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In the UK the construction sector underpins our economy and society and it is forecast to grow by 14.1% to reach £166,765 million in 2022, with construction output in the UK expected to reach £227,627.2 million by 2026. (Source Global Newswire)
In 2020 UK Prime Minister Boris Johnson promised to “build, build, build”, saying that he wanted to use the period of recovery after the initial Coronavirus crisis “to tackle this country’s great unresolved challenges” and get UK construction moving. The Infrastructure and Projects Authority revealed that the 2020/21 National Infrastructure and Construction Procurement Pipeline had an estimated total contract value of between £29 billion and £37 billion.
Procurement for construction covers a vast range of products and services including anything from supplying building equipment to major works contracts, mostly procured through a tendering process. Public sector procurement within the UK accounts for approximately 40% of all turnover generated by the construction industry.
What is a tender
When an organisation is in need of goods and/or services and it invites other parties to submit a proposal or bid to provide these goods and/or services, this invitation is formally referred to as a Request for or Invitation to Tender and the process is known as tendering for business.
Any time a buyer publishes a request for goods and/or services and invites suppliers to respond, whether they are offering a formal contract, asking for pricing, or just wanting information on what can be supplied, this might be referred to as a Tender. However, each type of request can differ in terms of the documents required and the outcome of the request.
Different forms of the tendering process are used by varying types of organisations, in many different industries, across all sectors: public, private and not for profit. There may also be different forms of the tendering process used based upon the value of the goods and/or services sought.
Tendering is more common in certain sectors, and is particularly common for governments, councils, other public sector organisations and non-profit organisations. In most cases tendering is actually required by legislation or it is stipulated in procurement policies to use the public tendering process for contracts over a defined value threshold, in order to ensure the process is fair and unbiased. Tendering is also more common in certain industries, such as information technology (IT), business consulting, engineering and construction.
What is a tender in construction?
In construction, in order to secure the work, businesses have to demonstrate through their tender why they are the most appropriate contract/supplier for the construction contract. It is normally a formal process, aimed at procuring the most economically advantageous option(s) for the buyer. The contractor/supplier addresses the buyer’s specification and evidences how they will meet the criteria of the contract. The range of tenders available in the UK for goods, works and/or services relating to the construction industry is vast and can include, but is not limited to:
- Architecture services.
- Design and build.
- Facilities management.
- Supply of building materials.
- Housing related services.
- Infrastructure works.
- Project Management.
- Minor works.
- Repairs and maintenance.
- Handyman services.
When would tendering be used in construction?
When it comes to procurement in construction, the methods used to procure goods, works and services typically fall into four categories:
- Traditional contracts – Traditional procurement is the most commonly used method in construction management procurement, and involves an arrangement between the client, consultants and contractor. Following a tendering process, the client appoints the building contractor to construct the works in line with the design, within an agreed timeframe and cost. This is a low-risk option due to the time predictability and cost certainty.
- Design and build contracts – This method of construction procurement involves the contractor taking responsibility for the design as well as construction. This gives the client a single point of contact throughout the project, and would be helpful for projects where the client is willing to spend a little more to have one-to-one communication throughout.
- Management contracts – For management contracts, the client appoints designers and a contractor separately, paying the contractor a fee in exchange for managing the construction works. There is less price certainty with this method, as the construction can often begin ahead of the design stages, with adjustments made during the project. However, the overall process can be shorter than other construction procurement methods.
- Contractor-led contracts – For this method, contractors provide a design team to create a concept design as proposals for the tendering process. This normally leads to two teams proceeding to the next stage of the project, before one construction team is appointed the preferred bidder. This route can be more complex than others, but can also reduce costs in the long run.
Competitive tendering in construction is the most common method of procurement in the industry and there are thousands of construction contracts put out to tender in the UK each year.
What are the different types of construction tenders?
There are three main types of tendering methods used in construction, and tendering methods are selected based on the requirements of the construction contracts.
Open Tendering – Open tendering in construction is a tendering procedure used particularly within the public sector but also used within the private sector. Open tendering allows anyone to submit a tender to supply the goods, works or services that are required. It is a very simple, two-stage process, and is used in construction in order for a buyer to procure mainly simple goods, works or services. There are advantages and disadvantages to this tendering method, and these include, for example:
- It allows any interested contractor/supplier to tender, so it opens the opportunity for new contractors/suppliers to compete for the work.
- It takes bias and favouritism out of the invitation stage, ensuring good competition and enabling the buyer to judge a range of tenders.
- It is a traditional method of tendering and familiar to all sectors of the engineering and construction industry.
- The tender list can be overly long as too many contractors/suppliers tender for the job, so the process becomes expensive to operate.
