CONTRACTUAL RELATIONSHIPS

TENDERING

TENDER
A tender is an offer to do or perform an act which the party offering, is bound to perform to the party to whom the offer is made

A written offer to contract goods or services at a specified cost or rate; a bid An offer made in writing by one party to another to execute certain work, supply certain commodities, etc., at a given cost and terms.

COMPETITIVE TENDERING
Invites contractors to submit the lowest price for

which they are willing to carry out a project Relies on the information contained in drawings, specifications and bills of quantities prepared on behalf of the construction client. Types
Open Selective
One or two stages

OPEN TENDERING
Allows any contractor to submit a tender to an advertised

project Process
Client advertises openly in the press or the trade publications inviting contractors to apply for the project Contractor that is able to under take the project would request a tender document After receiving the tender from the architect, the contractor may be required to give a deposit and to ensure a bona fide tender. This is done to filter out the contractors who are not interested in submitting a tender.

Note: Tenders are costly and time consuming overheads on successful tendering will be passed on to the client. When assessing tenders the client will probably look for a cheap option or the best tender if quality is wanted Client could also refuse all of the applicants if they dont suit the job.

OPEN TENDERING 2
Advantages Maximum competition Lowest price obtained Disadvantages Large waste of effort because too many contractors are tendering Contractor submitting lowest tender may not be properly equipped to undertake the contract Client may be inclined to accept lowest tender irrespective of reputation of contractor Poor quality building or bankruptcy may occur

SELECTIVE TENDERING
Where contractors of known reputation are

selected to submit a tender

The cheapest among them is selected to deliver the project

Commonest method of awarding a tender. Process A design team select a number of contractors (normally 6) that are already known to them and invite them to tender for the project Contractors tenders are usually based on a completed design Project is awarded to the contractor with the lowest tender. Note: The National Joint Consultative Committee (NJCC) for Building provides a useful Code of Procedures for single stage tendering, to help with the awarding of contracts to contractors

SELECTIVE TENDERING 2

Advantages As tenderers are known, selection of cheapest bid is not as high a risk as in an open tender Disadvantages Limiting the number of tenderers may exclude new bidders who may offer more innovative ideas or slutions

TWO-STAGE TENDERING
Aim - to speed up the procurement process by getting the architect and the

contractor to start the project as soon as possible.

With this approach the contractor will be able to start work (e.g. excavation, foundations) on site as soon as possible. Improve buildability - utilising skills of architect and contractor Process Usually a contractor will be chosen through a form of selective competition with a simple bill of approximate quantities, these will be:
The preliminary items Major items of measured work

Where contractors tenders are based on a partially developed consultants design (Stage 1 tender). The contractor then assists with the final development of the design and tender documents, against which tenders for the construction works are prepared (Stage 2 tender). The first stage tenderer has the opportunity to tender or negotiate the second stage Specialist items used included as Prime Cost Sum, upon which contractors are given the opportunity to include sums for profit and attendance. The client will also ask the contractor to state their overheads and profits. These prices will determine the price agreement that will be negotiated with the successful contractor.

Notes:
first stage of the two-stage tendering proceedings, initial tenders containing their

proposals without a tender price

TWO-STAGE TENDERING 2
Advantages Allows contractor to have input into design and buildability and helps team-building, thereby helping avoid future adversarial attitudes Fast tendering Speed of construction (build-ability) Costs are known for quick negotiation Disadvantages The architect and contractor might not agree on designs Due to problems with architect and contractor the project completing time could suffer

CODE OF PROCEDURES

A certain level of standards needs to be placed where all parties in the construction industry are familiar No alteration to tender price without justification Prior to the tendering all errors and alterations must be dealt with For selective tendering, the number of firms invited to tender must be limited Selection process should consider:
The firms final standing order The experience and reputation of the firm for the type of project envisaged The suitability of the management structure of the firm Whether the firm will be able to undertake the contract at this time, taking in to account its other commitments

Adequate time given for tendering, minimum 4 weeks All conditions of tendering must be absolutely clear All clients must be given all the necessary details about the project

CODE OF PROCEDURES (2)

All tenders shall be submitted on the same basis Tenderers should not be allowed to qualify their tender All tenders must be submitted so that they have all been received by

the specified time. A tender can be withdrawn at any time before a tender is accepted (British Law permits) Tenders must be placed into a hierarchy of the top 3 and the rest must be notified that they have been unsuccessful When the tender has been awarded, every tender should be supplied with a list of the tender prices received When the lowest tender exceeds the employers budget it is recommended that the project continues and negotiation takes place with the lowest tender. The client might not accept any tenders price, and will not be responsible for the cost of tender preparation Procedures should include measures for safeguarding the confidentiality of all documents

TENDER EVALAUTION
Evaluation may be 2 stages Pre-tender or Pre-Qualification (Pre-Qual)
Ensure that contractors are
Reputable Capable Experienced

Pre-Contract Ensure that contractors

Fully understand the contract Bid is realistic Proposed resources are adequate

TENDERING

Invitation to Tender
must state the place where and the date and time by which the tender must be received that the tender must be enclosed in a sealed envelope or package marked with the word 'Tender' followed by the subject to which it relates and the deadline for tender receipt. Adequate time must be allowed for the preparation and return of tenders depending on size of project. All tender envelopes or packages received must be marked with the date and time of receipt and the initials of the receiving officer, and recorded. All tenders shall remain sealed in secure custody until the time appointed for their opening.
Any tender received after the specified time shall be recorded as such but must not be considered.

