Understand the factors that affect the specification of

materials and building services

Chapter 4
Procurement Selection

Introduction

The execution of a construction project requires both design work

and the carrying out of construction operations on site. If these are to
be done successfully, resulting in a satisfactorily completed project,
then some form of recognized practice must be employed at the
outset to deal with their organization, co-ordination and procedures.
Traditionally, an employer who wished to have a project constructed
would invariably commission an engineer to prepare drawings of the
proposed scheme and, if the scheme was sufficiently large, employ a
quantity surveyor to prepare documentation, such as bills of
quantities, on which the contractor could prepare a price. These
would all be based upon the employer’s brief, and the information
used as a basis for competitive tendering. This was the system in
common use at the turn of the century and still continues to be the
most widely used method in practice.

Contractor selection

There are essentially two ways of choosing a contractor, either by

competition or negotiation. Competition may be restricted to a few
selected firms or open to almost any firm who wishes to submit a
tender. The options described later are used in conjunction with one
of these methods of contractor selection.
Selective competition

This is the traditional and most popular method of awarding

construction contracts. The arrangement is shown in Figure 3.1. In
essence a number of firms of known reputation are selected by the
design team to submit a price. Different codes of procedure have been
developed and incorporated within contract documents to improve
the process and relationship between employers and contractors
during the tender period.

Figure 3.1 Project management relationship

The majority of contract documents state that the employer:

a) is not bound to accept any tender

b) may choose not to accept the lowest tender
c) is not responsible for the cost involved in the preparation of a
contractor’s tender

Good tendering procedure

Good tendering procedures will taken into account the changes in the
ways in which projects are procured. They are usually not mandatory.
Employers and contractors want to secure the best possible deal out
of a contract. However, enlightened employers and contractors also
realize that in order to be effective, particularly over the long term,
some principles of fairness should be introduced. The following have
been identified as good practice:

1. Use of a standard form or set of conditions, rather than one

 written solely on behalf of one of the parties to the contract.
There are clear advantages to all parties in the knowledge that
a standard procedure will be followed in inviting and accepting
tenders.

2. A limit should be placed on the number of firms invited to

tender. Six firms will be able to secure competition in prices.
The cost of preparing tenders is considerable and this has to be
borne by the industry.

3. In preparing a short list of tenderers, the following should be

considered:

- the firm’s financial standing and record

- recent experience of constructing over similar contract periods

- the general experience and reputation of the firm for similar

project types

- adequacy of the firm’s management

- adequacy of capacity

4. Each firm on the short list should be sent a preliminary

enquiry to determine its willingness to tender. The enquiry
should contain:

- job title

- names of employer and consultants

- location of site and general description of the works

- approximate cost range

- principal nominated subcontractors

- form of contract and any amendments

- procedure for correction of priced bills

- contract under seal or under hand

- anticipated date for possession

- contract period

- anticipated date for dispatch of tender documents

- length of tender period

- length of time tender must remain open for acceptance

- amount of liquidated damages

- amount of bond

- any special conditions

5. Once a contractor has confirmed an intention to tender that

tender should be made. If circumstances arise which make it
necessary to with draw, the engineer should be notified before
the tender documents are issued or, at the latest, within 2 days
thereafter.

6. A contractor who has expressed a willingness to tender should

be informed if not chosen for the final short list.

7. All tenderers must submit their tenders on the same basis.

- Tender documents should be dispatched on the stated day.

- Alternative offers based on alternative contract periods may be

admitted if requested on the date of dispatch of the documents.
- Standard conditions of contract should not be amended.

- A time of day should be stated for receipt of tenders and

tenders received late should be returned unopened.

8. The tender period will depend on the size and complexity of the
job, but should not be less than 4 working weeks, i.e. 20 days.

9. If a tenderer requires any clarification, the engineer must be

notified and, in turn, should inform all tenderers of this
decision.

10. If a tenderer submits a qualified tender, opportunity should be

given to withdraw the qualification without amending the
tender figure, otherwise the tender should normally be
rejected.

11. Under English law, a tender may be withdrawn at any time

before acceptance. Under Scottish law, it cannot be withdrawn
unless the words ‘unless previously withdrawn’ are inserted in
the tender after the stated period of time the tender is to
remain open for acceptance.

12. After tenders are opened all but the lowest three tenderers
should be informed immediately. The lowest tenderer should be
asked to submit a priced bill within 4 days. The other two
contractors are informed that they might be approached again.