- If the lowest tender is not accepted questions may be raised regarding public accountability
Pre-qualification / Selective Tendering – For more complex and larger projects, a pre-qualification process will likely be used. Pre-qualifications can come in a variety of forms such as pre-qualification questionnaires (PQQ), selection questionnaires (SQ) or a PAS91. These contain a set of standardised questions, categorised into modules, for example the PAS91 can include the following modules:
The information requested in a pre-qualification questionnaire is usually straightforward, relevant and proportionate to the size of the contract being offered. A PQQ is used in the stage of procurement when a buyer is identifying suitable suppliers, and it helps the buyer to determine who meets the requirements of that contract. When a buyer is confident that the PQQ answers align with its needs, it will create a shortlist of suppliers and enter into the next phase.
There are advantages and disadvantages to this tendering method, and these include, for example:
- It is a method designed to improve the quality of the bids received, to ensure that contractors/suppliers with the necessary experience and competence are allowed to submit the necessary bids.
- It makes the tendering process more manageable and less of a burden on the parties involved, reducing the cost of tendering and ensuring the cost-effective use of resources.
- It enables better management of the tender process, reducing tender documentation and timescales.
- As only the competent contractors/suppliers are invited to tender, then the lowest can be accepted.
- It reduces the availability of work for other contractors/suppliers, especially new contractors/suppliers.
- Prices quoted may invariably be higher than they would have been in an open tendering process.
- Contractors/suppliers may collude with each other to submit favourable tenders.
- Favouritisms or bias may occur in the shortlisting of contractors/suppliers.
- The tendering period is longer because it involves two distinct stages.
Negotiated Tendering – Negotiated tenders are obtained by the buyer inviting a contractor/supplier of their choice to submit prices for a project. Usually this is for specialised work or when particular equipment is needed as an extension of existing works, or for further work following a previous contract. Sometimes negotiated tenders can be used when there is a very tight deadline, or emergency works are necessary. The process usually involves a single contractor/supplier but may involve up to three contractors/suppliers. There are advantages and disadvantages to this tendering method, and these include, for example:
- This type of tendering process reduces the risk of failure because the contractors/suppliers are known to the buyer
- It can be the best alternative for the buyer to adopt when there are special circumstances such as emergencies, security reasons, etc.
- It decreases the period involved in appointing the contractor/supplier for any tendering work which means that the contractor/supplier can, if required, contribute expertise during the design stage and also can commence work more promptly
- It reduces the availability of work for other contractors/suppliers
- The cost of the work is likely higher than through a competitive tender
What is the tendering process?
The tendering process in construction includes the following stages:
Pre-tender Stage – Prior to launching a tender, buyers undertake various preparatory activities such as defining the scope, time to complete, and budget. The pre-tender stage is the most crucial stage because it will initiate the next step of a tender and lays the foundations of whether the tender process will be successful.
Tender Advertisement Stage – This is also called the tender notice. The opportunity to tender may be advertised in a range of ways, but will usually include some of the following:
The contents of the advertisement will vary depending upon the requirements of the tender and the specific buyer; however, they generally contain:
- A notice inviting tenders.
- The form of tender.
- Preliminaries, including pre-construction information and site waste management plan.
- The form and terms and conditions of the proposed contract.
- Employer’s information requirements and building information modelling (BIM) protocol.
- Tender pricing document or form of contract sum analysis on design and build projects.
- Drawing schedule.
- Design drawings.
- Prescriptive or performance specifications – on public projects, tender documentation may include an output-based specification rather than prescriptive or performance specifications and drawings.
- Instructions to tenderers explaining the tender process.
- The timescale for the tender process, including the address and time for the return of tenders.
- An explanation of how queries will be dealt with.
- The evaluation process and any evaluation criteria.
- The submission required in response to the invitation to tender.
- Policy in relation to alternative or non-compliant bids.
- Policy for providing feedback to unsuccessful tenderers.
Closing of Tender – The tender notice will mention the time and date of the tender closing process. If the contractors/suppliers fail to submit their bids within a specific time and date, it is considered the contractors/suppliers have refused to bid for the tender. At that time the tender validity period is also started. At this stage, contractors/suppliers can withdraw back their tender papers if they are no longer interested in participating in the process for the tender.
Tender Opening and Evaluation Process – To ensure the integrity of the competitive tendering process, the evaluation of proposals must be undertaken objectively, consistently and without bias towards any particular contractors/suppliers. Tenders are generally evaluated against a pre-determined set of criteria. The evaluation of the tenders is carried out as soon as possible after the tender opening and is usually completed by an evaluation panel. A report is prepared by the evaluation panel detailing the findings of the evaluation and supported by any relevant information. Once evaluated, the evaluation panel will recommend which contractor/supplier is the most suitable to be awarded the tender.
