of the project

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8
Q

What are the most common procurement routes?

A

1) Traditional
2) Design and Construct
3) Management Contracting
4) Construction Management

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9
Q

What is Traditional procurement?

A

1) Design is completed before going to competitive tender

2) Main contractor is employed to build what the designers have specified

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10
Q

When may Traditional procurement be appropriate?

A

1) If the Client has had the design prepared
2) If the design is substantially completed at the time of contractor selection
3) The client wishes to retain control over the design and specification
4) Cost certainty at start on site is important
5) The shortest overall programme is not the Client’s main priority

BENEFITS IN COST & QUALITY AT THE EXPENSE OF TIME

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11
Q

What is the risk profile of Traditional procurement?

A

Contractor
- Responsible for the financial risk of the construction of the Client’s design, for a fixed fee within an agreed contract period

Client
- Responsible for the performance of the design team

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12
Q

What are the advantages and disadvantages of Traditional procurement

A

ADVANTAGES

  • Simple, well defined and understood process
  • Obtains the most competitive price
  • Client retains design control
  • High level of cost certainty before commencement
  • Changes are reasonably easy to arrange and value

DISADVANTAGES

  • Longer overall project duration
  • No Contractor input into design and planning
  • Dual point of responsibility
  • Quality dependent on the appointed design team
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13
Q

What is Design and Construct procurement?

A

Where the Contractor is responsible for the design, planning, organisation, control and construction of the works to the Employer’s requirements

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14
Q

When may Design and Construct procurement be appropriate?

A

1) Where there is a need to make an early start on site - design and construction phases can overlap
2) Where the Client wishes to minimise their risk - not responsible for design
3) For technically complex projects - benefits of Contractor expertise
4) Where the employer does not want to retain control over the design development

BENEFITS IN COST & TIME AT THE EXPENSE OF QUALITY

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15
Q

What are the advantages and disadvantages of Design & Construct procurement?

A

ADVANTAGES

1) Single point of responsibility for design and construction
2) Reduced project duration
3) Benefit of Contractor’s experience harnessed during design
4) Early price certainty

DISADVANTAGES

1) Client may have difficulty preparing a sufficiently comprehensive brief (Employer’s Requirements)
2) Client has to commit to a concept design early
3) Variations from the original brief are difficult to arrange and often expensive
4) Harder to compare tenders
5) Ease of fabrication may be prioritised over quality

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16
Q

What is Management Contracting?

A

A management contractor is employed to contribute their expertise to the design and manage construction and is paid a fee for doing so.

Project is split into works packages which are individually let through the Management Contractor

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17
Q

How does Management Contracting work in practice?

A

1) The management contractor has direct contractual link with all ‘works contractors’ - Client’s contractual link is to the management contractor, not the works contractors.
2) Management contractor has the responsibility for the construction works, without actually carrying out the works
3) Client employs the design team
4) Not all of the design needs to be completed before the first works contractors start work
5) MC selects the works contractors through competitive open book tendering
6) The client reimburses the cost of these packages to the MC plus their fee
7) The MC’s risk is low - they get prime cost plus a fee

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18
Q

When may Management Contracting be appropriate?

A

1) Where the Client is not prioritising cost certainty before commencement
2) When an early start on site is the priority

BENEFITS IN TIME & QUALITY AT THE EXPENSE OF COST

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19
Q

What are the advantages and disadvantages of Management Contracting?

A

ADVANTAGES

1) Overall project duration is shorter
2) Contractor contributes to the design and planning process
3) Changes can be relatively easily accommodated into packages not yet let
4) The works are let competitively at current market prices on a firm price basis
5) Client retains design control

DISADVANTAGES

1) Increase financial risk to the Client:
a) Management Contractor is paid a fee and does not take project cost risk - Client is exposed
b) Cost certainty is not achieved until the final package is let
2) Changes in the design of later packages may affect packages already let
3) Although procurement is fast, time certainty is poor until the final package is let

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20
Q

What is Construction Management

A

The Client places a direct contract with each of the trade contractors and utilises the expertise of a construction manager, who acts as a consultant to co-ordinate the contracts.

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21
Q

How does Construction Management work in practice?

