Procurement and Tendering - Part III

Procurement and Tendering for RICS APC Candidates – Part III

A guide to the key concepts and best practices of procurement and tendering in the construction industry

1        Introduction

Tendering is a crucial process in the procurement of goods, works, or services from external sources. It aims to achieve value for money, fair competition, transparency, and accountability. The tendering process involves inviting bids from contractors or suppliers and evaluating them based on predefined criteria to select the most suitable candidate. This text provides a comprehensive overview of the tendering process, covering various types of tendering, standard rules and regulations, single and two-stage tendering, electronic tendering, and the compilation of tender lists and pre-qualifying contractors.

This blogpost covers the following topics:

• Overview of Tendering

• Standard rules of tendering – codes of practice, practice notes

• Single/two-stage tendering – competitive/negotiated

• Electronic tendering

• Compilation of tender lists – pre-qualifying contractors

2        Overview of Tendering

Tendering is the process of inviting and evaluating bids from contractors or suppliers for a project or contract. The main objectives of tendering are to achieve value for money, fair competition, transparency and accountability. Tendering is an essential part of procurement, which is the process of acquiring goods, works or services from external sources.

• Tendering can be classified into different types, depending on the level of competition, the degree of negotiation, the method of submission and the criteria of selection. Some of the common types of tendering are:

• Open tendering: This is the most competitive and transparent type of tendering, where any interested contractor or supplier can submit a bid for the project or contract. The bids are evaluated based on predefined criteria, such as price, quality, experience and technical capability. The lowest bidder or the most economically advantageous bidder is usually awarded the contract.

• Selective tendering: This is a type of tendering where only a limited number of prequalified contractors or suppliers are invited to bid for the project or contract. The prequalification process involves screening the potential bidders based on their financial, technical and managerial capacity, as well as their past performance and reputation. The bids are evaluated based on the same criteria as open tendering, but with a smaller pool of competitors.

• Negotiated tendering: This is a type of tendering where the client or the consultant negotiates directly with one or more contractors or suppliers, without inviting competitive bids. This type of tendering is usually used for complex, urgent or confidential projects or contracts, where the client or the consultant has a preferred contractor or supplier, or where the scope of work is not clearly defined. The negotiation process involves discussing the terms and conditions, the price, the quality and the delivery of the project or contract.

• Electronic tendering: This is a type of tendering where the bids are submitted and evaluated online, using a secure and user-friendly platform. Electronic tendering can reduce the time, cost and paper work involved in the tendering process, as well as enhance the efficiency, accuracy and transparency of the bid evaluation and awarding. Electronic tendering can be used for any type of tendering, but it is more suitable for open and selective tendering, where the bids are based on standard documents and specifications.

Tendering is regulated by various codes of practice, practice notes, guidance notes and laws, which aim to ensure that the tendering process is fair, ethical and compliant with the relevant standards and regulations. Some of the key sources of tendering rules and guidance are:

• The Royal Institution of Chartered Surveyors (RICS): RICS is the leading professional body for the construction industry, which sets and enforces the standards of competence and conduct for its members. RICS publishes various guidance notes, practice statements and codes of practice on procurement and tendering, such as the RICS Procurement of Facility Management (2018), the RICS New Rules of Measurement (2012) and the RICS Code of Practice for Project Management (2014). [1], [2], [3]

• The UK Government: The UK Government issues various policies, regulations and guidance on procurement and tendering for public sector projects and contracts, such as the Public Contracts Regulations 2015, the Procurement Policy Note 02/20: Supplier relief due to COVID-19 (2020) and the Cabinet Office Guidance on Responsible Contractual Behaviour in the Performance and Enforcement of Contracts impacted by the COVID-19 emergency (2020). [4]

• The UK Law: The UK Law provides the legal framework and the remedies for procurement and tendering disputes, such as the Contracts (Rights of Third Parties) Act 1999, the Unfair Contract Terms Act 1977 and the Bribery Act 2010. The UK Law also incorporates the EU Law and the international law on procurement and tendering, such as the EU Procurement Directives, the World Trade Organization Agreement on Government Procurement and the United Nations Convention on Contracts for the International Sale of Goods. [7]

3        Standard rules of tendering – codes of practice, practice notes

The standard rules of tendering are a set of principles and guidelines that aim to ensure fair, transparent and ethical practices in the procurement and tendering process. They are designed to protect the interests of both the client and the contractor, as well as promote competition and quality. The standard rules of tendering apply to all types of procurement methods and contracts, unless otherwise specified.