13. After the contract has been signed, each tenderer should be
supplied with a list of tender prices.

14. The priced bills must remain strictly confidential.

15. If there are any errors in pricing the Code of Procedure for
 Selective tendering sets out alternative ways of dealing with the
situation.

- The tenderer should be notified and given the opportunity to

confirm or withdraw the offer. If it is withdrawn, the next
lowest tenderer is considered. Where the offer is confirmed an
endorsement should be added to the priced bills that all rated,
except preliminary items, contingencies, prime cost and
provisional sums are to be deemed reduced or increased, as
appropriate, by the same proportion as the corrected total
exceeds or falls short of the original price.

- The tenderer should be given the opportunity of confirming the

offer or correcting the errors. Where the tender is corrected
and is no longer the lowest, the next tender should be examined.
If it is not corrected then an endorsement is added to the
tender.

16. Corrections must be initialed or confirmed in writing and the

letter of acceptance must include a reference to this. The lowest
tender should be accepted, after correction or confirmation, in
accordance with the alternative chosen. Problems sometimes
occur because the employer can see that a tender will still be
the lowest even after correction.

If the first alternative has been agreed upon and notified to all
tenderers at the time of invitation to tender, the choice facing
the tenderer should clearly be to confirm or withdraw. The
employer may require a great deal of persuading to stand by
the initial agreement in such circumstances. The answer to the
problem is to discuss the use of the alternatives thoroughly with
the employer before the tendering process begins. The
employer must be made aware that the agreement to use the
Code and one of the alternatives is binding on all parties. It is
possible that an employer who stipulated the first alternative
and subsequently allowed price correction could be sued by at
least the next lowest tenderer for the abortive costs of
tendering.
17. The employer is not bound to accept the lowest or any tender
and is not responsible for the costs of their preparation. There
may be reasons why a decision is taken not to accept the lowest
tender. Although the employer is entitled to do so, it will not
please the other tenderers. The Code is devised to remove such
practices.

18. If the tender under consideration exceeds the estimated cost,

negotiations should take place with the tenderer to reduce the
price. The quantity surveyor then normally produces reduction
or addendum bills. They are priced and signed by both parties
as part of the contract bills.

Open Competition

With this method of contract procurement the details of the proposed

project are often advertised in the local and trade publications.
Contractors who consider themselves suitable, capable and willing to
undertake such a project are requested to write to the engineer for
the contractor documentation.

This method has the advantage of allowing new contractors or

contractors who are unknown to the design team the possibility of
submitting a tender for consideration. In theory, any number of firms
are able to submit a price. There is usually a limit on the number of
firms who will be supplied with the tender documents. Unsuitable
firms are removed from the list if the number of firms tendering
becomes too large. The preparation of tenders is both expensive and
time-consuming. The use of open tendering may relieve the employer
of a moral obligation to accept the lowest price, because firms are not
generally vetted before tenders are submitted. Factors other than
price must also be considered when assessing these tender bids, such
as the firm which has submitted the lowest tender.

This method of contractor selection involves the agreement of a

tender sum with a single contracting organization. Once the
documents have been prepared the contractor prices them in the
usual way. They priced documents are checked for the
reasonableness of the contractor’s rates and prices and the two
parties then meet to negotiate an agreed price for the works. There is
an absence of any competition or other restriction, other than the
social acceptability of the price. It normally results in a tender sum
that is higher than might otherwise have been obtained by using one
of the previous procurement methods. Negotiation does, however,
have particular applications where:

- a business relationship exists between the employer and the

contractor
- only one firm is capable of undertaking the work satisfactorily
- the contractor is already established on site (continuation
contract)
- an early start on site is required by the employer
- it is beneficial to bring the contractor in during the design stage
to advise on constructional difficulties and how they might best
be avoided

Contractual options

The following contractual options are an attempt to address the

employer’s objectives in the areas of time, cost and quality of
construction. They are not mutually exclusive. For example, it is
possible to award a serial contract using in the first instance a design
and construct arrangement. Fast tracking may be used in association
with a form of management contracting. All of these options will also
need to include either a selective or negotiated approach in respect of
choosing a contractor.

