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

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The tendering process is the process of inviting bids for projects, it is usually practiced by government institutions. The main objective of the Tendering Process in Construction is to eliminate favoritism and corruption in awarding works to construction companies.

It is an invitation from the owner to the contractor to execute some work at a specified cost at a specified time. It is published in the form of tender notices in newspapers, notice boards, etc. according to the cost of work.

With the help of the tender, the client can compare different prices quoted by various contractors for work. It is always the low price and an experienced contractor wins the tender. The tendering process in construction plays an important role in the selection of the cheapest and most quality bidder for work.

Definition of Tender In Construction

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

A tender document helps in a tendering process that helps a buyer select qualified and interested suppliers based on certain contract criteria. Broadly this is pricing documentation and quality criteria.

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 the required and relevant details about the materials to be used, the expected cost of the project, etc.
After the deadline has passed, all bids are evaluated by the client based on a set of predetermined criteria such as price and quality.
The process of tendering starts with an invitation to tender or a request for tender (RTF).
It ends with the public evaluation process and follows by which one of the firms that submitted a tender wins the project or contract.
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 based on certain predetermined criteria, such as price, quality, and value for money. In other words, the agency which offers 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 to select the ones that can produce the highest quality product or service at the lowest price point. This allows the government or company to save money without having to compromise on 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 get a chance to bid for every project.

And because selection depends on quality and price, every bidder tries to reduce operational costs and labor costs as much as possible to lower expenses and improve quality. This entire process encourages healthy competition in the market and prevents laziness and provides a boost to 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 to quickly get a foothold in the market or industry, thus significantly lowering the traditional barriers to entry.

Types of Tender In the Construction Industry

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

The following major Tender types are used in construction,

Open Tender
Selective Tender
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 offer in the local newspaper and media giving detailed and key information about the proposed works and inviting interested contractors to tender.

If the pre-requisite 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 to only 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 the receipt of a bonafide tender is selected then it will be returned. Although the price is very important in the decision on which tender or bid to accept, it is not the only factor taken into account. 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 bargain possible.
No favoritism 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 as 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 the 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 the bids received and to ensure that contractors with the necessary experience and competence are allowed to submit the necessary bids, due to the urgent work involved.

To make the tendering process in construction more manageable and less 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, 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 involved two distinct stages.

3. Negotiation Tender

The negotiation tendering process in construction is mostly used in the engineering and construction industry commencing from tendering to dispute resolutions, i.e. under the pre-contract negotiations & post-contract negotiations. Usually with a single contractor but may be up to three contractors. The negotiation process involves as follows:

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 on the advice of the professional team.
The contractor is apprised of the work scope. Negotiations can be applied to the following type of contracts.
In this type of tendering process in construction, 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 to have a very early start of work 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 special circumstances such as emergencies, security reasons, etc.
Early Commencement of work on site. It decreases the period involved in appointing 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 competitive tender.
Reduces the availability of work for other contractors.

Tendering Process In Construction

The tendering process in construction includes the following stages:

Pre-tender Stage
Tender Advertisement Stage
Closing of Tender
Tender Opening Process
Tender Evaluation Process
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 further the project. 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, time to complete, and budget.

The pre-tender stage is the most crucial matter because it will initiate the next step of a project. If the pre-tender stage is failed, the project will not be complete. it is the first stage or step of the tendering process in construction.

2. Tender Advertisement Stage

The tender advertisement is also called tender notice. The conventional tender notice will advertise in the local newspaper. In the tender notice, the basic requirement that should be appearing 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 mention the time and date of the tender closing process.

If the contractors fail to submit their bids within a specific time and date, it considers the contractors’ refusal to bid for the tender. At that time also the tender validity period is started.

At this stage, contractors can withdraw back their tender papers if they are no more interested to fight for the tender. Consultants use this period to make assessments and evaluations of each of the offers.

4. Tender Opening and Evaluation Process

Quantity surveyors usually will 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 the soonest 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 finalized 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 sent 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 has to provide the goods or services in the manner agreed to and at the price offered, and the client/government must pay the agreed price at the agreed time. The tendering process in construction is complete with tender awarding.

FAQs On Tendering Process