Method of Contractor Selection

Method of Contractor Selection
_ Tendering:
Competitive Tendering
Open Tendering
Selective Tendering
Negotiated Tendering
_ Direct order
_ Serial Tendering
Competitive Tendering
_ many people are used to hearing about the advantages of competitive tendering, where
several suitable contractors are given a package of documents and asked to come up with a
price bid within a few weeks.
_ Usually the contractor who offers the cheapest price is chosen.
This may provide the lowest price at the outset, but it can result in a contractor having
underpriced the work, subsequently looking for ways to inflate the price or experience financial
difficulties.
_ The competitive tendering method requires careful preparation of comprehensive drawings,
specifications and preferably bills of quantities, upon which a contractor can base his price
It can contribute to an adversarial relationship developing between the members of the team.
_ It should be remembered that tendering by several firms, each with its own subcontractors,
will result in about 90% of the resources committed to the process being wasted, since there is
only one winning main contractor.
_ This waste of resources adds to overall costs.
Open Tendering
_ Contractors are invited through an announcement in public media.
_ Large number of contractors responded.
_ Public agencies are forced to use open tendering.
_ The lowest bid is awarded the job
_ The lowest bid contractor may fail to complete the project.
_ Obtain the lowest possible price.
_ It is not possible to form bid rings.
Selective Tendering
_ Only qualified contractors are allowed to bid.
_ The owner prepare a short list of prequalified contractors.
_ Limited number of contractors bid in the project compared to open tendering.
_ It is possible to form bid rings between bidders.
_ Used for important projects.
_ The quality of work is guaranteed through prequalification.
_ In this method, the client and advisers consider which contractors are best suited to the type
of work.
_ Trusted contractors are invited to bid in the project by mail or direct contact.
_ A selection is then interviewed to determine their keenness and possible contribution to the
team.
_ Usually the quantity surveyor sets out to agree a framework with the chosen contractor, for
the costing of labor, materials and profit and the selection of any specialist sub-contract
packages for pricing by others
If negotiations over prices break down at this early stage, another contractor is selected.
_ The quantity surveyor will work with the contractor to update the cost plan or budget and
report to the team.
_ Negotiated tendering is used for maintenance project or projects with incomplete design.
_ Project price is relatively high.
_ Project quality is guaranteed through contractor reputation.
Advantages of Negotiated Tendering
_ The contractor works as part of the team and may provide practical assistance and
construction knowledge that can influence detailed design.
_ The contractor will look for a design to be buildable which may sound obvious, but it is
surprising how often designers do not put enough thought into the practicalities of working on a
restricted site.
The contractor may also introduce specialist subcontractors to the table, each of whom may
have a particular contribution.
_ Specialists as lift engineers, kitchen specialists, door and window fabricators, ironworkers,
landscape gardeners and so on can all help with ideas and advice to help produce a good result.
Direct Order
_ A trusted contractor are awarded the project.
_ Owner negotiate the price with the contractor.
_ Used for confidential projects or when the contractor has a new technology.
_ Project quality is not guaranteed.
Serial Tendering
_ Used for very large engineering projects.
_ The project is divided into several stages.
_ First project stage are awarded to a contractor using competitive or negotiated tendering.
_ Next stages are awarded to the same contractor if succeeded in achieving owner requirement
in earlier stages.
_ Owner benefits form repetition of the work to achieve better quality with minimal cost.
_ Enhance relation between the owner and contractor.
2012 (7)
Procurement Methods
Selective Tendering

1. Design & Build Method

develop a brief,
examinefeasibility&preparetenderdocumentsthatwillincludeasetofemployersrequirements.
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2019 june 01.
There are three types of tendering methods in construction by open tendering, selective
tendering, or by negotiation. Tendering methods are selected based on requirements of
construction contracts.
Open Tendering Methods in Construction:
Under open tendering the employer advertises his proposed project, and permits as many
contractors as are interested to apply for tender documents. Sometimes he calls for a deposit
from applicants, the deposit being returned on receipt of a bona fide tender.
However, this method can be said to be wasteful of contractors resources since many may
spend time preparing tenders to no effect. Also, knowing their chances of gaining the contract
are small, contractors may not study the contract in detail to work out their minimum price, but
simply quote a price that will be certain to bring them a profit if they win the contract.
Thus the employer may be offered only a lottery of prices and not necessarily the lowest price
for which his project could be constructed. If he chooses the lowest tender he runs the risk the
tenderer has not studied the contract sufficiently to appraise the risks involved; or the tenderer
might not have the technical or financial resources to undertake the work successfully.
It is true that the employer can check the resources and experience of the lowest bidder and
reject his tender if the enquiry proves unsatisfactory; but several bids may be below the
estimated cost of the job and, if such tenderers appear satisfactory and their bids are not far
apart in value, it is difficult for the employer to choose other than the lowest. The engineer
advising the employer may think there is a risk that all such low bids could prove unsatisfactory,
but he cannot advise the employer what other bid to accept because he has no certainty of
information.
Open Tender
This is where an opportunity (including all tender documents) is advertised inviting providers to
bid directly for a contract.
All interest parties then submit a tender.
Scoring takes place and the successful organisation is awarded the contract.
Sometimes there is a selection stage first, which is then followed by the award stage.
Tender Opening and Evaluation Process
Quantity surveyors usually will handle tender opening process. In order to preserve the integrity
of the competitive process, it is imperative that the evaluation of proposals is undertaken
objectively, consistently and without bias towards particular suppliers. Tenders are usually
evaluated against a pre-determined set of criteria. The evaluation of the tenders shall be
prepared the soonest 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, who in his opinion, is
the most suitable to undertake to execute the project.
2.3.5 Tender Award
An evaluation team will examine each tender received and make recommendations as to which
tender represents best value for money. Once the contract has been awarded, both the
successful and unsuccessful tenderers will be notified. Once the final decision has been made on
the tender award, the tender administrator creates the tender results notification which is in
letter form, and then sent to all participating contractors.
1 Open tender
Open tendering is the main tendering procedures employed by both the government and
private sector. The client advertises the tender offer in the local newspaper giving detail and key
information of the proposed works and inviting interested contractor to tender. In the legal
sense such tender notices constitute invitation to treat, a mere request by the employer for
suitable contractor to submit their bids or offers.
If the pre-requisite to tendering on the form of possession of the necessary registration has
been identified in the tender notice, then the advertisement is directed to only that particular
class of the public having the said qualifications. In order to reduce number of enquiries, earnest
money is deposited (for private project). Until the receipt of a bone fide tender selected then it
will be returned. Although price is very important in the decision on which tender or bid to
accept, it is not the only factor taken into account. Client does not bind to accept the lowest or
any offer. The advantages and disadvantages of open tender are stated below:
Advantages
Disadvantages
It allows any interested contractor to tender. Therefore it gives opportunity for an unknown
contractor to compete for the work.
The tender list can be long as too many contractors tendering for one job.
Allowing the tender list to be made without bias. Client will obtain the bargain possible. No
favouritism in selecting contractors.
Uneconomic use of source.
Ensuring good competition not obliged to accept any offers.
Public accountability may be questioned if the lowest offer is not accepted.
Traditional method of tendering, familiar to all sector of the engineering and construction
industry.
Does not attract reputable and established contractor unless they are forced to, due to lack of
work.
Open tendering of construction works

A 'tender' is a submission made by a prospective supplier in response to an invitation to tender.
It makes an offer for the supply of goods or services. In construction, the main tender process is
generally the selection, by the client, of a contractor to construct the works. However, as
procurement have become more complex, so tenders may now be sought for a wide range of
goods and services.
Irrespective of the nature of the goods or services that are being sought, securing tenders
generally follows one of a number of basic procedures:
Open tendering.
Selective tendering.
Negotiated tendering.
Serial tendering.
Framework tendering.
Open tendering allows anyone to submit a tender to supply the goods or services that are
required. Generally an advert will be placed giving notice that the contract is being tendered,
offering an equal opportunity to any organisation to submit a tender.
On larger projects, there may then be a pre-qualification process that produces a short-list of
suitable suppliers from the respondents expressing interest in the contract. This short list will
then be invited to prepare tenders. The selection of a short list can include pre-qualification
questionnaires and interviews. This sort of pre-qualification process is not the same as selective
tendering. Selective tendering only allows suppliers invited from a pre-selected list to take part
in the tender process.
Open tendering has been criticised for being a slow and costly process, attracting tenders or
expressions of interest from large numbers of suppliers, some of whom may be entirely
unsuitable for the contract and as a result it can waste a great deal of time, effort and money.
However, open tendering offers the greatest competition and has the advantage of allowing
new or emerging suppliers to try to secure work and so can facilitates greater innovation. The
number of firms tendering can be reduced (ideally to a maximum of 6) by a pre-
qualification process, and if this uses a standard pre-qualification questionnaire, then the time
wasted by unsuccessful applicants can be minimised.
Whilst often seen to be more efficient, selective tendering can exclude potential suppliers, it can
be seen to introduce bias into the process, and it can result in prospective suppliers continually
contacting clients and consultants to check that they are on the appropriate lists.
On public projects, or projects that include an element of public funding, it may be necessary to
advertise contracts as a requirement of the Public Contracts Regulations. This is intended to
open up public procurement within the European Union and to ensure the free movement of
supplies, services and works (see OJEU for more information).
Open tendering can be either single stage or two stage. Two-stage tendering is used to allow
early appointment of a supplier, prior to the completion of all the information required to
enable them to offer a fixed price. In the first stage, a limited appointment is agreed allowing
them to begin work and in the second stage a fixed price is negotiated for the contract.
NB For a more detailed description of the procedures for open tendering see Tender.
Open Tendering
_ Large number of contractors responded.
_ Public agencies are forced to use open tendering.
_ The lowest bid is awarded the job
_ The lowest bid contractor may fail to complete the project.