Early selection

This method is sometimes known as two-stage tendering. Its main

aim is to involve the chosen contractor for the project as soon as
possible. It therefore seek to get the firm who knows what to build
(the engineer) in touch with the firm who knows how to build it (the
constructor), before the design is finalized. The contractor’s expertise
in construction method can thus be harnessed with that of the
engineer to improve constructability criteria in the project. A further
advantage is that the contractor may be able to start work on site
sooner than if more traditional methods of contract procurement are
used. In the firs instance, and appropriate contractor must be
selected for the project. This is often done through some form of
competition and can be achieved by selecting suitable firms to price
the major items of work connected with the project. A simplified bill
of quantities can b prepared which might include the following items:

- site on-costs on a time-related basis

- major items of measured works
- specialist items, allowing the main contractor the opportunity
of pricing the profit and attendance sums

The contractors should also be required to state their overhead and

profit percentages. The prices of these items will then form the basis
for the subsequent and more detailed price agreement as the project
gets under way. During the first stage it is important to:

- provide a competitive basis for selection

- establish the layout and design
- provide clear pricing documents
- stated the respective obligations and rights of the parties
- determine a programme for the second stage

Many of the good practices already outlined for single-stage selective

tendering apply equally to two-stage tendering. Acceptance of the
first-stage tender is a particularly delicate operation. The employer
does not wish to be in the position of having accepted a contract sum
at this stage. The terms of the letter of acceptance must be carefully
worded to avoid such an eventuality.

After a contractor has been appointed, all unsuccessful tenderers

should be notified and, if feasible, a list of first-stage tender offers
should be provided. If cost was not the sole reason for acceptance,
this fact should be stated.

Design and construct (Design and Build)

Design and construct projects aim to overcome the problem of the

separation of the designing and constructing processes by providing
for these two separate functions within a single organization. The
single firm employed is frequently the contractor. The contractor
may employ civil engineers as in-house designers or be responsible
for directly employing a firm of consultants. The major difference is
that instead of approaching a firm of engineering consultants, the
employer briefs the contractor direct.

The employer may choose to retain the services of an independent

consultant to assess the contractor’s design, to monitor the work on
site or to approve payments. The prudent employer will want some
form of independent advice. A design evolved by the contractor is
more likely to be suited to the needs of the latter’s organization and
construction methodology and this should result in savings in both
time and costs of construction. (Some argue, however, that the design
will be more influenced by the contractor’s construction capabilities
than the design requirements of the employer.) The completed project
Should result in lower production costs on site and an overall shorter
design and construction period, both of which should provide price
savings to the employer. There should also be some supposed savings
on the design fees even after taking into account the necessary costs
of any independent advice. A further advantage to the employer is in
the implied warranty of suitability because the contractor has
provided the design as a part of the all-in service. Normally where the
ICE Conditions of Contract are used, the contractor has a duty only
to use proper skills and care.

A major disadvantage to the employer is the financial disincentive to

the employer to make possible changes to the design while the project
is under construction. Where an employer considers these to be
important to keep abreast of changing technologies or needs,
considerably higher costs than is usual may be required either to
discourage them in the firs place, or to allow for their incorporation
within the partially completed project.

Design and construct projects usually result in the employer

obtaining a single tender from a selected contractor. Where some
form of competition in price is desirable, both the type and quality of
the design will need to be taken into account. This can present
difficulties in evaluating and comparing the different schemes.

The advantages claimed for a design and construct approach

therefore include:

- The contractor is involved from the inception and is thus fully

aware of all of the employer’s requirements.
- The contractor is able to use specialized knowledge and
methods of construction in evolving the design.
- It should be possible to reduce the time from inception to
completion due to the telescoping of the various parts of the
design and construction processes.
- There can be no claims for delays due to a lack of design
information, since the contractor is in overall control.
- There is direct contact between the employer and the
contractor.

Design and manage

This method of procurement is really the consultant’s counterpart to

contractor’s design and construct. In this case the design manager, a
chartered civil engineer, has full control, not just of the design phase
but also of the construction phase. The design and manage firm
effectively replaces the main contractor in this role, which in the
present day is one largely of management and organization and the
administration and co-ordination of subcontractors. The design
manager is responsible for all aspects of construction, including the
programming and progressing and the rectification of any defects
which may arise. The contract is between the design and manage
consultancy and the employer. This provides for the employer a
single point of contractual responsibility.

The actual site construction work is generally let through

competition in work packages to individual subcontracting firms.
This method of procurement therefore offers many of the advantages
of traditional tendering couplet with design and construct. The
design and manage firm will, of course, need to engage its own site
civil engineers or develop those existing staff who have this potential.
It will also need to consider continuity with this type of work. The
design and manage approach is suitable for all types and sizes of
project, but employers undertaking large projects may, due to past
experience, prefer a more tried and tested form of procurement using
one of the larger contractors. A major disadvantage is in the area of
site facilities, which will need to be provided by the design and
manage consultant and may have to be hired in a similar way to the
subcontractors.