A

1) Trade contractors directly contracted to the Client to carry out the work
2) Construction Managers supervise the construction process and co-ordinate the design
3) CM has no contractual link with the trade contractors, or members of the design team
4) The CM role includes preparation of the programme, determining requirements for site facilities, breaking down the project into suitable works packages, obtaining and evaluating tenders, co-ordinating and supervising the works

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22
Q

When may Construction Management be appropriate?

A

1) Large, complex projects where the advantages of the Construction Manager can be put to use
2) Where early start on site is key
3) Flexibility in design, procurement and construction strategy
4) Where price certainty before commencement is not key
5) Where the Client is experienced in construction

BENEFITS IN TIME & QUALITY AT THE EXPENSE OF COST

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23
Q

What are the advantages and disadvantages of Construction Management?

A

ADVANTAGES

1) Overall project duration is shorter
2) Construction Manager can contribute into the design and project planning process
3) Roles, risks and relationships for all parties are clear
4) Changes in the design can be accommodated without paying a premium
5) Prices may be lower due to direct contracts with trade contractors
6) Client has means of redress to trade contractors through direct contractual links
7) Client maintains design control

DISADVANTAGES

1) Increased financial risk to the client
a) Construction Manager does not take project cost risk - Client is exposed
b) Cost certainty is not achieved until the final package is let
2) Changes to the design of later packages may affect packages already let which would make the change expensive
3) Need an informed, pro-active client - all parties report to them
4) Client has a lot of Consultants and Contractors to deal with - not just one - more fees and more time
5) Although procurement is fast, time certainty is poor until the final package is let

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24
Q

What is the difference between Management Contracting and Construction Management?

A

MANAGEMENT CONTRACTING

  • Client has contract with Management Contractor only
  • Management Contractor is in direct contractual relationship with the trades contractors