_ Obtain the lowest possible price.
_ It is not possible to form bid rings.
Open Tender
Open tender is by far the most commonly used procurement method. It is a one staged
procedure in which any interested supplier may submit a quotation in response to publication of
an invitation to tender. Thus, the contracting authority does by no means try to limit the
number of tenders. Open tendering requirements call for the company to advertise locally, have
unbiased and coherent technical specifications, have objective evaluation measures, be open to
all qualified bidders, and be granted to the least cost provider without contract negotiations.
Invitations to tenders are usually advertised in newspaper, official websites of developers and e-
procurement service online. The advertisement would include pertinent details such as type of
work, requirements to tender as well as details of submission comprise of time, date and place
of submission.
Then contractors who wish to tender shall respond to the advertisement to collect the tender
document whereby they are also required to pay the tender document fee. In general,
contractors are required to submit tender deposit or tender bond that is used as a security
required by client against the risk of the successful bidder failing to enter into the contract when
the client obtains tenders for a contract. Contractors then return the completed tender by the
stipulated date and time.
Upon tender opening, the client and consultants will record the tender price of each tenderer.
Tenderers are then evaluated by consultants and report has to be prepared and submitted to
client, justifying the reason of recommended tender. The client will then decide which tender to
award, the contractor with the best price and meeting all the technical requirements will win
the tender.
Advantages
Open tendering is the conventional method of tendering. All tenderers are familiar with the
process thus it creates the greatest competition and benefits client in selecting the best tender
with best price and work performance.
While every contractor who is eligible can participate and tender for the work, open tendering
avoids work being restricted to the same old contractors. It gives other suitably qualified
contractors or emerging suppliers an opportunity to secure work, which may be beneficial,
especially if they are more efficient or have lower overheads.
Additionally, it gives freedom to contractors out there to decide whether they want to
participate and tender for the project. There is no obligation to tender therefore tenders
received will be genuine.
Disadvantages
However, this tendering method is certainly more costly. It is said to be wasteful of contractors
resources since many may spend time preparing tenders to no effect. Also, knowing their
chances of gaining the contract are small, contractors may not study the contract in detail to
work out their minimum price, but simply quote a price that will be certain to bring them a
profit if they win the contract. On the other hand, cost of tendering can be extensive due to
unanticipated number of tenderers which may be a lot, thus requiring the production of many
copies of tender documents.
Not only open tendering is wasting money, but it can be wasting time too. Open tendering has
been criticized for attracting interest from large numbers of tenderers, some of whom may be
entirely unsuitable for the contract and as a result it can waste a great deal of time and effort
during evaluation process.
Lastly, open tendering can also affect the selection of quality contractor. The lowest tender
selection may result from underpriced contractors which lead to the risk whereby the successful
tenderer may not be able to deliver what he has promised due to undercutting of prices causing
poor quality of work performance.
Selection of the most preferable or appropriate contract procurement method.
Traditional contract procurement route
Longer time lead to critical work scheduling
Less errors more precise
Fast-track contract procurement route
Shorter time
Consequences may be lead to critical error, variation.
TENDERING
. METHODS OF TENDERING
(i) Open or Public Tendering
- Advertisement in daily newspaper.
(ii) Selective Tendering
- Contractors chosen from Pre-Qual
Register
(iii) Sole or Direct Tendering
- Sole bid invited without competitive bids.
4. 2-stage Tendering
Two Types of 2-stage Tendering:
1. One Stage Two envelopes Technicaland Financial Bids
2. Two Stage Process Two envelopes - post-qualification questionnaire and
Technical/Financial Bids
Selective Tendering
Tenderers are chosen from prequalification register
Tenderers are short listed and approved by the President/Chairman (outside the pre-
qualification register
Open
Indiscriminate request for tenders
Single stage selective Pre-select a limited number of contractors to tender
Two stage selective
Stage 1, on the basis of a limited amount of information selection of contractor and the
establishing of a level of pricing for subsequent negotiation
Stage 2, selected contractor helps in design and development of production drawings,
bills prepared and priced on the basis of the first stage tender
Selective tendering for design & build

Tendering contractors put forward their solutions and prices in a Contractor's Proposals
document in response to the Employers Requirement document
Stage 1: Selection of the most preferable or appropriate contract procurement method.

Traditional contract procurement route
Longer time lead to critical work scheduling
Less errors more precise
Fast-track contract procurement route
Shorter time
Consequences may be lead to critical error, variation.
Stage 2: Development of tender list

Potential tenderers can directly apply to the employer for future works.
Employer generate list based on previous dealings
The professional team generate their own list and recommend to the employer.
1.6 Types of Contracts

1.6.1 Measured or Unit rate Contract
In this type of contract, the price is computed by multiplying quantities of work executed by the
unit rate offered by the contractor in his tender. The rates are usually set out in the Bill of
Quantities
(BOQ).
Such contracts often used where there are significant changes in the quantities or working
conditions.
So, when there are certain reasonable differences of the quantities accepted by all the parties,
then the contract can be paid for by multiplying the actual measured quantities by the unit
rates.
Advantages:
1. Suitability: This type of contract is widely used in the execution of large projects financed by
public bodies or governments. It also suits the works which can be split into separate items and
the quantity of each item could be estimated with reasonable accuracy.
2. The employer pays for the actual work executed.
3. The contractor usually allows for a certain margin of variation, with a clear mechanism for
valuation of such variations.
4. The engineer / employer has liberty to provide some drawings during the execution of the
project, after award.
Disadvantages:
l. The employer cannot be absolutely sure of the total cost of the project until the whole work is
completed. In case the quantities in the BOQ are inaccurate or roughly approximated, the value
of the work may vary considerably. The contractor may try to offer an unbalanced tender on the
basis of his anticipation of the uncertainty of quantities of certain items.
2. Both the engineer and the contractor have to do considerable computations and book-
keeping during the progress of work.
3. Extra works or varied items of work are often a source of conflict. The contractor may press
for higher rates than he would have tendered for in the beginning.
1.6.2 Lumpsum contract