Receipt, Custody and Opening of Tenders

Tenders shall be opened at one time and in the presence of at least two officers who shall be independent of each other and shall sign a complete record of all tenders opened, showing the date and time of opening and the value of each tender. Where only one tender or quotation is received, the Project Director could determine for contracts up to a certain price whether or not to accept the quotation or tender. For high value projects decisions need to made jointly with project sponsors. The tendering exercise may be repeated. Tenders should be opened as soon as possible after the latest time for receipt of tenders. In the event of the lowest tenderer withdrawing his offer, the second and third lowest tenderers should be informed that their tenders were not the most favourable received but their offers are being actively considered. Where nominated sub-contractors are to be used, they must go through a similar process to the main contractor

Acceptance of Single Quotation or Tender Received

Nominated Sub-Contractors and Suppliers

TENDERING (2)
Tenderers shall certify and give undertakings that: the tender is genuine and intended to be competitive; they have not fixed or adjusted the amount of the tender by or under or in accordance with any agreement or arrangement with any other person*; they have not done and will not do, at any time before the time and date specified for the return of the tender, any of the following: inform any person the amount or approximate amount of the proposed tender, except where the confidential disclosure of the approximate amount of the tender was necessary to obtain insurance premium or other quotations necessary for tender preparation; enter into any agreement or arrangement with any other person with the aim of preventing tenders being made or as to the amount of another tender or the conditions on which the tender is made; offer to pay or give or agree to pay or give any sum of money or valuable consideration directly or indirectly to any person for doing or having done or causing or having caused to be done in relation to any other tender or proposed tender for the Council any of the actions specified and described in this section; cause or induce any person to do any of these things

TENDER DOCUMENTS

Covering letter An invitation to tender Instructions to bidders Specifications and detailed descriptions of the goods and services to be purchased including criteria for evaluation Details of other professionals and parties involved Draft of basic terms and conditions of contracts Standard forms for tenders, including the quality and price schedules, health & safety questionnaires Details of information required from the tenderer as part of the submission

LETTER OF INTENT (LOI)

is a document that describes the preliminary understanding between parties who intend to make a contract or join together in another action.

Definitions of Normal Terms used in Tendering

Earnest Money Deposit The earnest money is given at the time of contract and it constitutes a guarantee for performance of the contract. If the transaction is carried out the earnest money is adjusted towards the sale price. If the buyer defaults it is forfeited, unless there is a contract to the contrary.
Security Deposit A security deposit, on the other hand, serves as a guarantee for the due performance of the contract. Therefore, the forfeiture of security deposits as such is not allowed.

Definitions of Normal Terms used in Tendering

Defects Liability Period The period stated in the contract immediately following the date of provisional acceptance, during which the Contractor is required to complete the works and to remedy defects or faults as instructed by the Client Guarantee A secondary agreement by which one person promises to honour the debt of another if that debtor fails to pay. Banks and other creditors often call on directors of small companies to give their personal guarantees for company debts. A guarantee must be in writing. The guarantor can only be sued if the actual debtor can't pay, in contrast to indemnity Difference between Guarantee and Warranty There are differences in expectations between a product guarantee and a product warranty. Frequently a guarantee implies that you get your money back if a product is defective, whereas a warranty may just agree to repair the defect. Indemnity A promise by a third party to pay a debt owed, or repay a loss caused, by another party. Unlike a guarantee, the person owed can get the money direct from the indemnifier without having to chase the debtor first. Insurance contracts are contracts of indemnity: the insurance company pays first, and then tries to recover the loss from whoever caused it.

Definitions of Normal Terms used in Tendering

Liquidated damages : When the damages are uncertain and not capable of being ascertained by any satisfactory or known rule - whether the uncertainty lies in the nature of the subject itself or in the particular circumstances of the case; are damages whose amount the parties designate during the formation of a contract for the injured party to collect as compensation upon a specific breach (e.g., late performance). Letter of Credit (L/C): A letter of credit(L/C or LC) is a document issued by a financial institution which provides an irrevocable payment undertaking to a beneficiary against complying documents as stated in the credit. Bank Guarantee : It is a document issued by a financial institution which guarantees a sum of money to a beneficiary. The sum is paid if the opposing party does not fulfill the stipulated obligations under the contract. This can be used to essentially insure a buyer or seller from loss or damage due to nonperformance by the other party in a contract. What's the difference between a bank guarantee and a letter of credit? A bank guarantee and a letter of credit are similar in many ways but they're two different things. Letters of credit ensure that a transaction proceeds as planned, while bank

Definitions of Normal Terms used in Tendering

Delivery The main ways in which delivery may be effected are: a. by the physical transfer of the goods; b. by the transfer of the means of control of the goods, (e.g. handing over the keys to a warehouse); c. by attornment, that is acknowledgement by the person in possession that he holds the goods on behalf of someone else; d. by transfer of a document of title (e.g. a bill of lading) representing the goods; and e. by the completion of the work in contracts for services. EX-WORKS A method of delivery. Goods are collected from the sellers premises by the buyer or his agent or authorised representative at the time stated in the contract. Title to the goods delivered ex-works will usually pass at the time of collection. F.O.R. (FREE ON RAIL / ROAD) is where goods will be delivered by the client to a railway station/ on road. The purchaser is responsible from this point on. ( Includes packing, loading, transportation expenses but unloading expenses excluded) FIRM PRICE A price agreed for goods or services which is not subject to variation.