CONSTRUCTION MANAGEMENT

  • Client has direct contractual relationship with all trades contractors
  • Construction Manager does not have a contractual relationship with the trades contractors
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25
What is a lump sum contract?
A fixed price contract where contractors undertake responsibility for executing the complete contract work for a stated total sum of money Provides the client with cost certainty The better defined the works when the contract is agreed, the less likely that the contract sum will change
26
When is a lump sum contract appropriate?
Where the project is well defined, tenders are sought and significant changes are unlikely Contractor can accurately price the works they are being asked to carry out
27
When is a lump sum contract less appropriate?
Where the nature of the works are not well defined Other forms of contract may be more appropriate such as measurement contracts, cost reimbursement contracts or target cost contracts
28
How can the cost of a Lump Sum Contract change?
1) Variations 2) Relevant events (Compensable Cause - AS4000) 3) Provisional Sums 4) Fluctuations 5) Statutory fees
29
When is a measurement contract or re-measurement contract used?
In situations where the design can be described in reasonable detail but the amount cannot It should be possible to describe the works in sufficient detail to determine a programme and obtain rates from tenderers. Typically these rates are based on drawings and approximate quantities The actual contract sum is not determined when the contract is entered, it is calculated on completion based on 're-measurement' of the actual work carried out and the tendered rates Rarely used, other than on civil engineering project
30
What are the advantages of a measurement / re-measurement contract?
- Allows early start on site, before the design is complete - Allows changes to the works to be made easily - Competitive pricing can be sought
31
What are the disadvantages of a measurement / re-measurement contract?
- Client risk - cost of the works are unknown, Client takes risk for all unknowns - Whilst competitive prices are obtained, the level of uncertainty is high.
32
When is a cost reimbursable contract / cost plus contract / prime cost contract used?
When an early or immediate start on site is required, even if design information is not complete This form of contract is not typically recommended, although it is useful in particular circumstances where an immediate start is required e.g urgent repairs
33
What is the process of preparing a cost plus contract?
1) Tender proceeds based on an outline specification, any drawings and an estimate of costs 2) The contractor is paid the prime cost (actual cost of labour, plant and materials) and a fee for overheads and profit 3) The 'fee' can be agreed by negotiation, competition and can be a lump sum or a percentage of the prime cost
34
What are the risks associated with cost plus contracts?
- High risk for the Client - Relies on the Contractor working efficiently and procuring the sub-contracts economically - sub-contracts may be procured competitively but there is little incentive for the Contractor to procure or select economic bids - Some of these difficulties can be mitigated if a partnering relationship has been established between the Client and the Contractor
35
What is a target cost contract?
- Generally associated to cost-reimbursable contracts - They introduce a mechanism for the Contractor to share in the benefits of cost savings, but also bear some of the Client's costs when there are cost overruns - Can be an effective way of ensuring good collaboration
36
What is the process of establishing a target cost contract?
- Target cost is typically set early in the project - The aim is to provide a financial incentive encouraging cost control, rather than to penalise - Bonus and penalty payments are usually capped - Target costs can be set for the overall project, or specific elements of the work - Use of a target cost requires that the Client has sufficient knowledge and experience to be able to accurately estimate the likely cost of the works and to negotiate effectively with the contractor
37
Can you provide any examples of a target cost contract?
NEC - Option C & Option D
38
What is a guaranteed maximum price contract?
A GMP is a form of agreement with a contractor in which it is agreed that the contract sum will not exceed a specified maximum Typically used on D&C contracts
39
How does a GMP contract work?
If the actual cost of the works exceeds the GMP, the contractor must bear the additional costs If the actual cost is lower than the guaranteed maximum price, then the contract should set out whether the savings go to the client, the contractor, or are shared. This can create a pain / gain (or target cost) mechanism, where the contractor is incentivised to make savings, but the client has the security of the cost cap.
40
Can the GMP cap be adjusted?
Yes If the client requests extras, then the contract must provide for the price to be increased. Similarly, if the Client omits scope then the price should be reduced
41
When would it be appropriate to select a GMP contract?
The client should assess the nature of the project, the likely risks and whether it would be sensible to expect the Contractor to bear those risks If the risks are priced by the Contractor, but then do not transpire, the client will have paid for nothing. Whilst if serious unforeseen problems are encountered, the contractor may attempt to find a way out of their obligation or risk insolvency
42
When may a GMP contract be suitable and not so suitable?
A simple project on a greenfield site may be suitable for a GMP. Works to existing, older properties or complex projects with inherent risks may not be so suitable for a GMP.
43
What are the main methods of tendering?
1) Open tendering 2) Selective tendering 3) Nomination / Negotiation 4) Serial 5) Joint ventures
44
What is open tendering?
Indiscriminate request for tenders Advert is placed to invite contractors to apply for tender docs
45
What are the advantages of open tendering?
1) No charge for favouritism 2) Gives opportunities to capable firms you may not have otherwise selected 3) Should secure maximum benefit from competition
46
What are the disadvantages of open tendering?