In a lumpsum contract, the contractor agrees to carry out the entire work as indicated in the
drawings and described in the specifications, for a specified fixed lumpsum amount.
Sometimes, the contract makes provisions to adjust the lump sum allowing for extra work and
limited variations.
Normally, a bill of quantities is not usually included, and if included it does not form part of the
"Contract Documents", but may be used just for guidance.
Instead, a schedule of rates may be of value to evaluate the cost of extras or omissions.
Advantages:
l. From the employer's stand point, and if no extras are contemplated, the tender sum tells him
the exact cost of the project. Sometimes the employer will be working within a tight margin of
budget.
2. From the contractor's stand point, because the design will often be prepared by him, the
contractor can gain through proper planning and efficient management to increase his margin
of profit and/or to control timing.
3. Both parties need less number of staff for book-keeping accounting and measurement.
Disadvantages:
l. In lumpsum contracts, there should be a complete set of plans and specifications, or what is
called
"Employer's Requirements" which should be sufficiently detailed.
2. Variations in lumpsum contract may trigger conflicts about whether or not a particular item
of work falls within the agreed scope of work, and whether there has been a variation to such
scope.
3. This type of contract will not be suitable for works with scope and nature that cannot be
predicted accurately in advance. The outcome will be unfair for the contractor to assume all
risks and uncertainties, or for the employer to pay a higher cost.
1.6.3 Cost-plus contract
This type of contract differs from both the measured and the lumpsum contract in that the
employer agrees to pay the contractor for the actual cost of the work plus an agreed percentage
of this actual cost to cover overhead and profit.
The contractor agrees to execute the works based on the drawings and specifications and any
other information that will be provided to him from time to time during progress of the works.
The percentage to be paid should not be applied on the costs of salaries of the contractors
staff, whether on-site or off-site.
Advantages:
1. Early completion of the work - The work can be started even before the design and estimates
are prepared. Decisions can be taken speedily, and flexibility allows adoption of alternates for
construction to suit the Employer's Requirements.
2. The quality of the work can be assured. The contractor is induced to perform the work in the
best interest of the employer.
3. No conflicts will be anticipated as to extras or omissions.
Disadvantages:
1. The final cost to the employer cannot be foretold.
2. Both parties have to do a lot of accounting and book-keeping regarding labour; purchase of
materials and plant and use of equipment.
3. The contractor has no incentive to economize or finish the work speedily.
Suitability:
In spite of some drawbacks in certain cases, this form of contract can be used suitably for:
a- Emergency works that require speedy construction and where no time is available to prepare
drawings for it.
b- Construction of special or expensive projects, such as palaces, where the cost of the work is
of no consequence but the materials and workmanship to be purchased are just to suit the
choice and taste of the employer.
Remark:
An alternate to the cost-plus contract is the cost-plus fixed fee contract, where the contractor
will be paid for the actual cost of construction plus a fixed amount of fees for his overhead and
profit. The fee does not fluctuate with the actual cost of the project. This factor may overcome
the possible drawback of the cost-plus contract.
1.6.4 Construction Management Contract (C.M.)
In this type of contract, the employer engages a specialized construction manager (C.M.) to
provide administrative service for him and manage the work on his behalf. The (C.M.) has full
control on
(Cost and Time), on the budget and programming, and is usually paid on a staff-reimbursement
basis.
The (C.M.) assists in choosing the design consultant and the various contractors for a project
divided into packages (structural, finishes, electro-mechanical, etc.).
The technical role is kept with the design-professional, but as to control, coordination,
certification and dispute resolution, the (C.M.) normally possesses the major role.
Types of Tender
Open Tender.
Selective Tender.
Negotiated Tender.
Serial Tender.
Lump sum contracts
Involves a total fixed priced for all construction related activities.
Can include incentives or benefits for early termination, or can also have penalties,
called liquidated damages, for a late termination.
Preferred when a clear scope and a defined schedule has been reviewed and agreed
upon.
+
_ In this method, the client and advisers consider which contractors are best suited to the type
of work.
_ Trusted contractors are invited to bid in the project by mail or direct contact.
_ A selection is then interviewed to determine their keenness and possible contribution to the
team.
_ Usually the quantity surveyor sets out to agree a framework with the chosen contractor, for
the costing of labor, materials and profit and the selection of any specialist sub-contract
packages for pricing by others.
If negotiations over prices break down at this early stage, another contractor is selected.
_ The quantity surveyor will work with the contractor to update the cost plan or budget and
report to the team.
_ Negotiated tendering is used for maintenance project or projects with incomplete design.
_ Project quality is guaranteed through contractor reputation.
Advantages of Negotiated Tendering
_ The contractor works as part of the team and may provide practical assistance and
construction knowledge that can influence detailed design.
_ The contractor will look for a design to be buildable which may sound obvious, but it is
surprising how often designers do not put enough thought into the practicalities of working on a
restricted site.
have a particular contribution.
_ Specialists as lift engineers, kitchen specialists, door and window fabricators, ironworkers,
landscape gardeners and so on can all help with ideas and advice to help produce a good result.
Negotiated tender
Published: 26. October 2012
Facilitates greater use of discretion in the tender on the part of the procurer.
Provides opportunities for adjustments and improvements of needs and solutions during
the purchasing phase.
Greater chance of getting the optimal solution.
Better commercial terms are normally achieved by active use of negotiations (can 'force'
innovative production methods/work processes internally that provide better terms)
The basis for the promotion of innovation is not primarily formed in the selection of a
negotiated tender, but in the work on defining and verifying the need and in preparing the
specification and award criteria. However, the procedure enables the parties to jointly reach
more optimal adaptations of the solutions to the needs and specifications on which the
procurement is based.
Negotiated tenders can be freely used in procurements below the EEA threshold value and for
non-priority services. Procurements above the threshold value must fulfil specific requirements
in order to use the negotiated tender procedure.
The tenders are based on the specifications, requirements and criteria set by the contracting
authority in conjunction with the announcement of the tender. Negotiated tenders are
characterised by the parties having the opportunity to negotiate all aspects of submitted
tenders as part of the tendering process. This also means dialogue and negotiations related to
the offered solutions and their characteristics, as seen in the context of the need the contracting
authority seeks to meet.
To further innovation through negotiated tenders, the process must be based on
Function- or performance-based specifications that stimulate the development of new
solutions.
Award criteria that allow for innovation.
Award criteria that provide room for negotiations to sharpen/tailor the offered solution
so that it meets the identified needs in the best way possible.
Sufficient competence on the part of the contracting authority and the tenderers to
implement effective dialogues about solutions during the negotiations.
Innovation advantages of negotiated tenders
Facilitates greater use of discretion in the tender on the part of the procurer.
Provides opportunities for adjustments and improvements of needs and solutions during
the purchasing phase.
Greater chance of getting the optimal solution.
Better commercial terms are normally achieved by active use of negotiations (can 'force'
innovative production methods/work processes internally that provide better terms)
Limitations to innovation imposed by negotiated tenders
The specification in the tender documentation can limit innovation through the use of
closed specifications or excessive use of 'shall' requirements.
A lack of negotiating competence contributes to a limited use of the room for negotiation
(e.g. only negotiating price).
Negotiated tendering
A 'tender' is a submission made by a prospective supplier in response to an invitation to tender.
It makes an offer for the supply of goods or services. In construction, the main tender process is
generally the selection, by the client, of a contractor to construct the works. However, as
procurement routes have become more complex, so tenders may now be sought for a wide
range of goods and services.
Irrespective of the nature of the goods or services that are being sought, securing tenders
generally follows one of a number of basic procedures:
Open tendering.
Selective tendering.
Negotiated tendering.
Serial tendering.
Framework tendering.
Negotiated tendering occurs when the client approaches a single supplier based on their track-
record or a previous relationship and the terms of the contract are then negotiated.
Negotiating with a single supplier may be appropriate for highly specialist contracts (where
there may be a limited number of potential suppliers), or for extending the scope of an existing
contract. It can give the client the confidence of working with a supplier they already know, can
reduce the duration and costs of tendering and can allow early supplier involvement.
However, unless the structure of the negotiation is clearly set out there is the potential for an
adversarial atmosphere to develop, even before the contract has been awarded. Carrying out
negotiations in the absence of competition so that both parties feel the outcome is fair can be
complex and time consuming.
Negotiated tendering can be seen as anti-competitive and exclusive, with the potential for cozy
relationships to develop between the client and the supplier. Negotiated tendering may not be
permitted by some organisations due to the perceived lack of accountability. On public projects,
or projects that include a publicly-funded element it may be necessary to advertise contracts.
This is a requirement of the Public Contracts Regulations, intended to open up public
procurement within the European Union and to ensure the free movement of supplies, services
and works (see OJEU for more information).
Negotiated Tender:
Under Negotiated Tender method normally one contractor is approached and such tender
mainly used for specialist work such as lift system or airport project at big level, in such case
there are limited number of contractor who do such work in the market. It is based on one-to-
one discussion with contractors to negotiated the terms of contract.
Negotiated tendering occurs when the client approaches a single contractor based on their track
It is used when the client has a preference for a particular firm, often because it has done
satisfactory work for him before. Negotiating with a single contractor may be appropriate for
highly specialist contracts where there may be a limited number of potential contractors, or for
extending the scope of an existing contract.
One should be fairly certain, however, that a worthwhile benefit would 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 pricing 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 contractors senior estimators
and the surveyor (either a partner, associate 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 surveyors will meet to negotiate the unpicked ones. When
agreement on the whole is reached, a contract will be entered into between the client and the
contractor
Advantage
Best alternatives for the employer to adopt are special circumstances such as emergencies,
security reasons and when there is a very tight deadline of a particular project. Thus, a
negotiated tender has a good chance of being satisfactory because, more often than not, it is
based on previous satisfactory working together by the employer and the contractor.
When invited to tender, the contractor submits his prices, and if there are any queries these are
discussed and usually settled without difficulty. Thus mistakes in pricing can be reduced, so that
both the engineer advising the employer and the contractor are confident that the job should
be completed to budget if no unforeseen troubles arise.
Negotiated tendering reduces the risk of failure as reputable contractor with proven experience
engaged. It also can give the client the confidence of working with a contractor they already
know, which can reduce the duration, costs of tendering and can allow early contractor
involvement. It eliminates from attracting tenders from a large number of contractors. Some of
who may entirely unsuitable for the contract and as a result it can waste a great deal of time,
effort as well as money.
Other than that, this tendering method allows early commencement of work on site. It shortens
the period involved in appointing the contractor. The client can have the direct approach to the
known acceptable firm and such tender mainly used for specialist work such as lift system or
airport project at big level, in such case there are limited number of contractor who do such
work in the market. It is based on one-to-one discussion with contractors to negotiate the terms
of contract, which result in shorter tender period.
Apart from this, the contractor works as part of the team and may provide practical assistance
and construction knowledge that can influence detailed design. The contractor will look for a
design to be buildable which may sound obvious, but it is surprising how often designers do
not put enough thought into the practicalities of working on a restricted site.
have a particular contribution. Specialists as lift engineers, kitchen specialists, door and window
fabricators, ironworkers, landscape gardeners and so on can all help with ideas and advice to
help produce a good result.
Disadvantage
relationships to develop between the client and the contractor. Even in the absence of formal
collusion, oligopolies are less likely to respond to open tenders with highly competitive quotes.
Instead, they may frame their bids based on their knowledge of their competitors likely
responses. This strategy tends to generate higher prices than those likely to be obtained in a
fully competitive market. Obviously, if only one firm tenders for a job, competition is eliminated
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.
Furthermore, the basis for the promotion of innovation is not primarily formed in the selection
of a negotiated tender, but in the work on defining and verifying the need and in preparing the
specification and award criteria.
Negotiated tendering may not be permitted by some organizations due to the perceived lack of
accountability and integrity. One of the main reasons why direct negotiations are misused is
that they are convenient. Agreeing to direct negotiations can avoid the expense and trouble of
placing advertisements, preparing evaluation criteria and a panel and generating
correspondence. Similarly, if staffs responsible for contracting are under-resourced or under
pressure to meet deadlines, the temptation to take short cuts is increased. Time pressure due to
poor planning is not a valid reason for entering into direct negotiations. For instance, order
splitting is a short cut to direct negotiations that improperly avoids the competitive process. This
involves dividing a transaction into smaller components with a view to keeping the value below
thresholds that, under agency policy, require additional bids. While order splitting is usually
indicative of a rushed process or inadequate planning, in some cases it may be driven by a
corrupt motive.
Additionally, negotiated tendering normally requires longer time period to negotiate before
award of tender. The risk here is that at a later stage in the project, the client may question
whether or not value for money has been achieved in the absence of competition. Also if the
negotiation between the client and contractor has a chance to be deadlock or prove eventually
unsuccessful, this causes wastage of valuable resources on both sides and loss of time for the
employer, thereby delaying the overall selection of suitable contractor.
TENDERING METHODS IN CONSTRUCTION

Home/ Construction / TENDERING METHODS IN CONSTRUCTION
information.
Selective Tendering Methods in Construction:

