Tendering Process: Advantages and Types, All You Need to Know

The tendering process is the process of inviting bids for projects; it is usually practised by government institutions.

The main objective of the Tendering Process in Construction is to eliminate favouritism and corruption in awarding works to construction companies.

It is an invitation from the owner to the contractor to perform work at a specified cost and within a specified time. It is published as tender notices in newspapers, on notice boards, etc., according to the cost of the work.

With the tender, the client can compare prices quoted by various contractors for the work. It is always the low price that wins the tender, and an experienced contractor wins it.

The tendering process in construction plays an important role in selecting the cheapest and most qualified bidder for the work.

Definition of Tender In Construction

A Tender is a written document in which work details are mentioned. This is the document that was publicly released or sent to eligible suppliers or contractors who are willing to complete it and take on the work.

A tender document supports the tendering process, helping a buyer select qualified, interested suppliers based on specific contract criteria. Broadly, this is pricing documentation and quality criteria.

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Characteristics of Tenders

Some of the most important characteristics of tenders are listed below

• All potential contractors and suppliers must submit their bids within the deadline decided by the client.
• The bid (tender papers) must include all required and relevant details about the materials to be used, the expected project cost, etc.
• After the deadline passes, all bids are evaluated by the client against predetermined criteria, such as price and quality.
• The tendering process starts with an invitation to tender (ITT) or a request for tender (RTF).
• It ends with the public evaluation process and is followed by the award of the project or contract to one of the firms that submitted a tender.
• Before they are floated by the client, tenders are generally advertised in different local media and newspapers, to allow all interested contractors an opportunity to bid for the project.

Advantages of Tendering In Construction

The following are some Advantages of Tendering In Construction,

1. No Nepotism

Tenders or bids are evaluated against predetermined criteria, such as price, quality, and value for money. In other words, the agency offering the best-quality product or service at the lowest price point would win the contract or tender.

2. Value for Money

For the client, tenders give the greatest value for the amount of money spent. This is because the client can choose potential contractors and select those that can deliver the highest-quality product or service at the lowest price point. This allows the government or company to save money without compromising quality.

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3. Encourages Competition

The process of tendering helps to promote a competitive market. This is because several potential contractors, firms, or suppliers can bid on each project.

And because selection depends on quality and price, every bidder tries to reduce operational costs and labour costs as much as possible to lower expenses and improve quality. This entire process encourages healthy competition in the market, prevents laziness, and boosts innovation and new ideas.

4. Easier Entry for New Firm

The system of tendering makes it possible and simpler for new firms to enter the market or even a particular industry. This is because contracts under these systems are awarded based on predetermined, objective criteria.

This process helps new firms quickly gain a foothold in the market or industry, significantly lowering traditional barriers to entry.

Types of Tenders in the Construction Industry

The type of tendering process in construction that the employer wants to choose depends on the nature of the contract, the complexity of the construction, the expertise needed, and several other reasons.

The following major Tender types are used in construction,

1. Open Tender
2. Selective Tender
3. Negotiation Tender

 1. Open Tender

An open tender is the main tendering process in construction employed by both the government and the private sector. The government or client advertises the tender in the local newspaper and media, providing detailed key information about the proposed works and inviting interested contractors to tender.

If the prerequisite to tendering on the form of possession for tender of the necessary registration has been identified in the tender paper, then the advertisement is directed only to that particular class of the agency or firm having the said qualifications. To reduce the number of inquiries, the earnest money is deposited (for private & govt. projects).

Until a bona fide tender is received, it will be returned. Although price is very important in deciding which tender or bid to accept, it is not the only factor considered. The client does not bind to accept the lowest or any offer.

The advantages and disadvantages of the open tendering process in construction are stated below

Advantages

• It allows any interested contractor to tender. Therefore, it allows an unknown contractor to compete for the work.
• Allowing the tender list to be made without bias. The client will obtain the possible bargain.
• No favouritism in selecting contractors.
• Ensuring good competition, both are obliged to accept any offers.
• It is a traditional method of tendering and is familiar to all sectors of the engineering and construction industry.

Disadvantages

• The tender list can be long because there are too many contractors tendering for the job.
• Uneconomic use of the source.
• Public accountability may be questioned if the lowest offer is not accepted.

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2. Selective Tender

The selective tendering process in construction is one alternative developed to address the limitations of the open tendering procedure. In this method, a shortlist of contractors is drawn up, and they are invited to submit tenders.

The purpose of the selective tendering process in construction is to improve the quality of bids received and to ensure that contractors with the necessary experience and competence are allowed to submit bids, given the urgent nature of the work.