This type of procurement method should be able to give completion

times comparable to those offered by the other methods. Since there
is the traditional independent control of the subcontractor firms the
standard of quality should be at least as good as that provided by the
other contracting methods. In terms of cost, design and manage will
be no more expensive since the work packages will be sought through
competition.

Turnkey method

This form of contracting is still somewhat unusual in the United

Kingdom. It has, however, certain notable successes in the Middle an
Far East. The true turnkey contract includes everything from
inception up to occupation of the finished project. The method
receives its title from the ‘turning-the-key’ concept whereby the
employer, on completion of the project can immediately start using it
since it will have been fully equipped (including furnishings) by the
turnkey contractor. Some turnkey contracts also require the
contractor to find a suitable site for development for this purpose.
An all-embracing agreement is formed with a single administrative
company for the entire project procurement process. It is therefore
an extension of the traditional design and construct arrangements,
and in some cases it may even include a long-term repair and
maintenance agreement. On industrial projects the appointed
contractor is also likely to be responsible for the design and
installation of the equipment required for the employer’s
manufacturing process. This type of procurement method can
therefore be appropriate for use on highly specialized types of civil
engineering projects.

The entire project procurement and maintenance needs can thus be

handled by a single firm, which accepts sole responsibility for all
events. It has been argued, however, that the employer’s ability to
control costs, quality, performance, aesthetics and constructional
details will be very variable and severely restricted by using this
procurement method. A contractor who undertakes such an
all-embracing project will have a variety of strengths and weaknesses
and may well have fixed ideas about the importance of the different
aspects of the scheme.

Management contract

Management contracting evolved at the beginning of the 1970s in the

United Kingdom with the aim of constructing more complex projects
in a shorter period of time and for a lower cos. It may be argued,
therefore, that the more complex the project the more suitable
management contracting may be. This method is also appropriate to
wide range of medium-sized projects.

The term ‘management contract’ is used to describe a method of

organizing the construction team and operating the construction
process. The intention is to place the main contractor in a
professional capacity to be able to provide the management skills and
practical constructing ability for a fee to cover the overheads and
profit. The contractor does not, therefore, participate in the
profitability of the construction work. The construction work itself is
not undertaken by the contractor, nor does the contractor employ
any of the labour or plant directly, except with the possibility of
setting up the site and those items normally associated with the
preliminary works.

Because the management contractor is employed on a fee basis, the

appointment can be made early on in the design process. The
contractor is therefore able to provide a substantial input into the
design, particularly where the practical aspects of constructing the
project are concerned. Each trade section required for the project is
normally tendered for separately by subcontractors, either on the
basis of measurement or a lump sum. This should result in the lowest
cost for each of the trades and thus for the construction works as a
whole. The work on site needs a considerable amount of planning and
co-ordination, more so than in a traditional procurement
arrangement. This is the responsibility of the management contractor
and an inherent part of the acquired skills. In common with all
procurement methods, whilst there are undoubted advantages over
its alternatives there are also disadvantages. It is somewhat
open-ended, since the price can only be firmed up after the final
works package quotation has been received. The later in the contract
the work is let, the less time there will be for negotiating price
reductions overall without seriously impairing a section of the works.

Project management

Although the definitions of these procurement methods can mean

different things in different parts of the world or even in different
sectors of the construction industry, they are generally those which
are understood in the construction industry in the United Kingdom.
Project management in this context is a function which is normally
undertaken by the employer’s consultants rather than by a
contractor.
Contractors do undertake project management but in a different
context from that of contract procurement. The title of project
co-ordinator is similar to and perhaps describes better the role of a
project manager. The employer appoints the project manager, who,
in turn, appoints the various design consultants and selects the
contractor. It is a more appropriate method for the medium- to
large-sized project which requires an extensive amount of
co-ordination. The function of the project manager is therefore one of
organizing and co-ordinating the design and construction
programmes. Any person who is professionally involved in the
construction industry can become a project manager; it is the
individual rather than the profession which is important.

In general terms the function of a project manager is to provide a

balance between function, aesthetics, quality control economics, and
the time available for construction. The project manager’s aims are
to achieve an efficient, effective and economic deployment of the
available resources to meet the employer’s requirements. The tasks to
be performed include identifying those requirements, interpreting
them as necessary and communication them clearly to the various
members of the design team and through them to the constructor.
Programming and co-ordinating all of the activities and monitoring
the work up to satisfactory completion are also a part of this role. A
significant difference between this system and the majority of the
others described is that the employer’s principal contact with the
project is through the project manager rather than through the
designer.
Different Contractual arrangements and their effect on time