Under selective tendering the employer advertises his project and invites contractors to apply
to be placed on a selected list of contractors who will be invited to bid for the project.
Contractors applying are given a list of information they should supply about themselves in
order to pre-qualify.
The advantage to the employer is that he can select only those contractors, who have adequate
experience, are financially sound, and have the resources and skills to do the work. Also, since
only half a dozen or so contractors are selected, each contractor knows he has a reasonable
chance of gaining the contract and therefore has an incentive to study the tender documents
thoroughly and put forward his keenest price.
However, since contractors have all pre-qualified it is difficult to reject the lowest bid, even if it
appears dubiously low unless that is due to some obvious mistake.
A problem with both open and selective tendering is that a contractors circumstances can
change after he has submitted his tender. He can make losses on other contracts which affect
his financial stability; or may be so successful at tendering that he does not have enough skilled
staff or men to deal with all the work he wins. Neither method of tendering nor any other
means of procuring works can therefore guarantee avoidance of troubles.
Negotiated Tendering Methods in Construction:
Negotiated tenders are obtained by the employer inviting a contractor of his choice to submit
prices for a project. Usually this is for specialized work or when particular equipment is needed
as an extension of existing works, or for further work following a previous contract.
Sometimes negotiated tenders can be used when there is a very tight deadline, or emergency
works are necessary. A negotiated tender has a good chance of being satisfactory because,
more often than not, it is based on previous satisfactory working together by the employer and
the contractor.
When invited to tender the contractor submits his prices, and if there are any queries these are
However, negotiated tenders for public works are rare because the standing rules of public
authorities do not normally permit them. But a private employer or company not subject to
restraints such as those mentioned in the next section can always negotiate a contract, and
many do so, particularly for small jobs. Even when a negotiated tender is adopted it is usual to
prepare full contract documents so that the contract is on a sound basis. Production of the
documents also means they are available for open or selective tendering should a negotiated
tender fail, or should the chosen contractor be unable to undertake the work.
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Types Of Tenders And Tendering Process Construction Essay
Published: 23, March 2015
A tender can be said as an offer to do work or supply goods at a fixed price. Initiating step of a
tendering process in which qualified contractors are invited to submit sealed bids for
construction or for supply of specific and clearly defined goods or services during a specified
timeframe. The tender process is designed to ensure that the work to be done for
client/government is given out in a fair way. For example in Malaysia, there are a number of
policies known as procurement policies which guide government of Malaysia on how to make
decisions on which tender to accept. Although price is very important in the decision on which
tender or bid to accept, it is not the only factor taken into account.
Once client/government accepts a tender, it is binding on both parties. This means that the
person or company that won the tender has to provide the goods or services in the manner
agreed to and at the price offered, and client/government must pay the agreed price at the
agreed time. In other words, once accepted, a tender is a binding contract.
2.2 Types of tendering
When talk about tendering, it is involved some kind of complicated process and procedure.
Before any tendering process can be done, professional team and employer must make sure all
necessary tender documents have been prepared, checked and approved. The source of the
funding also must have been identified and the project financing put in place. The procedures
for subsequent stages should have been established with the express consent of the employer
to ensure the tendering process will go smoothly.
What types of tendering that employer want to choose is depends on nature of contract,
complexity of the construction, expertise needed and several reasons. But usually for the
government project all over the world, is tend to make open tender to ensure the procurement
and works to be done in fairly manner without prejudice. As the researcher mention before,
open tender is one of the types of tendering that commonly used in this world. Actually there
are several types of tender including open tender, selective tender, negotiated tender, serial
tender and term tendering.
2.2.1 Open tender
Advantages
Disadvantages
industry.
work.
Selective tender
Selective tendering is the one alternatives developed to address the limitations of the open
tendering procedure. In this method, a short list of contractor is drawn up and they are invited
to submit tenders. The purpose of the elective tendering are to improve the quality of the bids
received, to ensure that contractors with the necessary experience and competence are given
the opportunity to submit the necessary bids, due to urgency work involved, for specific reasons
of the employer, eg security reasons in government projects. etc. and to make the tendering
procedure more manageable and less a burden on the parties involved. Such list may be
prepared through recommendation from the Client's professional adviser whom have
knowledge of the Contractors undertaking the work in the past or advertisement through the
newspaper (prequalification). The advantages and disadvantages of the selective tendering are
stated below.
Advantages
Disadvantages
Only the competent contactors were invited to tender, then the lowest can be accepted.
Reduces the availability of work for other contractors especially new contractors.
It reduced the cost of tendering (economic use of resources, reduced tender documentation,
shorter tender periods, better management of the tender process, etc.)
Tender Price may invariably higher than would have been in open tendering.
Greater chance of collusion.
Tendering period longer because it involved two distinct stages.
Favoritisms may occur in the short listing.
Two Stage Selective Tender
Two stage selective tendering combined elements of competition and negotiation into a
formula where the employer could utilize the contractor's expertise at an early stage of the
project cycle so as to maximize innovation, ingenuity and quality and simultaneously optimize
cost, time and resource input. A contractor is selected competitively early in the design process.
The tender documents contain approximately quantities of the major value items. As design and
planning proceed, the final tender is developed from cost and priced data supplied with the
initial tender. Two stage selective tendering was very popular in developed countries. It was
different from selective tendering because has two (2) distinct stages namely:
Selection of suitable contractor
This involves the selection of a suitable contractor and the establishment of a level of pricing for
subsequent negotiations.
The objective is to select suitable contractor as early as possible is to work together with the
professional team and to establish a level of pricing for subsequent negotiation.
The criteria for short listing is normally confined to items such as technical and financial
capability, experience in similar works and extent of resources (manpower, plant and
equipment).
The pricing document should be flexible enough to cater for adjustment of price fluctuation for
the period between two stages and the pricing of the second stage.
In selecting a suitable candidate, a basis for pricing the subsequent second stage should be
established accordingly.
Determination of Contract Price
Once a suitable contractor is selected, he will work together with the project team start
contributing to the pre contract process in his capacity as unbiased but independent
construction expert. This contractor will contribute the following:
Contribution as a Technical Advisor to the Design Process
Practical Skills and Buildability
Minimization of Project Delay
During this stage, a negotiation to reach an agreement on the final contract price is undertaken
and the pre contract process is perfected.
If no agreement being reached, the employer has an option to abandon the tendering exercise
and re-tender the works using any other tendering procedure.
The application of two stage selective tendering might be appropriate where the works are a
very complicated nature, where at the time of selection of the contractor, the magnitude of the
work may not be known with sufficient certainty and where it is an essential pre-requisite for
works to be finished by an early completion date. Table below are some advantages and
disadvantage of two stages selective tendering.
Advantages
Disadvantages
Benefit of the contractor's expertise in buildability, specialist knowledge in proprietry systems,
project scheduling, etc resulting in value for money.
Its application requires a high level of familiarity and commitment on the part of employers and
contractors.
Early commencement of work at site even when the magnitude of the works is not known with
sufficient certainty at the time of site possession.
Owing to a relatively smaller element of competition, but on the other hand higher negotiations
content, the tender process is relatively more expensive and longer than other common
procedures.
Savings of time due to the overlap of the design and tendering stage.
Should the second stage be deadlocked or result in no acceptable agreement being reached, the
tender process has to be initiated all over again, albeit, through a different route. This incurs a
time and cost penalty to the project as a whole.
The procedure utilizes the best aspects of both competition and negotiation to arrive at the
most favourable arrangement at an optimum firm price before work commences.
This procedures requires a high level of commitment, integrity and good faith on the part of
both sides which sadly is usually lacking, hence the apparent failures encountered to date.
Since the contractor is part of the project team at a very stage of the project, this results in
better communication and information flow.
Generally there will be fewer claims and disputes in the post contract award stage due to the
contractor's involvement at the design / pre contract stage. Experience has shows that the
contractor has a clearer understanding of the requirements and a better appreciation of the
intricacies of the design and contract documentations.
Negotiation Tender
Negotiation tendering is extensively used in the engineering and construction industry
commencing from tendering till dispute resolutions, i.e. under the styles of pre-contract
negotiations and post contract negotiations. Usually with single contractor but may be up to
three contractors. Negotiation process involves are as follows:
Identification by the employer of a suitable contractor to negotiate with. The contractor can be
selected either from the employer's own list of preferences or on the advice of the professional
team.
The contractor being apprised of the workscope.
The selected contractor is issued with details such as the scope of work involved, relevant
drawings, design and /or information to enable him to appreciate the extents of obligations and
the employer's actual needs. Some employers prepare and issue to the contractor proper
tender documents inclusive of a nominated bills of quantities to assist contractor in pricing the
works for the forthcoming negotiations. Negotiations can be applied to the following type of
contract:
In Partnering type of contracts under the so called win-win formula.
Where the employer has a long term business relationship with the contractor.
In situations where the parties are in a relationships of holding and subsidiary companies.
Where the contractor is involved in the financing of the project.
In situations where the employer finds it advantages to employ the same contractor to continue
an initial or existing contract for the new works
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 tract basis.
In special circumstances e.g. Security reasons, emergencies etc where it is expedient to secure
the services of a particular contractor only.
Where there is only a single contractor who is the only one available or with ether the special
skill or resources to carry out the particular works.
The employer's resources are either limited or constrained thereby making the use of the other
tendering impractical.
Advantages
Disadvantages
Only reputable contractor are invited for negotiation.
The cost work is likely higher than competitive tender.
The Contractor can contribute his expertise during design stage.
Reduces the availability of work for other contractors.
Early Commencement of work on site. It shortens the period involved in appointing the
contractor.
Should the negotiations be deadlock or prove eventually unsuccessful, this causes wastage of
valuable resources on both sides and loss of time for the employer, thereby delaying the overall
selection of suitable contractor.
Reduce risk of failure
Best alternatives for the employer to adopt is special circumstances such as emergencies,
security reasons and etc.
Experience has shows that contracts let out this basis result in fewer disputes and claims during
the construction stage.
Term Tender
Term tendering normally used on major maintenance projects. It may be awarded to a
contractor to cover a range of different buildings in different locations. It is often limited to a
fixed time scale, although the needs of the client may often require this to be extended. It is like
a standing offer to undertake a loosely defined extends of work usually within a fixed time
period. The type of work is usually specified and priced in a schedule of rates. The contractor
will initially be offered the work to cover a number of different trades usually on the basis of
prices contained in a schedule prepared by the client.Where the client supplies the rates for the
work, the contractors are given the option of quoting a percentage addition or deduction from
these rates depending upon their desire to win the project. The contractor offering the most
advantageous percentage to the client will then be awarded the contract. An indication of the
amount of work expected over the specified period of time will assist the contractors in the
consideration of the percentage to be quoted.
2.3 Conventional Tendering Process
As the researcher mentioned before, this chapter will focus on conventional tender while the
next chapter will focus on electronic tendering. Therefore readers will see clearly background on
conventional tendering and electronic tendering. Conventional tendering process will involve
pre-tender stage, tender advertisement stage, closing of tender, tender opening process, tender
evaluation process and finally tender award.
2.3.1 Pre-tender Stage
At pre-tender stage, when the clients have an idea, client will appoint consultant to discuss
further about the project. Consultant will do their job, advising, managing the tender and
contract, and also transfer the idea into the drawing. At this stage client and consultants will
brainstorming about the scope, time to complete and budget that client willing to allocate.
Researcher believes that pre-tender stage is most crucial matter because it will initiate the next
step of a project. If the pre-tender stage is failed, the project will not successfully complete.
2.3.2 Tender Advertisement
Tender advertisement also called tender notice. The conventional tender notice will advertise in
local newspaper. In tender notice, basic requirement 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 document.
Location, date and time for submission of tender doc.
2.3.3 Closing of Tender
In tender notice will mention the time and date of tender closing process. If the contractors fail
to submit their bids within specific time and date, it considers the contractors refuse to bid for
the tender. At that time also tender validity period is started. At this period, contractors can
withdraw back their bids if they are no more interested to fight for the tender. Consultant use
this period to make assessment and evaluation each of the offers.
2.3.4 Tender Opening and Evaluation Process
2.3.5 Tender Award
What is tender?
In this system the entity invites suppliers to give their quotations.
The supplier with the lowest quotation wins the contract.
It is a kind of contract mostly followed by large organisations and governments when
purchases are of large value.
Open Tender
This is where an opportunity (including all tender documents) is advertised inviting
providers to bid directly for a contract.
All interest parties then submit a tender.
Scoring takes place and the successful organisation is awarded the contract.
Sometimes there is a selection stage first, which is then followed by the award stage.
Negotiated Tender
It can only be used in a limited number of carefully defined cases (e.g. large capital
projects where a range of solutions to deliver are possible).
An opportunity is advertised (the specification is not established at the start of the
process) and organisations can submit an expression of interest and fill in a pre
qualification questionnaire.
Successful bidders are invited to negotiate with the procuring body, which is called the
dialogue phase.
Once dialogue has generated solutions to the agreed requirements, final tenders are
submitted based on each bidders individual solution.
Scoring then takes place and the successful organisation is awarded the contract.
PROCESS
Invitation Tender Offerings Evaluation
Pre/Post
Withdrawal of
Qualification Recommendations
Offer
Questionnaire
Bid Bond Receipt of Tenders Letter of Award
Conditions of
Site Visit Tender Box
Award
3 Methods of Tendering available to Contractors.