1) Danger that the lowest tender is inexperienced, or has made a lot of errors 2) No guarantee that the lowest is capable or financially stable 3) Total cost of tendering is increased
47
What is selective tendering?
Restricts the number of tenderers by pre-selecting a limited number of contractors to tender for the work
48
What types of selective tendering are available?
1) Single Stage | 2) Two Stage
49
What is single stage tendering?
A structured process of receiving competitive tenders from a number of pre-selected, capable contractors who provide a lump sum for the works
50
What are the advantages of single stage tendering?
1) Ensures only capable and approved firms submit tenders 2) Tends to reduce the aggregate cost of tendering 3) Client gets a lump sum for the whole works
51
What is two stage tendering?
Separates the process of selecting the contractor from the process of determining the price for the works Used when looking to benefit from competition and having the advantage of contractor involvement in planning the project to gain earlier commencement
52
What is the purpose of the first stage in two stage tendering?
To select a suitable contractor by means of limited competition
53
What is the purpose of the second stage in two stage tendering?
A negotiation process with the selected contractor on the basis of the first stage, to determine a lump sum price for the works
54
What do tenderers return in the first stage of two stage tendering?
- Detailed build up for preliminaries - Percentage addition for overheads and profit - Construction programme - Proposed sub-letting of the works May include a priced BoQ or schedule of rates based on the frozen design at time of tender for the first stage.
55
What precautions should you take prior to entering the second stage of two stage tendering?
Define the procedure for either party to withdraw, should the second stage negotiations prove abortive
56
What are the advantages of two stage tendering?
1) Early involvement of the contractor 2) Encourages collaborative working 3) Potential for earlier start on site 4) Greater client involvement in selecting the supply chain 5) Contractor can help identify and manage risk
57
What are the disadvantages of two stage tendering?
1) Cost certainty may not be achieved before construction starts 2) Additional pre-construction fees for the contractor 3) Contractor could take advantage of 2nd stage negotiation - increase costs 4) Potential for parties to not agree contract sum - risk of re-tendering
58
When would you use two stage tendering?
- On complex projects - Magnitude of work is unknown at the time of contractor selection - Early completion is required - Design team would like to make use of contractors expertise on buildability issues
59
What is Negotiated tendering?
- Effectively a single stage tender with a single contractor - Client may have preference to use a particular contractor - Process is relatively quick - Although competition is lost - Most public sector client's would not allow this practice
60
What is Serial tendering?
- Effectively strategic partnering - Contractor's bid for a project on the basis that if they build it satisfactorily, others of a similar type will follow, the same bill rates will be used.
61
What is a Framework Agreement?
- A list of contractors selected by a Client from a formal tendering process to work over a long period of time - Contractors may have to wait their turn for a contract, or tender repeatedly with the same list of contractors
62
What is a Joint Venture?
- Used on large complex projects | - 2 or more companies take on a joint and several liability for the design and execution of the project
63
How do you decide which contractors to go out to tender with?
- From an approved list of Contractors - Through issuing a Pre-Qualification Questionnaire (PQQ) - Based on responses, a decision can be made to select a reasonable number of tenderers
64
What would you include in a PQQ?
1) Details of contract particulars 2) Turnover 3) Previous relevant experience and references 4) Company accounts 5) Personnel 6) Management and organisational structure 7) Health and safety records 8) Quality systems and environmental policy 9) Provision of bonds / warranties / Parent Company Guarantee
65
How is a PQQ scored?
Different questions will have different weights. | Stakeholders will score each of the contractors to build an overall score
66
What is included in the Tender Documents?
1) Invitation to Tender 2) Form of Tender 3) Instruction to Tenderers 4) Conditions of Proposed Contract 5) Design information 6) Health and Safety information 7) Pricing documents D&C Variables - Employer's requirements - Contractor's proposals
67
What is the Form of Tender?
A formal acknowledgment that the tenderer understands and accepts the terms and conditions of the tender documents and any other requirements that is stipulated It is signed by the contractor
68
What information is included in the Instruction to Tenderers?
- Date and time for return - Address to return to - Site visit details - Programme length - Confirmation of receipt of documents - How the tender should be submitted
69
What are the Employer's Requirements?
- Sets out the Clients requirements e.g. function, size, quality - Level of detail depends on how much design has been completed prior to tender - Normally includes current state of planning permission - Should detail level of design, structure and spec to be provided by tenderers
70
What are the Contractor's Proposals?
- Contractor's response to the Employer's Requirements - Key document for the Client to consider at tender review - Often includes plans, elevations, sections and typical details - Layout drawings and specification for materials and workmanship
71
How many contractors would you include on a tender list?
1) Refer to Code of Tendering 2) Depends on size of project 3) Cost of tendering is high, therefore it is common to limit the list to 4 - 6 4) This provides cover should one drop out 5) Provides better relationships with contractors and improves the likelihood of competitive tenders - Know they stand a reasonable chance of being successful
72
How do you determine the duration of the tender period?
- Depends on the procurement process and size of project - Traditional with BoQ - Usually 1 month - First stage of a two stage tender - Maybe 2 - 3 weeks - Design & Construct - around 6 - 8 weeks due to design work required Better to give contractors enough time to ensure accurate pricing rather than rushing the tender which could encourage tenderers to price high risk elements into their tender
