A tender refers to a written document that describes the details of the project and the work that it will involve. It is shared with the public to attract bids from qualified contractors and suppliers. Clients may also directly send invitations to tender to contractors and suppliers who are eligible and willing to participate in the project.
A tender document is crucial in the tendering process because it provides the buyer’s criteria to select suitable contractors and suppliers. A client must consider pricing and quality when choosing contractors and suppliers for a project.
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What is the tender process?
A tender process is when the client invites bids from qualified and interested contractors to carry out specific construction work packages. A tender process begins with an invitation to tender.
Tenders are typically advertised through local media to give all interested contractors equal opportunity to submit their bids, clearly indicating the materials to be used and the project’s estimated cost.
The contractors must submit the bids within the client’s deadline. The client then evaluates all the proposals based on criteria such as quality and price. After a public evaluation process, the tender process is concluded once the winning contractors and suppliers are determined.
Importance of the tender process
The tender process is critical in construction because of the following:
- Preventing bias: The bids in a tender process are evaluated based on predetermined criteria such as quality and price, giving all interested parties a fair chance of selection.
- Value for money: The client can choose contractors and suppliers to produce the highest quality of work at the lowest price point.
- Healthy competition: The tender process encourages potential contractors and suppliers to be more efficient and deliver the highest possible quality of work while reducing operational costs and inefficiencies. This helps create a competitive market as all the potential contractors and suppliers aim to be more creative and innovative.
- Ease of entry for new firms: The tender process is objective and fair, making it easier for new firms to enter the market as long as they meet the predetermined criteria.
Types of Tenders
A client can choose different types of tendering based on the expertise needed, the nature of the contract, and the complexity of the construction. There are three main types of tendering: open tendering, selective tendering, and negotiated tendering.
In the open tendering, the client advertises the proposed project publicly and is available to all interested contractors. The client may require a refundable deposit from all applicants. Open tendering is common in both government and public sectors, and is widely used in the construction industry.
Below are the pros and cons of open tendering.
- All interested contractors are allowed to apply, thereby increasing the ease of entry for new players in the market.
- The client obtains the best bargain possible.
- The selection of contractors is without bias or favoritism.
- Open tendering encourages competition among potential contractors without obligating the client to accept bids.
- It is suitable for the construction industry.
- The tender list may be too long because the tendering applications are open to all interested contractors.
- Contractors’ resources go to waste when they spend time preparing tender documents but are not selected.
- The contractors may offer a price without fully considering the details of the contract. Therefore, the client may get seemingly reasonable prices that do not reflect the actual price point of their project.
- The client runs the risk of choosing a contractor offering the lowest price and not getting the highest quality of work.
In selective tendering, the client only invites a shortlist of contractors to submit their bids for the tender. Selective tendering is designed to mitigate the limitations of the open tendering method. Since a shortlist of qualified contractors is drawn in advance, participation is restricted to only competent and skilled contractors.
Below are the pros and cons of selective tendering.
- It promotes the economical use of contractors’ resources.
- Reduces tendering costs because the client invites fewer contractors to submit their bids.
- It helps to save time because the tender process is shorter.
- The client can select the lowest offer because only qualified contractors are considered.
- The tender process is easier to manage.
- Reduced tender documentation because only a shortlist of contractors is invited.
- It presents a barrier or entry for other contractors, especially new contractors.
- It increases favoritism.
- The tendering period may be longer.
- There is a risk that contractors may overprice their services.
- There is a risk that contractors may collude.
Negotiated tendering is commonly used in the construction industry, as negotiation starts from the tendering process to the dispute resolution stage. Negotiated tendering involves two phases: the pre-contract negotiations and the post-contract negotiations.
This tendering process typically involves a single contractor but has an allowance for a maximum of three contractors.
The negotiated tendering process begins when the employer identifies a suitable contractor to deal with. The employer can select the contractor from their list of preferences or through the guidance of the professional team.
Once the client identifies a contractor, they give them the project details. Negotiation tendering is suitable for types of contracts where:
- The contractor is involved in funding the construction project.
- The employer and the contractor have a long-term business relationship.
- The construction project is urgent, and the work must be fast-tracked.
Below are the pros and cons of negotiated tendering.
- Negotiated tendering minimizes the risk of failure in the construction industry.
- The tendering process is significantly shortened as the most suitable contractor can be selected much faster.
- The contractor is brought into the project early and can contribute their expertise to the design.
- It is the best tendering method for particular circumstances, such as during emergencies.
- This method increases the barrier of entry for new contractors and reduces the availability of work for non-selected contractors.
- Contractors are likely to quote higher prices than in more competitive tendering processes.
At its core, proper tendering helps all parties arrive at the best contractual terms that benefit all parties. Tendering is essential in construction because it helps select contractors and suppliers for a project.
Clients or employers can choose open tendering, selective tendering, and negotiated tendering methods based on the nature of the project and the expertise required. Proper tendering helps foster good client relationships and improve the quality of a project.