Three main methods are available to Contractors to submit tenders. The method of inviting
tenders rests with the Client / Principal Agent and they alone will decide the best method for
the particular project.
Open Tenders:
An advertisement is placed in the newspapers (or via our TenderPoint platform) by the Client /
Principal Agent, inviting prospective Contractors to tender on the project. This results in
competitive prices and very competitive tendering.
Selective Tenders:
Certain Contractors are invited to tender. These Contractors are selected on their integrity,
ability and characteristics before they are invited to tender. It follows that only firms of
sufficient standing and experience in that particular type of work will be approached. The lowest
tender will generally have to be accepted.
Competitive tendering is achieved and the tender procedure is the same as open tenders except
it is not advertised in the press. (The TenderPoint platform allows for a search for Contractors of
a certain CIDB Grading and Class withing a particular province and region for selective tender
opportunities)
Negotiated Tenders:
In this type of of tendering procedure, the Client / Principal Agent will approach one Contractor
selected on merit to submit a tender for the work. The method used to arrive at the pricing is
usually left to the Contractor and can be on the basis of a Bills of Quantities. Often the services
of a Quantity Surveyor is used to advise on rates and prices during negotiations.
The 3 best reasons for applying this type of tendering are:
1. Time does not allow for normal tendering on open tenders or selective tendering.
2. Technicalities around the design and development of details can require the specialist
knowledge of the Contractor.
3. Where the final cost requires to be established at an early stage of development and the
design will be controlled by the costs.
TENDERING METHODS IN CONSTRUCTION

information.
Selective Tendering Methods in Construction:

Under selective tendering the employer advertises his project and invites contractors to apply
to be placed on a selected list of contractors who will be invited to bid for the project.
Contractors applying are given a list of information they should supply about themselves in
order to pre-qualify.
thoroughly and put forward his keenest price.
However, since contractors have all pre-qualified it is difficult to reject the lowest bid, even if it
appears dubiously low unless that is due to some obvious mistake.
A problem with both open and selective tendering is that a contractors circumstances can
change after he has submitted his tender. He can make losses on other contracts which affect
his financial stability; or may be so successful at tendering that he does not have enough skilled
staff or men to deal with all the work he wins. Neither method of tendering nor any other
means of procuring works can therefore guarantee avoidance of troubles.
Negotiated Tendering Methods in Construction:
Negotiated tenders are obtained by the employer inviting a contractor of his choice to submit
as an extension of existing works, or for further work following a previous contract.
Sometimes negotiated tenders can be used when there is a very tight deadline, or emergency
works are necessary. A negotiated tender has a good chance of being satisfactory because,
more often than not, it is based on previous satisfactory working together by the employer and
the contractor.
When invited to tender the contractor submits his prices, and if there are any queries these are
However, negotiated tenders for public works are rare because the standing rules of public
authorities do not normally permit them. But a private employer or company not subject to
restraints such as those mentioned in the next section can always negotiate a contract, and
many do so, particularly for small jobs. Even when a negotiated tender is adopted it is usual to
prepare full contract documents so that the contract is on a sound basis. Production of the
documents also means they are available for open or selective tendering should a negotiated
tender fail, or should the chosen contractor be unable to undertake the work.
Types Of Tenders And Tendering Process Construction Essay
Published: 23, March 2015
A tender can be said as an offer to do work or supply goods at a fixed price. Initiating step of a
tendering process in which qualified contractors are invited to submit sealed bids for
construction or for supply of specific and clearly defined goods or services during a specified
timeframe. The tender process is designed to ensure that the work to be done for
client/government is given out in a fair way. For example in Malaysia, there are a number of
policies known as procurement policies which guide government of Malaysia on how to make
decisions on which tender to accept. Although price is very important in the decision on which
tender or bid to accept, it is not the only factor taken into account.
Once client/government accepts a tender, it is binding on both parties. This means that the
person or company that won the tender has to provide the goods or services in the manner
agreed to and at the price offered, and client/government must pay the agreed price at the
agreed time. In other words, once accepted, a tender is a binding contract.
2.2 Types of tendering