Some of the main sources of the standard rules of tendering are:

• The RICS Code of Practice for Tendering, which provides best practice recommendations for tendering procedures, documentation, evaluation and award. It also covers topics such as confidentiality, collusion, bid rigging, abnormally low bids, conflicts of interest and corruption. The code is based on the principles of integrity, fairness, accountability and professionalism. [9]

• The RICS Guidance Note: Construction Tendering and Contract Documentation (2015), which gives practical advice on how to prepare and manage tender documents, such as invitation to tender, bill of quantities, specifications, drawings, contract conditions and forms of tender. It also explains how to deal with queries, clarifications, amendments and post-tender negotiations. [9]

• The UK Public Contracts Regulations 2015, which implement the EU directives on public procurement and set out the legal framework and procedures for public sector contracting authorities to procure works, services and supplies. They include rules on advertising, selection, tendering, evaluation, award, remedies and transparency. [4]

• The UK Contracts (Rights of Third Parties) Act 1999, which allows a person who is not a party to a contract to enforce a term of the contract if the contract expressly provides for it or if the term purports to confer a benefit on that person. This may affect the rights and liabilities of the parties to a construction contract, especially in relation to sub-contractors, consultants, suppliers and end-users. [7]

An example of how the standard rules of tendering can be applied in practice is the case of Multiplex Constructions (UK) Ltd v Bathgate Realisations Civil Engineering Ltd and others [2020] EWHC 590 (>TCC), where the High Court upheld a tender award decision by the Ministry of Defence (MOD) for the construction of a military training facility. The court rejected the claim by Multiplex, the unsuccessful bidder, that the MOD had breached the Public Contracts Regulations 2015 and the RICS Code of Practice for Tendering by failing to disclose the evaluation criteria and weightings, applying undisclosed sub-criteria and scoring inconsistently. The court found that the MOD had acted in accordance with the standard rules of tendering and had exercised its discretion reasonably and fairly. [8]

4        Single/Two-Stage Tendering – Competitive/Negotiated

Single-stage tendering and two-stage tendering are two different approaches to tendering, which differ in the number of stages and the level of detail involved in the bid preparation and evaluation. Single-stage tendering is also known as competitive tendering, while two-stage tendering is also known as negotiated tendering.

Single-stage tendering is a type of tendering where the contractor or supplier submits a complete and final bid for the project or contract, based on the full and final design, specification and scope of work provided by the client or the consultant. The bids are evaluated and compared based on the predefined criteria, such as price, quality, experience and technical capability. The lowest bidder or the most economically advantageous bidder is usually awarded the contract. Single-stage tendering is suitable for simple, straightforward and well-defined projects or contracts, where the client or the consultant has a clear vision and a detailed design of the project or contract. Single-stage tendering can also be used for projects or contracts where the time and cost of the tendering process are critical factors, such as emergency or urgent projects or contracts.[9]

Two-stage tendering is a type of tendering where the contractor or supplier submits a preliminary and indicative bid for the project or contract, based on the outline or preliminary design, specification and scope of work provided by the client or the consultant. The bids are evaluated and shortlisted based on the predefined criteria, such as price, quality, experience and technical capability. The shortlisted bidders are then invited to enter into a negotiation process with the client or the consultant, where the final design, specification and scope of work are agreed and refined, and the final price, quality and delivery are determined. The contract is then awarded to the bidder who offers the best value for money and meets the client's or the consultant's requirements. Two-stage tendering is suitable for complex, innovative and uncertain projects or contracts, where the client or the consultant needs more flexibility and input from the contractor or supplier, or where the scope of work is not fully defined or subject to change. Two-stage tendering can also be used for projects or contracts where the quality and performance of the project or contract are critical factors, such as design and build or bespoke projects or contracts. [9]

Some of the advantages and disadvantages of single-stage tendering and two-stage tendering are:

• Single-stage Tendering:

  • Advantages:

    • Faster and cheaper tendering process

    • More competitive and transparent bidding

    • More certainty and clarity of the contract terms and conditions

  • Disadvantages:

    • Less flexibility and collaboration between the parties

    • Higher risk of errors, disputes and variations

    • Lower quality and innovation of the project or contract

• Two-stage Tendering:

  • Advantages:

    • More flexibility and collaboration between the parties

    • Lower risk of errors, disputes and variations

    • Higher quality and innovation of the project or contract

  • Disadvantages:

    • Slower and more expensive tendering process

    • Less competitive and transparent bidding

    • Less certainty and clarity of the contract terms and conditions

Some of the real-life examples of single-stage tendering and two-stage tendering are:

