The following recommendations are based predominantly upon the guidelines published by the JCT and the original guidelines produced by the NJCC.
The selection of a contractor to carry out a construction project is an important matter requiring careful thought. A wrong choice may lead to an unhappy client/contractor relationship, a dissatis- fied client and possibly even an insolvent contractor.
Any one contractor will not be suitable for any one job. A con- tracting organization will be geared to work for a particular size or price range and will be unsuitable or uneconomic for contracts out- side that range. For example, a national company would probably not be suitable to carry out a small factory extension or to build a single house on an infill site in an urban location. The overhead costs of that size of organization would be such as to make it impos- sible for the company to carry out the work for an economic price. A medium-sized company may be generally competent in most fields of building works, but may not have sufficient design expertize to take on projects that contain a substantial amount of contractor- designed work. Finally, at the other lower end of the scale, a small firm, used only to jobbing work and small alterations and exten- sions, would probably be out of depth in handling a contract for the erection of even a modest-sized reinforced concrete office block. Such a firm, with little experience of estimating and probably none in the pricing of bills of quantities, would be likely to tender at too low a level by failing to include for all the costs involved. If given the contract, the firm would no doubt soon get into difficulties and probably end up in disaster.
The client’s professional advisers should aim to find a contract- ing company
1 that is financially stable and has a good business record; 2 for which the size of the project is neither too small nor too large; 3 that has a reputation for good-quality workmanship and effi-
cient organization; and
4 that has a good record of industrial relations.
There are three principal methods of choosing a contractor: (a) open tendering, (b) selective tendering and (c) nomination.
Open tendering
This is initiated by the client’s project manager, architect or quan- tity surveyor advertising in local newspapers and/or the technical press, inviting contractors to apply for tender documents and to ten- der in competition for carrying out the work, the main characteris- tics of which are given. Usually, a deposit is required in order to discourage frivolous applications, the deposit being returnable on the submission of a bona fide tender.
Advantages
1 There can be no charge of favouritism as might be brought where a selected list is drawn up (this is of concern particularly to local authorities who, probably for this reason more than any other, tend to use open tendering more than other clients). 2 An opportunity is provided for a capable firm to submit a ten-
der, which might not be included on a selected list.
3 It should secure maximum benefit from competition (it may not always do so, however, as may be seen from the disadvan- tages below).
Disadvantages
1 There is a danger that the lowest tender may be submitted by a firm inexperienced in preparing tenders (particularly if bills of quantities are used), and whose tender is only lowest as a consequence of having made the most or the largest errors. 2 There is no guarantee that the lowest tenderer is sufficiently
will provide some safeguard, there may be little time in which to do so.
3 Total cost of tendering is increased as all the tenderers will have to recoup their costs eventually through those tenders which are successful. The result can only be an increase in the general level of construction costs.
Open tendering was deprecated in the Banwell Report.4 Conse- quently central government departments and most local authorities do not use this method of obtaining tenders. There tends, however, to be an increase in its use by local authorities in times of national eco- nomic difficulties with attendant public expenditure cuts, presum- ably because it is assumed that the more tenderers there are, the lower the price for which the work can be carried out.
Selective tendering
Selective tendering may be either single or two stage, depending on whether the full benefits of competition are desired (in which case single-stage tendering is used) or whether limited competi- tion plus earlier commencement of the works on site is considered advantageous (using two-stage tendering).
Single-stage selective tendering
Under this procedure, a short list is drawn up of contractors who are considered to be suitable to carry out the proposed project. The names may be selected from an approved list or ‘panel’ main- tained by the client (as many public authorities do), or may be specially chosen.
In the latter case the contractors may be invited, through suit- ably worded advertisements in the press, to apply to be considered for inclusion in the tender list. This gives the client the opportun- ity to exclude any firms thought to be unsuitable, and to limit the number of tenderers. At the same time, it gives any firm the oppor- tunity to apply to be considered. The criteria that a client may use to decide upon the suitability of a contractor are:
1 Whether the company has had recent experience of similar projects of a similar standard and completed within the envis- aged time scale.
2 Whether the company has the skills necessary for the delivery of the project.
3 The quality of the company management structure and per- sonnel employed by the company.
4 Whether the company has the spare capacity to carry out the work within the proposed time scale.
5 The financial standing and record of the company.
It is recommended that the number of tenderers should be limited to between five and eight, depending on the size and nature of the contract. If the firms on the list are all ones which are reputable, well-established and suitable for the proposed work, and the client fixes the construction time, then the selection is resolved into a question of price alone and the contract can be safely awarded to the firm submitting the most favourable tender.
Advantages
1 It ensures that only capable and approved firms submit tenders. 2 It tends to reduce the aggregate cost of tendering.
Disadvantage
1 The cost level of the tenders received will be higher, owing to there being less competition and also due to the higher calibre of the tenderers.