When talk about tendering, it is involved some kind of complicated process and procedure.
Before any tendering process can be done, professional team and employer must make sure all
necessary tender documents have been prepared, checked and approved. The source of the
funding also must have been identified and the project financing put in place. The procedures
for subsequent stages should have been established with the express consent of the employer
to ensure the tendering process will go smoothly.
What types of tendering that employer want to choose is depends on nature of contract,
complexity of the construction, expertise needed and several reasons. But usually for the
government project all over the world, is tend to make open tender to ensure the procurement
and works to be done in fairly manner without prejudice. As the researcher mention before,
open tender is one of the types of tendering that commonly used in this world. Actually there
are several types of tender including open tender, selective tender, negotiated tender, serial
tender and term tendering.
2.2.1 Open tender
Advantages
Disadvantages
industry.
work.
Selective tender
Selective tendering is the one alternatives developed to address the limitations of the open
tendering procedure. In this method, a short list of contractor is drawn up and they are invited
to submit tenders. The purpose of the elective tendering are to improve the quality of the bids
received, to ensure that contractors with the necessary experience and competence are given
the opportunity to submit the necessary bids, due to urgency work involved, for specific reasons
of the employer, eg security reasons in government projects. etc. and to make the tendering
procedure more manageable and less a burden on the parties involved. Such list may be
prepared through recommendation from the Client's professional adviser whom have
knowledge of the Contractors undertaking the work in the past or advertisement through the
newspaper (prequalification). The advantages and disadvantages of the selective tendering are
stated below.
Advantages
Disadvantages
Only the competent contactors were invited to tender, then the lowest can be accepted.
Reduces the availability of work for other contractors especially new contractors.
It reduced the cost of tendering (economic use of resources, reduced tender documentation,
shorter tender periods, better management of the tender process, etc.)
Tender Price may invariably higher than would have been in open tendering.
Greater chance of collusion.
Tendering period longer because it involved two distinct stages.
Favoritisms may occur in the short listing.
Two Stage Selective Tender
Two stage selective tendering combined elements of competition and negotiation into a
formula where the employer could utilize the contractor's expertise at an early stage of the
project cycle so as to maximize innovation, ingenuity and quality and simultaneously optimize
cost, time and resource input. A contractor is selected competitively early in the design process.
The tender documents contain approximately quantities of the major value items. As design and
planning proceed, the final tender is developed from cost and priced data supplied with the
initial tender. Two stage selective tendering was very popular in developed countries. It was
different from selective tendering because has two (2) distinct stages namely:
Selection of suitable contractor
This involves the selection of a suitable contractor and the establishment of a level of pricing for
subsequent negotiations.
The objective is to select suitable contractor as early as possible is to work together with the
professional team and to establish a level of pricing for subsequent negotiation.
The criteria for short listing is normally confined to items such as technical and financial
capability, experience in similar works and extent of resources (manpower, plant and
equipment).
The pricing document should be flexible enough to cater for adjustment of price fluctuation for
the period between two stages and the pricing of the second stage.
In selecting a suitable candidate, a basis for pricing the subsequent second stage should be
established accordingly.
Determination of Contract Price
Once a suitable contractor is selected, he will work together with the project team start
contributing to the pre contract process in his capacity as unbiased but independent
construction expert. This contractor will contribute the following:
Contribution as a Technical Advisor to the Design Process
Practical Skills and Buildability
Minimization of Project Delay
During this stage, a negotiation to reach an agreement on the final contract price is undertaken
and the pre contract process is perfected.
If no agreement being reached, the employer has an option to abandon the tendering exercise
and re-tender the works using any other tendering procedure.
The application of two stage selective tendering might be appropriate where the works are a
very complicated nature, where at the time of selection of the contractor, the magnitude of the
work may not be known with sufficient certainty and where it is an essential pre-requisite for
works to be finished by an early completion date. Table below are some advantages and
disadvantage of two stages selective tendering.
Advantages
Disadvantages
Benefit of the contractor's expertise in buildability, specialist knowledge in proprietry systems,
project scheduling, etc resulting in value for money.
Its application requires a high level of familiarity and commitment on the part of employers and
contractors.
Early commencement of work at site even when the magnitude of the works is not known with
sufficient certainty at the time of site possession.
Owing to a relatively smaller element of competition, but on the other hand higher negotiations
content, the tender process is relatively more expensive and longer than other common
procedures.
Savings of time due to the overlap of the design and tendering stage.
Should the second stage be deadlocked or result in no acceptable agreement being reached, the
tender process has to be initiated all over again, albeit, through a different route. This incurs a
time and cost penalty to the project as a whole.
The procedure utilizes the best aspects of both competition and negotiation to arrive at the
most favourable arrangement at an optimum firm price before work commences.
This procedures requires a high level of commitment, integrity and good faith on the part of
both sides which sadly is usually lacking, hence the apparent failures encountered to date.
Since the contractor is part of the project team at a very stage of the project, this results in
better communication and information flow.
Generally there will be fewer claims and disputes in the post contract award stage due to the
contractor's involvement at the design / pre contract stage. Experience has shows that the
contractor has a clearer understanding of the requirements and a better appreciation of the
intricacies of the design and contract documentations.
Negotiation Tender
Negotiation tendering is extensively used in the engineering and construction industry
commencing from tendering till dispute resolutions, i.e. under the styles of pre-contract
negotiations and post contract negotiations. Usually with single contractor but may be up to
three contractors. Negotiation process involves are as follows:
Identification by the employer of a suitable contractor to negotiate with. The contractor can be
selected either from the employer's own list of preferences or on the advice of the professional
team.
The contractor being apprised of the workscope.
The selected contractor is issued with details such as the scope of work involved, relevant
drawings, design and /or information to enable him to appreciate the extents of obligations and
the employer's actual needs. Some employers prepare and issue to the contractor proper
tender documents inclusive of a nominated bills of quantities to assist contractor in pricing the
works for the forthcoming negotiations. Negotiations can be applied to the following type of
contract:
In Partnering type of contracts under the so called win-win formula.
Where the employer has a long term business relationship with the contractor.
In situations where the parties are in a relationships of holding and subsidiary companies.
Where the contractor is involved in the financing of the project.
In situations where the employer finds it advantages to employ the same contractor to continue
an initial or existing contract for the new works
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 tract basis.
In special circumstances e.g. Security reasons, emergencies etc where it is expedient to secure
the services of a particular contractor only.
Where there is only a single contractor who is the only one available or with ether the special
skill or resources to carry out the particular works.
The employer's resources are either limited or constrained thereby making the use of the other
tendering impractical.
Advantages
Disadvantages
Only reputable contractor are invited for negotiation.
The cost work is likely higher than competitive tender.
The Contractor can contribute his expertise during design stage.
Reduces the availability of work for other contractors.
Early Commencement of work on site. It shortens the period involved in appointing the
contractor.
Should the negotiations be deadlock or prove eventually unsuccessful, this causes wastage of
valuable resources on both sides and loss of time for the employer, thereby delaying the overall
selection of suitable contractor.
Reduce risk of failure
Best alternatives for the employer to adopt is special circumstances such as emergencies,
security reasons and etc.
Experience has shows that contracts let out this basis result in fewer disputes and claims during
the construction stage.
Term Tender
Term tendering normally used on major maintenance projects. It may be awarded to a
contractor to cover a range of different buildings in different locations. It is often limited to a
fixed time scale, although the needs of the client may often require this to be extended. It is like
a standing offer to undertake a loosely defined extends of work usually within a fixed time
period. The type of work is usually specified and priced in a schedule of rates. The contractor
will initially be offered the work to cover a number of different trades usually on the basis of
prices contained in a schedule prepared by the client.Where the client supplies the rates for the
work, the contractors are given the option of quoting a percentage addition or deduction from
these rates depending upon their desire to win the project. The contractor offering the most
advantageous percentage to the client will then be awarded the contract. An indication of the
amount of work expected over the specified period of time will assist the contractors in the
consideration of the percentage to be quoted.
2.3 Conventional Tendering Process
As the researcher mentioned before, this chapter will focus on conventional tender while the
next chapter will focus on electronic tendering. Therefore readers will see clearly background on
conventional tendering and electronic tendering. Conventional tendering process will involve
pre-tender stage, tender advertisement stage, closing of tender, tender opening process, tender
evaluation process and finally tender award.
2.3.1 Pre-tender Stage
At pre-tender stage, when the clients have an idea, client will appoint consultant to discuss
further about the project. Consultant will do their job, advising, managing the tender and
contract, and also transfer the idea into the drawing. At this stage client and consultants will
brainstorming about the scope, time to complete and budget that client willing to allocate.
Researcher believes that pre-tender stage is most crucial matter because it will initiate the next
step of a project. If the pre-tender stage is failed, the project will not successfully complete.
2.3.2 Tender Advertisement
Tender advertisement also called tender notice. The conventional tender notice will advertise in
local newspaper. In tender notice, basic requirement 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 document.
Location, date and time for submission of tender doc.
2.3.3 Closing of Tender
In tender notice will mention the time and date of tender closing process. If the contractors fail
to submit their bids within specific time and date, it considers the contractors refuse to bid for
the tender. At that time also tender validity period is started. At this period, contractors can
withdraw back their bids if they are no more interested to fight for the tender. Consultant use
this period to make assessment and evaluation each of the offers.
2.3.4 Tender Opening and Evaluation Process
2.3.5 Tender Award
Bidding Versus Negotiation
Competitive Bidding: Construction bidding is the process of submitting a proposal (tender) to
undertake, or manage the undertaking of a construction project. The process starts with a cost
estimate from blueprints and take offs.
The tender is treated as an offer to do the work for a certain amount of money (firm price), or a
certain amount of profit (cost reimbursement or cost plus). The tender which is submitted by
the competing firms is generally based on a bill of quantities, a bill of approximate quantities or
other specifications which enable the tenders attain higher levels of accuracy, the statement of
work.
For instance, a bill of quantities is a list of all the materials (and other work such as amount of
excavation) of a project which have sufficient detail to obtain a realistic cost, or rate per
described item of work/material. The tenders should not only show the unit cost per
material/work, but should also if possible, break it down to labor, plant and material costs. In
this way the individual who is selecting the tender will be quite confident that the tender is
feasible. Bids are usually, but not always chosen on cost alone.
Negotiated Contract: This method differs from the competitive bid system. Usually a general
contractor and/or an architect are selected at the projects inception. These firms work together
throughout the design phase. When design documents are complete, the final construction
costs are negotiated by the general contractor through bids from subcontractors on various
scopes of work. A large proportion of the annual work volume of many contractors is now
made up of negotiated contracts. This can be interpreted as a sign that owners are increasingly
finding that negotiated arrangements are in their best interests.
Selective Tendering