73
How do you handle tenderer queries during the tendering process?
1) All tenderers shall receive the same level of information / communication 2) A nominated person will be required to collate and respond to all queries 3) Response to queries shall be issued to all tenderers.
74
Why should a QS examine tenders?
1) To check the lowest has included everything, if not, to ascertain whether they are still the lowest 2) Component parts of the tender will be used subsequently e.g. assessing variations 3) Errors in schedule of rates / bill of quantities need to be identified and dealt with
75
What should be examined during a tender review?
1) Arithmetical errors 2) Pricing errors - items not priced, or same item but different prices in different sections 3) Pricing methods - Front / back loaded 4) Qualifications 5) Compliance
76
What is the procedure once the tender period has closed?
Formal process - eliminates suspicion of irregularities No tender should be opened before the submission deadline Other parties should be present - PM / Architect / Client Raw data should be recorded on tendering opening form
77
What happens if a tenderer is late in making their submission?
Safest option is to not consider their tender - could be accused of fraud, collusion, bid-rigging Private client - accepting tender is at their discretion Public client - late tenders cannot be accepted Advise that accepting late tenders sets a standard, contractors may not keep to future deadlines
78
How do you evaluate contractor's proposals for D&C?
Not solely on price Programme, design, contractor's proposals, materials, method statements and employees all have to be considered Check for discrepancies from the Employer's Requirements It is easier to assess if the design has already been progressed by the Client prior to tender
79
How would you deal with errors in tender returns?
Inform the contractor of the identified error and give them the opportunity to stand by their submission, or update their submission accordingly
80
How would you deal with qualifications within a tender return?
- Procedure should be outlined in the tender instructions - If clarifications are unauthorised, it may invalidate the tender leading to disqualification - It is possible to authorise qualifications - if the tenderer raised a query with the QS, in which case, all other tenderers should have been notified and instructed how to proceed
81
How would you deal with a front loaded Bill of Quantities?
Can request the contractor to adjust their pricing to remove it during the analysis QS should ensure all items are consistently priced throughout the document Front loading has implications on valuing variations and cash flow It may be a sign that the contractor is having financial difficulties
82
What would you do if a tenderer returned alternative proposals as part of their tender return?
- Consult the code for tendering - Tender instructions should specify conditions under which alternative proposals are to be submitted - Alternative proposals should only be considered when submitted with a conforming tender - When alternative proposals are submitted, the Client shall not obtain comparable prices from other tenderers, nor shall the alternative be used as a basis to re-call the tenders - The Client may, with written consent of the tenderer submitting the alternative proposal, re-tender or require re-pricing of tenders incorporating alternative designs or methods of construction
83
How do you carry out a tender evaluation?
1) Breakdown of the tender returns is required 2) Check tender breakdown to ensure they have been priced in accordance with the tender documentation 3) Check for errors 4) Check for qualifications or exclusions 5) Compare tender returns against the pre-tender estimate to check if any rates are unusually high / low 6) Ensure all amendments made during the tender period have been incorporated 7) Prepare a tender report giving a summary of the actions, costs and recommendation
84
Could you please confirm the post tender interview process?
1) Chance to properly understand the tenderer's proposals 2) Raise any in depth queries 3) Once the initial queries and normalisation has taken place 4) Agenda and attendees should be agreed prior 5) Any agreements made during the meeting should be confirmed in writing 6) If significant information comes out ot the tender interviews, other tenderers should be given the same information
85
What is included in a tender report?
1) List of tenders received 2) Initial tender return totals 3) Any qualifications identified 4) Post-tender adjustments 5) Revised tender sum 6) Issues to be resolved 7) Comparison of tender returns 8) Comparison with pre-tender estimate 9) Recommendation
86
When can tendering occur in the RIBA Plan of Work?
At any time from RIBA Stages 1 - 4
87
What is the danger of accepting a very low tender?
1) They may have missed some of the works 2) The quality may be lower than some of the other tenderers have allowed for 3) Once on site they may try and recover their costs through variations / claims for EOTs and loss & expense 4) This could lead to adversarial relationships
88
On what grounds would you advise the client to re-tender?
1) Not enough tenderers returned tenders 2) The tendering procedure is believed to have been compromised in some way 3) If tenderers were not at the cost level required and it was believed that re-tendering to different tenderers would provide a different result 4) Design changes or Value Engineering has been carried out that has significantly changed the design that was originally tendered on
89
What would you do if you considered a contractor submitting the lowest tender to be in financial difficulty?
- Review company accounts as part of the evaluation of tenders (if not at PQQ) - Request references from previous employers for recent work - Try to investigate if subcontractors were paid on time - Ensure the contractor can provide a bond and that it is in place before commencing
90
What happens if tenders are returned over the cost plan / pre tender estimate?
There could be market problems Need to reconcile to identify major differences Value Engineering process could take place on those elements

QS APC (18 decks)

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