To make the tendering process in construction more manageable and less of a burden on the parties involved.

The advantages and disadvantages of the selective tendering process in construction are stated below:

Advantages

• It reduced the cost of tendering and the Economic use of resources.
• Reduce tender documentation.
• Shorter tender periods.
• Better management of the tender process.
• Only the competent contractors were invited to tender, and then the lowest can be accepted.

Disadvantages

• Reduces the availability of work for other contractors, especially new contractors.
• Tender Prices may invariably be higher than would have been in open tendering.
• Greater chance of collusion.
• Favoritisms may occur in the shortlisting.
• The tendering period is longer because it involves two distinct stages.

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3. Negotiation Tender

The negotiation tendering process in construction is most commonly used in the engineering and construction industry, from tendering through to dispute resolution, i.e., under pre-contract and post-contract negotiations. Usually with a single contractor, but may be up to three contractors. The negotiation process involves the following:

• Identification by the employer of a suitable contractor to negotiate with.
• The contractor can be selected either from the employer’s list of preferences or based on the professional team’s advice.
• The contractor is apprised of the work scope. Negotiations can be applied to the following types of contracts.
• In this type of construction tendering process, the employer has a long-term business relationship with the contractor.
• Where the contractor is involved in the financing of the project.
• Where there is a pressing need for a very early start on the site and to complete the works on a fast-track basis.

The advantages and disadvantages of the selective tendering process in construction are stated below:

Advantages

• This type of tendering process in construction reduces the risk of failure.
• The best alternatives for the employer to adopt are in special circumstances, such as emergencies or security reasons.
• Early Commencement of work on site. It reduces the time required to appoint the contractor for any tendering work.
• The Contractor can contribute his expertise during the design stage.

Disadvantages

• The cost of work is likely higher than the competitive tender.
• Reduces the availability of work for other contractors.

Tendering Process In Construction

The tendering process in construction includes the following stages:

1. Pre-tender Stage
2. Tender Advertisement Stage
3. Closing of Tender
4. Tender Opening Process
5. Tender Evaluation Process
6. Tender Award

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1. Pre-tender Stage

At the pre-tender stage, when the clients have an idea, the client will appoint a consultant to discuss the project further. The consultant will do their job, advising, managing the tender and contract, and also transferring the idea into the drawing.

 At this stage, the client and consultants will be brainstorming about the scope, timeline, and budget.

The pre-tender stage is the most crucial because it sets the stage for the next step in a project. If the pre-tender stage fails, the project will not be completed. It is the first stage or step of the tendering process in construction.

2. Tender Advertisement Stage

The tender advertisement is also called a tender notice. The conventional tender notice will be advertised in the local newspaper. In the tender notice, the basic requirements that should appear are:

• Title of the project.
• Class of contractor, head, and subhead needed.
• Location, date, and time to obtain the tender document.
• Fees for tender documents.
• Location, date, and time for submission of tender doc.

3. Closing of Tender

The tender notice will specify the date and time of the tender closing.

If the contractors fail to submit their bids by the specified date and time, it is considered a refusal to bid on the tender. At that time, the tender validity period also starts.

At this stage, contractors can withdraw their tender papers if they are no longer interested in fighting for the tender. Consultants use this period to assess and evaluate each offer.

4. Tender Opening and Evaluation Process

Quantity surveyors usually handle the tender opening process. To ensure the integrity of the competitive process, the evaluation of proposals must be undertaken objectively, consistently & without bias toward particular suppliers.

Tenders are generally evaluated against a pre-determined set of criteria. The evaluation of the tenders shall be prepared as soon as possible after the tender opening.

A report prepared by the Quantity Surveyor will describe the findings of the said evaluation, and it will be supported by tables and graphs.

In the end, the Quantity Surveyor will recommend which tenderer, in his opinion, is the most suitable to undertake to execute the project.

5. Tender Award

An evaluation team will examine each tender received and make recommendations as to which tender represents the best value for money. 

Once the contract has been finalised and work has been awarded, both the successful and unsuccessful tenderers will be notified.

Once the final decision has been made on the tender award to the particular contractor, the tender administrator creates the tender results notification, which is in letter form and then sends it to all participating contractors.

Once the client or government accepts a tender, it is binding on both parties. This means that the agency or company that won the tender must provide the goods or services in the manner agreed and at the offered price, and the client/government must pay the agreed price at the agreed time.

The tendering process in construction is complete, with the tender award.

FAQs On the Tendering Process

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