Tender Award – Once the final decision has been made, all contractors/suppliers that submitted a tender, including the successful contractor/supplier should be informed of the decision to award the contract. This is done either via the e-portal or in writing. Decision letters should give details of the successful contractor/supplier and the score achieved in the evaluation of tender submissions. Once a tender has been accepted by both the buyer and the contractor/supplier it is binding on both parties. The contractor/supplier that won the tender has to provide the goods, works or services in the manner agreed to and at the price offered, and the buyer must pay the agreed price at the agreed time. The tendering process in construction is complete with tender awarding.
What Happens when Tendering Fails?
Competitive tendering is often considered to promote competition, provide transparency and give all contractors/suppliers the opportunity to win business. However, submitting a tender can be an incredibly time-consuming and expensive activity for both parties, and often the chance of success in winning a tender can be low due to the high number of submitted tenders that a contractor/supplier must compete with. There are also a number of other reasons why a tender may fail.
These include, but are not limited to:
Choosing the right tender – Choosing which tender to expend valuable time and energy working on is key. If the skills and experience the buyer is looking for aren’t a match for a contractor/supplier then that will be evident in the invitation to tender response and the tender will fail.
Misinterpreting the specification – It is important to read all the tender documentation in its entirety and understand exactly what the buyer is looking for. The specification requirements need to be read carefully with each one ‘ticked off’ with a robust response from the contractor/supplier demonstrating their capability and the correct memberships and certifications. There is always a process available to ask clarification questions of the buyer, whether by email or via an online portal.
Rushed submissions – Every aspect of producing a tender bid takes time and in order to submit a winning tender, contractors/suppliers need to allow enough time to do so. Estimating the workload involved is key.
It takes time:
- To understand the specification and exactly what the buyer requires.
- To write compelling full answers to the qualifying questions.
- To work out pricing and to fill in the pricing schedule.
- To make sure all the supporting evidence and documentation is correct and present.
- To ensure that all policies and procedures are up to date.
- To keep on top of all the clarification questions and corresponding responses
- To become familiar with the relevant portal (if a portal is being used for tender submission) and to understand how to submit the bid.
- To submit the tender bid, especially if uploading a large number of files, as some public sector portals can be notoriously slow at 11.59 on tender submission day.
Not answering the questions correctly – Answering some of the questions in a tender can feel like an art form. At first it may appear difficult to understand exactly what the buyer is asking for, but by reading the question, and re-reviewing the specification, what they are looking for should become clearer. It is important to always answer the question that has been asked, and not include false or incomplete information. Previous experience in applying for tenders can come in handy, particularly the feedback explaining what was missing from previous answers to tender questions, or the relative advantages of being a winning tender bidder previously who will now know the form.
Not providing tailored information – In accordance with the evaluation criteria, it is usually not enough to simply answer the question posed to score maximum marks. Contractors/suppliers need to demonstrate added value, going over and above the specified requirement by including extra information or proposing extra services to really demonstrate to the buyer their expertise, cost-effectiveness and added value of the tender submission.
Inappropriate pricing – A full understanding of the pricing requirements of a tender is critical, so always ask if anything is unclear. The price submitted with the tender is usually non-negotiable should the tender be successful, so it is very important to get it right. There needs to be a balance between a desire to submit a low price in order to win the tender with the need to make a profit on the work. Winning a tender by submitting a price that means there will be no profit isn’t good for business and is likely to be seen by the buyer as unsustainable for contract delivery; this is where competitor knowledge is key to gauging the market. Trying to win a tender with a heavy weighting towards price might be a waste of time, whereas choosing a tender with a larger weighting on quality and submitting appropriate pricing may be more appropriate to winning the tender. It is helpful to keep a record of unsuccessful tenders to gauge the competitiveness of submitted tenders – is pricing or something else the reason they were unsuccessful?
Not demonstrating USPs – Unique selling points, or USPs, denote the unique difference(s) between one contractor/supplier and the rest. These might include such things as value for money, competitive pricing, value added, experience and capabilities, and social value initiatives. Showing in a tender that requested KPIs can be exceeded can gain valuable extra points when the tender is evaluated.
Late submissions – The deadlines for tender submissions are incredibly strict. A bid must be submitted before the deadline, or it will not be considered. This includes instances where it may be just one or two minutes late. Late means late and it will not be counted, so don’t risk work being all for nothing by not submitting it on time.
Construction tenders are often highly competitive so it is imperative to submit high-quality, compliant tender bids that demonstrate the ability to successfully deliver goods, works or services to a high standard.