Advantages
experience, are financially sound, and have the resources and skills to do the work, which
provide a high quality of workmanship as well as reduce the risk of failure. Thus, with selective
tendering in either one or two stages, a limited number of organizations are invited to tender
after some form of pre-selection or pre-qualification has taken place. In this case, award to the
lowest conforming tender is not such a high-risk strategy.
Apart from this, since only half a dozen or so contractors are selected, each contractor knows he
has a reasonable chance of gaining the contract and therefore has a great incentive to study the
tender documents thoroughly and put forward his keenest price to win the tender.
Selective tendering will also provide a shorter tender period as there is no need for the
consultants to evaluate the tenders. As a matter of fact, the tender evaluation is only based on
the price, which mean the contractor is awarded the job with the lowest tender price.
The cost of tendering is reduced, supposedly resulting in lower prices in the market place.
Economic use of resources and reduced tender documentation can result in lower tendering
cost. As the number of tenderers reduced, hence requiring the production of many copies of
tender documents also reduced.
Disadvantage
A problem with selective tendering is that a contractors circumstances can change after he has
submitted his tender. He can make losses on other contracts, which affect his financial stability
or may be so successful at tendering that he does not have enough skilled staff or men to deal
with all the work he wins. Neither method of tendering nor any other means of procuring works
can therefore guarantee avoidance of troubles.
In addition, contractors who do not want the work may bid high rather than declining to bid.
They will do this in order to avoid getting removed from future tender or pre-qualification lists.
It should be noted that, under English Law, it is definitely illegal.
Selective tendering has a greater chance of collusion. Contractors have been known to collude,
which forms a cartel in order to keep prices high. Alternatively, contractors may use a slate
system to divide up the contracts amongst themselves. For example, there is an 25
agreement between tenderers as to who should be the successful tenderer, any meeting of
tenderers to discuss the tenders prior to submission of the tenders, exchange of information
between tenderers about their tenders prior to awarding of a contract or commission. Thus, as
part of a selective tendering process, tenderers may be required to complete a Declaration of
Non-Collusion. This is intended to prevent corruption in the tender process by requiring a
declaration from the tenderer that they have not colluded with any other party in the
preparation of their tender.
Tendering period tends to be longer in selective tendering because it involved two distinct
stages. Going through the selective tendering might take a longer tendering process because
the contractors need to go through the qualification stage as well as pre-qualification stage
before the actual tender. The consultant also require to go through every detail of the
contractor firms such as the background, financial statement, past project performances and so
on in order to make sure that only eligible contractors are qualified to tender the project.
Selective tendering can results in favoritisms that may occur in the short listing. A short list of
contractors is usually drawn up by use of the pre-qualification process. However, the shortlist
can also be selected by the clients tendering team based on their experience of the
contractors past performances. This method is more favoured by the private sector. This will
result in an unfair and discriminatory manner for the other contractors that fail in tendering the
project. For example, the client may choose the second lowest tender price instead of the
lowest tender price because the contractor that provides the second lowest tender price has
worked in the previous project with the client.
Types of tendering
There are three types of tendering methods used in construction
open tendering, selective tendering, or by negotiation.
Under open tendering the client advertises the proposed project, and permits as many
contractors as are interested to apply for tender documents. Sometimes a deposit is requested
from applicants, the deposit being returned on receipt of a bona fide tender. However, this
method can be said to be wasteful of contractors resources since many may spend time
preparing tenders to no effect. Also, knowing their chances of gaining the contract are small,
contractors may not study the contract in detail to work out their minimum price, but simply
quote a price that will be certain to bring them a profit if they win the contract. Thus the client
may be offered only a lottery of prices and not necessarily the lowest conforming price for
which the project could be constructed. If the lowest tender is selected, the client runs the risk
the tenderer has not studied the contract sufficiently to appraise the risks involved; or the
tenderer might not have the technical or financial resources to undertake the work successfully.
Under selective tendering the client advertises the project and invites contractors to apply to be
placed on a selected list of contractors who will be invited to bid for the project. Contractors
applying are given a list of information they should supply about themselves in order to pre-
qualify. The advantage to the client is that they can select contractors, who have adequate
thoroughly and put forward the best price. However, since contractors have all pre-qualified it
is difficult to reject the lowest bid, even if it appears dubiously low unless that is due to some
obvious mistake.
Negotiated tenders are obtained by the client inviting a contractor of their choice to submit
as an extension of existing works, or for further work following a previous contract. Sometimes
it can be used when there is a very tight deadline, or emergency works are necessary. A
based on previous satisfactory working together by the client and the contractor. Due to the
need for transparency and accountability, this method is not used in public tendering.
Selective tendering has variants. The two most commonly used methods of tendering
are single-stage and two-stage selective tendering.
Single-stage tendering
This approach means that one stage of tendering is utilised where shortlisted contractors submit pri
made thereafter. In general, about four to six contractors are invited to tender. The contractors can
an open invitation; or from a prepared list of pre-qualified contractors.
A disadvantage of this method is that some more capable contractors can be excluded
from the shortlist, however it does provide more benefits:
Keen competition amongst the bidders is generated.

Less likelihood of cover pricing is minimised greatly.
There is less volume of work involved in terms of analysing the bids.
The two-stage tendering approach is useful for:

The early appointment of a contractor on a competitive basis.
Combining the strengths of competition and negotiation.
Getting the contractor to contribute to (the final aspects of) the design.
Giving the contractor greater lead time to plan, mobilise and acquire resources
in advance.
Overlapping the design and construction functions, consequently shortening
the project duration.
Eliminating potential sources of conflicts especially during the negotiations.
Its disadvantages include:
The preferred contractor may fail to negotiate with competitive prices.

Negotiations could drag-on and compound the complexity of the process.
The demarcation of design responsibilities between client and contractor
becomes fuzzy in situations where the contractor has contributed to the process
A problem with both open and selective tendering is that a contractors circumstances
can change after they have submitted a tender. They can make losses on other
contracts which affect their financial stability; or may be so successful at tendering
that he does not have enough skilled staff or men to deal with all the work won.
Neither method of tendering nor any other means of procuring works can therefore
guarantee avoidance of troubles.
Traditional System
Project Leader Usually The Architect
Client - Designer - Contractor
Suitable For Projects:
with long lead time available
where specialist designer is not required
building type is simple
Contractor will construct & Designer will supervise on behalf of the Client
Advantages & Disadvantages

Clear demarcation between designer & construct functions.
Parties are clear about their mechanics.
Well & truly tested.
Risks are relatively low.
Modified method (remeasurement)allows flexibility with partially design, thus,
overlapping for design & construction.
Brief usually sketchy.
Design, tendering & construction virtually done sequentially
1. Open tender An oral talk or written document between the Engineer and the Contractor
for certain small jobs to be performed. Sometimes it is advertised.
Open Tendering: An open tendering process is an invitation to tender by public advertisement.
There are no restrictions placed on who can submit a tender, however, suppliers are required to
submit all required information and are evaluated against the stated selection criteria.
Allows any contractor to submit a tender to an advertised project
Process
Client advertises openly in the press or the trade publications inviting contractors
to apply for the project
Contractor that is able to under take the project would request a tender document
After receiving the tender from the architect, the contractor may be required to
give a deposit and to ensure a bona fide tender. This is done to filter out the
contractors who are not interested in submitting a tender.
Note:
Tenders are costly and time consuming overheads on successful tendering will be passed
on to the client.
When assessing tenders the client will probably look for a cheap option or the best tender
if quality is wanted
Client could also refuse all of the applicants if they dont suit the job.
Open tender
Bidding process that is open to all qualified bidders
Tender usually published in the newspaper and internet
Chosen on the basis of price and quality.
This is most effective way of obtaining many competitive rates.
Advantages
Any contractor can tender their work
No favoritism occurred
maximum competition
No commitment to tender, all tender received will be genuine.
Disadvantages
Client must bear expensive cost of tendering
The wrong contractor may be chosen because they are from unknown background
Time consuming
Open competition is an arrangement where an advertisement in local newspapers or trade
journals invites contractors to apply for tender documents.
A deposit is usually required to ensure that only serious offers are made; presumably it is
needed to cover the cost of copying the documents. Local authorities have been advised against
open tendering because it often leads to excessive tender lists where the cost of abortive
tendering is considerable. There are instances of selection criteria being applied after the tender
has been submitted, so a bid could be rejected if a contractor does not belong to an approved
trade association, for example, after he has submitted his tender. They argue that this method
allows new contractors to join the market and increases the chance of gaining a low price.
Regional and national contractors avoid this method because they can see no reason to
compete against anyone who asks to be included on the tender list and later be subjected to the
further hurdle of contract compliance clauses.
information.
Open tender
Advantages
Disadvantages
industry.
work.
Open Tenders:
In this procedure, the Tenderer is invited by public advertisement and through e-tendering
websites. Then the Tenderer has to demonstrate in his tender, his skills, resources, experience,
strength and financial capacity to execute the project. This method is widely used for small
projects (Karim, 2009). Due to open invitation for a large number of competitors, this process
proves to be advantageous in attracting a most economical bid. However, the administration
costs of floating such a tender are comparatively high and sometimes the most economical bid
is received from Contractors who do not have proven track record, thereby increasing the risk to
the successful completion of project.
Traditional Procurement Method
This is a common method that has been usually used in construction industry. Traditional
method is a procurement method that the design work will separate from construction. The
developer or client would appoint an architect to complete the design and produce
specifications of the building. The consultant team is appointed to take control of design and
cost. Upon the completion of the design, client will appoint a main contractor to carry out the
works through bidding. The contractor prepares the tender documents base on the
specifications and drawings or the bill. The lowest tenderer usually will be awarded the contract.
The contractor need to take responsibility to all the workmanship and materials which including
all works by the sub-contractors.
Based on the chart that had been shown above, the client has contractual relationship with all
parties. In this way, the client would have the closer control of the works. However, this may
bring risks in control of works of the project since the client need to deal with many points of
responsibility.
Firstly, client will appoint a consultant team which included architect, quantity surveyor and
engineers to come out with the drawings and specifications of the building. The quantity
surveyor in the consultant team will come out with the bills of quantity base on the drawings
that have been provided by the architect and engineer.
The employer appoints the contractor team to be in charge of the construction works only.
Therefore, the contractor team does not need to take responsibility for the design works. Then,
the contractor may appoint other subcontractor to undertake specialize works.
Advantages of Traditional Method
Traditional method usually come out with high quality works since the client has the closer
control to the works. For example, the consultant team must provide a design which meet the
requirements of the client. Besides, due to the advices and construction expertise that provide
by the consultant and contractor, client may compare and consider which design and budget is
more suitable for the project.
In traditional method, all tenderers produce a tender base on the same information. Therefore,
client may obtain the best or lowest price through competitive tendering. Besides, the
construction cost will be more accurate since the tender is bases on the complete design and
specifications.
If compare with other procurement method, traditional method will be easier to be adopted. It
is because this method had been commonly used for a long time, so, both contractor and
consultant team are familiar to solve or face the risks during the procurement state of a
construction progress.
Disadvantages of Traditional Method
For traditional method, client may hard to manage the project since he need to communicate
with few parties at the same time. For example, the consultant and contractor do not have
contractual relationship, hence, if they need to communicate with each other, they must
communicate with the client first, which is very inconvenience. There may be
miscommunication since the client need to communicate with so many organization too.
Traditional method requires longer period to complete the project. It is because the tender will
be provided after the design is fully completed. Furthermore, if problems occur, consultant and
contractor may shirk the responsibility to each other. The argument and problems may need a
long time to be settled.
Procurement Methods
Common procurement methods what uses in construction market are explained below.
6.2.1. Traditional
Traditional method can be define, the Employer hires the Contractor to deliver a required scope
of works for a fixed price lump sum. And the responsibility for the design and the consultant
team is suggested by the Client. Figure 6.2.1.1 shows the contractual procedure of traditional
procurement method.
Contractual Procedure in Traditional Procurement Method