• Single-stage tendering: The London 2012 Olympic Stadium was procured using a single-stage tendering process, where the Olympic Delivery Authority (ODA) invited bids from six prequalified contractors, based on a detailed design and specification. The contract was awarded to Sir Robert McAlpine, who submitted the lowest bid of £423 million. [16]

• Two-stage tendering: The Crossrail project was procured using a two-stage tendering process, where the Crossrail Limited (CRL) invited bids from four prequalified contractors, based on an outline design and specification. The contract was awarded to a joint venture of Balfour Beatty, Morgan Sindall and Vinci, who entered into a negotiation process with CRL to agree on the final design, specification and price of the project. [17]

5        Electronic Tendering

Electronic tendering is a type of tendering where the bids are submitted and evaluated online, using a secure and user-friendly platform. Electronic tendering can reduce the time, cost and paper work involved in the tendering process, as well as enhance the efficiency, accuracy and transparency of the bid evaluation and awarding. Electronic tendering can be used for any type of tendering, but it is more suitable for open and selective tendering, where the bids are based on standard documents and specifications.

Electronic tendering involves the following steps:

• The client or the consultant publishes the tender notice and the tender documents on the electronic tendering platform, and invites the interested contractors or suppliers to register and access the tender documents.

• The registered contractors or suppliers download the tender documents, prepare their bids and upload them on the electronic tendering platform, before the deadline specified by the client or the consultant.

• The client or the consultant opens and evaluates the bids online, using the predefined criteria, such as price, quality, experience and technical capability. The client or the consultant may also use the electronic tendering platform to communicate with the bidders, request clarifications, issue amendments or conduct negotiations.

• The client or the consultant selects the winning bidder and notifies the other bidders of the outcome of the tendering process, using the electronic tendering platform. The client or the consultant may also provide feedback to the unsuccessful bidders, to help them improve their future bids.

• The client or the consultant and the winning bidder sign the contract online, using the electronic signature and the electronic contract management system.

Some of the benefits and challenges of electronic tendering are:

• Benefits:

  • Reduced time and cost of the tendering process

  • Increased efficiency and accuracy of the bid preparation and evaluation

  • Improved transparency and accountability of the tendering process

  • Enhanced access and participation of the contractors or suppliers

• Challenges:

  • Technical issues and cyber security risks

  • Legal and regulatory compliance and compatibility

  • Training and capacity building of the users

  • Cultural and behavioural change of the stakeholders [10]

Some of the examples of electronic tendering platforms are:

• The UK Government's Contracts Finder: This is a free online service that allows the public sector buyers to publish the tender notices and the tender documents for the contracts worth over £10,000, and allows the suppliers to search and apply for the contracts. [15]

• The European Union's Tenders Electronic Daily (TED): This is a free online service that publishes the tender notices and the tender documents for the public procurement contracts in the European Union, and allows the suppliers to search and apply for the contracts. [13]

• The World Bank's e-Procurement System: This is a free online service that allows the World Bank's borrowers and grant recipients to publish the tender notices and the tender documents for the projects financed by the World Bank, and allows the suppliers to search and apply for the contracts. [14]

6        Compilation of Tender Lists – Pre-Qualifying Contractors

Compilation of tender lists is the process of selecting and inviting the contractors or suppliers to bid for the project or contract. Pre-qualifying contractors is the process of screening and shortlisting the contractors or suppliers based on their financial, technical and managerial capacity, as well as their past performance and reputation. Compilation of tender lists and pre-qualifying contractors are important steps in the tendering process, as they can affect the quality, cost and delivery of the project or contract.

Compilation of tender lists and pre-qualifying contractors can be done by the client or the consultant, depending on the type of tendering and the procurement strategy. For open tendering, the client or the consultant may compile a long list of potential contractors or suppliers, based on the market research, the recommendations, the advertisements or the databases. For selective tendering, the client or the consultant may compile a short list of prequalified contractors or suppliers, based on the prequalification criteria, the prequalification questionnaire, the prequalification interview or the prequalification audit.

Some of the factors for compiling tender lists and pre-qualifying contractors are:

• The size, complexity and value of the project or contract

• The availability, capability and suitability of the contractors or suppliers

• The level of competition, innovation and collaboration required

• The time, cost and risk of the tendering process

Some of the benefits and challenges of compiling tender lists and pre-qualifying contractors are:

• Benefits:

  • Improved quality and suitability of the contractors or suppliers

  • Reduced time and cost of the bid evaluation and awarding

  • Increased competition and innovation of the bids

  • Enhanced collaboration and trust between the parties

• Challenges:

  • Limited availability and diversity of the contractors or suppliers

  • Increased time and cost of the prequalification process

  • Subjective and biased selection and shortlisting of the contractors or suppliers

  • Potential disputes and complaints from the contractors or suppliers [9]

Some of the examples of compiling tender lists and pre-qualifying contractors are:

• The RICS Directory of Firms: This is a free online service that allows the clients and the consultants to search and select the RICS accredited firms, who provide various services in the construction industry, such as project management, quantity surveying, building surveying, valuation, dispute resolution and facility management.