Nomination
This is sometimes referred to as single tendering and is, in effect, a special case of selective tendering, the short list containing only one name. It is used when the client has a preference for a particu- lar firm, often because it has done satisfactory work for him before. Obviously, if only one firm tenders for a job, competition is elim- inated and that will, almost inevitably, lead to a higher price. The client may think it is worth paying more, however, in return for a quicker job or one of better quality than he might otherwise get. One should be fairly certain, however, that a worthwhile benefit will accrue before advising a client to nominate rather than go out to competitive tender.
When a contractor is nominated, the contract sum will be arrived at by a process of negotiation. This may be done using bills of
quantities or schedules of rates, but instead of the contractor pri- cing the tender document on his own and submitting his tender to be accepted or rejected, the rates and prices are discussed and agreed until eventually a total price is arrived at which is accept- able to both sides.
Usually the negotiation will be conducted between one of the con- tractor’s senior estimators and the surveyor (either a partner, asso- ciate or senior assistant). To facilitate the procedure, one party will usually price the tender document first of all, to provide a basis for the negotiation. The other party will then go through the rates and prices, ticking off those which are acceptable and then the two sur- veyors will meet to negotiate the unticked ones. When agreement on the whole is reached, a contract will be entered into between the client and the contractor.
Serial tendering
Sometimes, when a large project is to be carried out in successive phases, a combination of selective tendering and nomination is employed. This is sometimes called serial tendering. The contrac- tor is chosen for the first phase by means of selective competitive tendering. The accepted tender forms the basis of payment for the resulting contract in the normal way. The tender is also used for the second and later phases, provision being made for so doing in the initial contract by the inclusion of a formula for updating the prices. Alternatively, the contract for the first phase may specify negotiation of new rates, based upon the tendered prices, as the means of determining the payment for each successive phase in the series.
The purpose of serial tendering is to gain the benefits of continu- ity. The contractor for the first phase of the project will have his site organization set up, his offices, mess and storage huts, etc., already in use and plant of various kinds on the site. When the second phase commences, these facilities will be already available, thus allowing a smooth transition with much less additional expense than if a dif- ferent contractor were to be employed.
In addition, the contractor’s workforce will be familiar with the details of the construction after building the first phase, and thus should be able to work more speedily and efficiently on the second and subsequent stages.
Two-stage selective tendering
This procedure is used when it is desired to obtain the benefits of competition and at the same time to have the advantage of bring- ing a contractor into the planning of the project, thus making use of his practical knowledge and expertise. It may also result in an earlier start on site.
The first stage aims to select a suitable contractor by means of limited competition. The second stage is a process of negotiation with the selected contractor on the basis of the first-stage tender. First, a short list of tenderers is prepared, as described for single- stage tendering. The NJCC Code5recommended a maximum of six names on the list (four in the case of specialist engineering con- tracts) and also suggests matters for consideration when drawing up the list.
First stage
When being invited to tender, tenderers are informed of the second- stage intentions, including any special requirements of the client and the nature and extent of the contractor’s participation during the second stage. Tenderers are asked to tender on the basis of any or all of the following:
(i) an ad hoc schedule of rates, consisting of the main or signifi- cant items only;
(ii) a detailed build-up of prices for the main Preliminaries items; (iii) a construction programme showing estimated times and
labour and plant resources which would be used, and also construction methods;
(iv) details of all-in labour rates and main materials prices and discounts which would go into the build-up of the detailed tender;
(v) percentage additions for profit and overheads;
(vi) proposed sub-letting of work, with additions for profit and attendance.
During this stage, discussion with each of the tenderers may be conducted in order to elucidate their proposals and to enable the contractors to make any suggestions with regard to design and/or construction methods. When these procedures have been concluded,
a contractor is selected to go forward to the second stage. It is important that in accepting the first-stage tender, the parties define procedures for either of them to withdraw, should the second-stage negotiations prove abortive, and what, if any, payment may be due to either party in that event, including reimbursement of the con- tractor for any site works the contractor may have carried out. Second stage
During this stage, finalization of the design proceeds in consult- ation with the selected contractor, and bills of quantities (or other detailed document describing the proposed works) are prepared and priced on the basis of the first-stage tender. Negotiation on the prices will follow until agreement is reached and a total con- tract sum arrived at, when the parties will enter into a contract for the construction works.
When time is pressing and it is desired to start work on site before final agreement is reached, a contract may be signed earlier. In that case, when the surveyor considers that a sufficient measure of agreement has been reached on the prices for the principal parts of the work, he will recommend the client to proceed with arrange- ments for the signing of a contract. This is not recommended in the NJCC Code, but the client may consider that it is worth taking a risk in order to speed up the project.