Contract Administration Course - Part 2 - Tendering
This article is the second part of the contract administration course, which discuss the basics of construction contract administration.
In part 1, we covered the definition of an agreement and a contract, the primary elements of a contract and the types and parties to construction contracts.
In this part 2, we shall discuss project tendering process.
Tendering Cycle - Introduction
A tender is a submission made by a prospective contractor (tenderer) in response to an Invitation to Tender. This consititutes the offer by the contractor (see part 1), which if unconditionally accepted by the employer, shall create a binding contract between the parties.
In berif, there are three main methods of procurement in construction:
- Traditional Procurement. The most common type of procurement with separates the design responsibility from construction responsibility. Usually, a consultant is tasked with the design which is then the contractor's responsibility to execute the design.
- Design and Build (Turnkey) Procurement. The same contractor is required to design and construct the building. This bears the contractor the entire risk of the project.
- Management Based Procurement. In principle, the employer hires a management contractor to manage a series of works contractors.
Throughout this course, we will be emphasizing on the traditional method of procurement, and referencing the FIDIC Procurement Guide 2011.
Invitation to Tender and Tender Documents
Typical tendering cycle process
An ITT is a formal invitation to a shortlist of prospective tenderers (which could be compiled through pre-qualification or pre-selected) to sumbit a tender for the execution of the works.
Based on the traditional method of procurement, the invitation to tender usually include the following documents (again based on FIDIC procurement guide), collectively called Tender Documents or Tender Dossier. The contract administrator usually drafts and prepares the documents of non-technical nature in the tender documents,
- Invitiation to Tender;
- Instruction to Tenderers;
- Conditions of Contract;
- Form of Letter of Tender;
- Form of Contract Agreement;
- Forms of Required Guarantees;
- Drawings; and
- Bills of Quantities.
The ITT could take a form of a letter or a public advertisement, where interested contractors could obtain the tender documents, either freely or at cost, and submit their tenders accordingly, accompanied with the tender security (if required).
The relevant documents for a contract administrator are:
Instruction to Tenderers
The instruction to tenderers should be prepared to provide more detailed information and instructions that will govern the tender cycle.
This document governs the period of receiving and evaluating tenders, and should not form part of the resulting contract.
The instruction to tenderers should at least include the following minimum:
- the language of the tender;
- number of copies of tender;
- rules for treatment of taxes and duties;
- procedure for clarifications and queries raised by the tenderers;
- instruction for packing and addressing the tenders;
- site visit procedures;
- opening of tenders procedures and information (date, location, time, opening comittee, open sessions, closed sessions, one-envelope, two-envelope etc.);
- criteria and rules for evaluation of tenders, and dealing with errors in the tenders;
- procedure for disqualification/rejection of tenders; and
- procedure for contract award
For more details and recommendation, please refer to FIDIC Procurement Guide 2011, section 11.1.3, pages 166-168.
A tender security (bid bond) may also be required by the employer along with the tender. The main purpose of the tender security is to safeguard the employer against contractors withdrawing their bid prematurely, or failing to enter a contract and provide a performance security (required by the FIDIC conditions of contract, and shall be discussed later) if successful.
The tender security is usually not more than 5% of the estimated tender amount, and should be released by the employer for unsuccessful tenderers upon rejection of their tenders, and to the selected contractor after entering into contract and the contractor submitting the performance security.
Conditions of Contract
Conditions of contract set out the legal relationship between the parties, and allocates risks to both parties. It also sets out other provisions such aspayment, time, dispute resolution and taking over.
Under FIDIC contracts, the Conditions of Contract are divided in to General Conditions of Contract and Particular Conditions of Contract.
The General conditions is the contract from the FIDIC rainbow suite of contracts, and is amended in the Particular conditions according to the needs of the works.
Tender Process and Evaluation
After obtaining the tender documents by the tenderers, the contract administrator is responsible to coordinate the activities during the tender study phase. Utmost care should be excercised by the contract administrator to ensure the he is fair and impartial to all tenderers.
Normally, these activities include:
- Site Visits. The contractors visit the site to examine and evalute the site conditions, and obtain more information related to the tender. Any clarifications should be formally sent to all tenderers.
- Queries. In virtually all tender cycles, tenderers send a list of queries and the employer (or a consultant on his behalf) produces replies and clarifications to such queries. The contract administrator then proceeds to issue the resultant clarifications in a form of an Addendum to the Tender Documents to all tenderers.
- Tender Opening and Evaluation. After the tenderer submits his tender, the contract administrator must ensure that each tender is responsive, which means conforms to all requirements of the invitation to tender. If any tender is nonresponsive, it could be disqualified. The contract administrator then proceeds in assisting in the evaluation of each tender in accordance with the rules set out in the instruction to tender, and producing the final report. Finally the successful tenderer is proceeded with the contract award procedure.
This marks the end of the second part of the course, and in the next article we shall discuss the FIDIC contracts.
Please share your ideas, suggestion and questions in the comments section below.
In this part, we learned:
- what is a tender;
- procurement of works types in construction;
- tendering cycle and tender documents;
- tender documents relevant to the contract administrator; and
- tender process and evaluation.
Continue Reading: PART THREE - FIDIC
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