• The UK Government's Constructionline: This is a paid online service that allows the public and private sector buyers to access and use the prequalified database of the contractors and the suppliers, who meet the common prequalification standards and criteria, such as the PAS 91:2013. [11]

• The European Union's e-Certis: This is a free online service that allows the public sector buyers and the suppliers to access and compare the prequalification requirements and documents for the public procurement contracts in the European Union, such as the European Single Procurement Document (ESPD). [12]

7        Conclusion

In summary, the tendering process is a complex and multifaceted endeavor that requires careful consideration and adherence to established rules and regulations. Whether it's open, selective, negotiated, or electronic tendering, each approach has its advantages and disadvantages, catering to different project requirements. The compilation of tender lists and pre-qualifying contractors further enhance the process by ensuring the suitability and competence of bidders. By following best practices and leveraging available resources, organizations can ensure a fair, transparent, and efficient tendering process, ultimately leading to successful project outcomes and value for money.

8        References:

1.       RICS (2018). Procurement of Facility Management. RICS professional statement. Available at: https://www.rics.org/globalassets/rics-website/media/upholding-professional-standards/sector-standards/real-estate/procurement-of-facility-management-1st-edition-rics.pdf

2.       RICS (2012). New Rules of Measurement. RICS professional guidance. Available at: https://www.rics.org/globalassets/rics-website/media/upholding-professional-standards/sector-standards/construction/nrm-1-order-of-cost-estimating-and-cost-planning-for-capital-building-works-2nd-edition.pdf

3.       RICS (2014). Code of Practice for Project Management. RICS professional guidance. Available at: https://www.rics.org/globalassets/rics-website/media/upholding-professional-standards/sector-standards/construction/code-of-practice-for-project-management-4th-edition-rics.pdf

4.       UK Government (2015). Public Contracts Regulations 2015. UK legislation. Available at: http://www.legislation.gov.uk/uksi/2015/102/contents/made

5.       UK Government (2020). Procurement Policy Note 02/20: Supplier relief due to COVID-19. UK policy. Available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/873521/PPN_02_20-Supplier_Relief_due_to_Covid19.pdf

6.       UK Government (2020). Cabinet Office Guidance on Responsible Contractual Behaviour in the Performance and Enforcement of Contracts impacted by the COVID-19 emergency. UK guidance. Available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/883737/_Guidance_on_Responsible_Contractual_Behaviour__web_final___7_May_.pdf

7.       UK Government (1999). Contracts (Rights of Third Parties) Act 1999. UK legislation. Available at: http://www.legislation.gov.uk

8.       Multiplex Constructions (UK) Ltd v Bathgate Realisations Civil Engineering Ltd  case study. Available at: https://uk.practicallaw.thomsonreuters.com/D-105-7118?transitionType=Default&contextData=(sc.Default)

9.       RICS – Tendering strategies – 1st edition. Available at: https://www.rics.org/content/dam/ricsglobal/documents/standards/tendering_strategies_1st_edition_rics.pdf

10.    RICS – Guidance Note on e-tendering. Available at: https://www.rics.org/content/dam/ricsglobal/documents/standards/etendering_2nd_edition_rics.pdf

11.    ConstructionOnline. Available at: https://www.constructionline.co.uk/

12.    The European Union's e-Certis. Available at: https://ec.europa.eu/tools/ecertis/

13.    EU tenders Ted - European Union. Available at: https://ted.europa.eu/

14.    Procurement for Projects and Programs at the World Bank. Available at: https://www.worldbank.org/en/projects-operations/products-and-services/procurement-projects-programs

15.    UK Contracts Finder. Available at: https://www.gov.uk/contracts-finder

16.    London 2012 Olympic and Paralympic Games - The Legacy. Available at: https://assets.publishing.service.gov.uk/media/5a75b8fbe5274a43682997a3/pb13977-sustainable-procurement-construction.PDF

17.    Crossrail Procurement Delivery. Available at: https://learninglegacy.crossrail.co.uk/documents/crossrail-procurement-delivery/