6.2.1.1.Advantages
pletely pre designed and specified
6.2.1.2.Disadvantages
time from inception through to completion
This procurement method most suitable for: All clients, including inexperienced clients, Complex
projects and Quality design development. And not suitable for fast track construction.
6.3.1. Design and Build
This type of procurement stands, Contractor provides a completed building to an established
cost and programme. Responsibility for design and construction should take by contractor.
Following three types of design and build preparations,
-led design,
-led design and
design and build options.
In this method the major threat is, Client doesnt specify clear requirement of the project and
contractors will use their own way to complete the project. This can be cheapest procurement
method rather than others. This procurement method is most suitable for fast track
construction and not suitable for complex buildings. . Figure 6.3.1.1 shows the contractual
procedure of design and build procurement method.
Contractual Procedure in Design & Build Procurement Method
6.3.1.1.Advantages
ty (contractor responsible for everything)
6.3.1.2.Disadvantages
ther he is getting his value of money
-versa
6.4.1. Management Contracting

6.4.1.1.Management Contracting
Most widely this procurement is a fast track approach where some components of construction
procedure starts before completing the design of the project. Management Contractor is
providing charge of complete project comprising the design and build ability in return of a fee.
Here the management Contractor assigns individual sub-contractor to be work done by dividing
work packages.
6.4.1.2.Construction Management
Mostly similar to the Management contracting but here sub-contractor assign by the client
directly.
Figure 6.4.1.1 shows the contractual procedure of Management Contracting procurement
method.
Contractual Procedure in Management Contracting Procurement Method
And there are so many procurement method in business market since above three procurement
are most famous rather than others. For an information following procurements little likely in
the industry
ment Fee
For this task, the client want a laboratory complex in city center and he is inexperienced with
procurement also. Even the data says the project should be technically complex. As Quantity
Surveyor author can suggest Traditional Procurement system to carry out the work successfully.
Traditional procurement always deals with the complex project as laboratory projects. Client
can certain about the cost. Design and all specification must be ready before commencing the
work. Though the traditional procurement is the perfect procurement for above required
project
Construction Procurement
Basically construction procurement system mentions to the procedure of obtaining or acquiring
property or goods or services, and starts with the willpower of a necessity for a service or
property and finishes with the completion & closeout of a contract (Palaneeswaran,
Kumaraswamy and Ng 2003). An organizational structure which organizes particular authorities
and responsibilities to participants and describes the connection of the various components in
the construction projects
Types of Construction Procurement Systems
Categorization of Construction Procurement Arrangements
Separated System
Separated system also knows as Traditional System, in this approach, the procurement
traditional structure is viewed as a progressive method due to the employer. He takes his
arrangement to an advanced phase with his expert team before assigning a contractor. The
designer is hired to guide the employer/client. The designer will design and make sure that the
project is kept within the budget and fulfills the required standards. A QS can be engaged to
provide supervision on design costs and budgets, preparation of BOQ, tender evaluation,
preparation of interim valuations and advising on the variation values. The contract amount
generally relies on a BOQ issued by the QS that calculates, so far as possible, each and every
part of the works. Consultant structural and services engineers may be hired by the employers
advisors or directly by the employer to design the special components of the project. The
contractor only has responsibility for construction and not for design. (Semus Cooley Quantity
Surveyors 2007).
Relationship of Parties for Separated System
There are three major contracts under this procurement such; Lump Sum Contract,
Measurement Contract and Cost Reimbursement Contract, which illustrated below:
1. Lump Sum Contract: - Here the contract amount/price is decided before starting the
construction, and the price / amount is stated in the agreement. The contracts with quantities
are priced according to firm bills of quantities and drawings. The contracts without quantities
are estimated according to drawings and other documents (Rodriguez 2014).
2. Measurement Contract: - Here the contract amount/price is accurately recognized on

accomplishment and after re-measurement to do few on agreed basis. It provides a smaller
amount risk to client perhaps based on drawings, schedule of rates and rough quantities
(Designing Buildings 2014).
3. Cost Reimbursement Contract: - It is also known as cost plus contract, here contractor can
reimbursed the actual costs they gain in carrying out the works, plus an extra fee. Contract
amount/price is arrived based on actual costs of manpower, material and plant, to which is
added a fee to cover profit and overheads. The amount/costs for which the contractor is
permitted to be reimbursed should be set out in the contract very clearly (Designing Buildings
2014).
Advantages and disadvantages of Separated System are illustrated in the Table No.03
Advantages and Disadvantages of Separated System
Integrated System
Integrated system also knows as Design and Build, in this approach, main contractor is
appointed to design and construct the works. The main contractor may possibly use their own
internal designers to design, the construction project or they can hire design consultants or the
client's design consultants can be hired by the main contractor to finish the project design. If the
contractor is employed at the inception of the construction project, so which they can
contribute their support to the improvement of the design from the commencement, they can
be employed through a two (2) phase procedure. In the initial phase, the contractor is carefully
chosen on the basis of a fee, preliminaries, profit and overhead. Then they work with the design
team, who might be hired either by the employer/client or by the contractor at this phase to
improve the design, on the basis of that a fixed amount is negotiated for the second phase;
construction, when the design team may substitute a new contract for an old one to the main
contractor if the main contractor does not already hire them. (Designing Buildings, 2014)
Relationship of Parties for Integrated System

Advantages and Disadvantages of Integrated System
Management Oriented Systems

Management Oriented Systems which provide great importance of the management and the
combination of the design and construction of projects. Under this procurement system, the
management function from the design and construction of a project is contracted out to a
contractor who perform as a management consultant in support of the employer/client. The
construction itself is particularly made to many subcontractors or experts who enter into a
contract with the employer/ client or management contractor. This procurement method was
presented, based upon the outset which a contractor has more proficiency to manage and
control the design part and construction part of a project. As a management consultant, the
hired contractor does not itself, carry out the design part or construction part of the project. Its
key obligation is to manage the design and construction by the design consultants and the
several expert contractors, respectively (Anon 2010). This procurement system is recommended
for large scale and complex construction projects.
Organization Structure for Management Contract
Organization Structure for Construction Management

Advantages and Disadvantages of Management Oriented Systems
Two-Stage Tendering #
Greater demand may mean return to two-stage tendering
Single stage tendering = lowest cost (lump sum or prime cost)
Two stage tendering:
First stage select preferred Contractor
Competitive tender with some information preliminary costs, programme, OHP, agree
construction contract terms
Collaborate with preferred Contractor on pre-construction services on prime cost/lump sum
basis
Preferred Contractor tenders long-lead subcontracts, build up fixed price, programme and
cost plan
Second stage finalise contract terms, finalise fixed price
Usually bespoke but some standard forms
Traditional Contract
The traditional procurement system remains by far the most popular method, followed by
design and build.
In the traditional approach, the client must engage consultants such as Architect, Engineers and
Quantity Surveyor to design the project. Those consultants design must meet the client's budget
and satisfied by client. Once it is not meet client's budget the Architect and Engineers need to
redesign the project and the Quantity Surveyor must recalculate the cost of the project.
After the designed was satisfied by client and met client's budget, client, Architect or Quantity
Surveyor will call tender to give contractors to price and bid for the tender. Client will base on
the most suitable price that priced by contractors to make decision, which contractor will be the
successful tenderer for the project.
The price is not always the lowest but is the most suitable price for the project. Factors to
choose a successful tenderer other than price, the contractor must have reputation, pass
projects, good financial strength, skills and the contractor cannot have too many projects in
hand.
The successful contractor must follow the contract drawings and specifications to start the
construction work. Contractor also must responsible for his workmanship and material,
including work by sub-contractors and suppliers. Any defects, design errors or generated
misuse, the contractor has to use his own money to repair or settle the problems.
Advantages
The benefits of traditional procurement for clients include:
A tried and test method of procurement which the market is very familiar with. This method of
contracting remains popular and in its favor it can be said that most employers and contractors
would have experience of it.
It is also thought that this route offers some price certainty if the design has been fully scoped
out prior to construction and gives the employer greater control of the design as the employer
controls the design team. Since client can control everything through using the traditional
procurement method, contractors have no chances to adjust the project prices to become
higher than the normal prices. Logically, this procurement system is very fair for client to get
lower cost because all the competitors (contractors) must apply the price to the projects base
on the bill of quantity that calculate by quantity surveyor.
In the early stage of this system, client may require more money to pay those consultants,
which helped client design the project. However, this giving client a guarantee to get the good
price to complete the project due to all the designs, drawings and specifications are fully
developed and described in detail before contractors start to bidding for the tender.
By using this procurement method, the roles and responsibilities of consultants and contractors
are well defined and understood to avoid conflict and dispute.
Correspondingly, traditional procurement method can come out with a construction project,
which is high quality controlled compare with other methods. This method gives a lot of
advantages to the client to compare the consultant designs, to decide which design suits his or
her budget as well as to manage the projects. The quality of the project is well controlled by the
consultants due to giving professional advice and construction expertise between consultants
and contractors. Using this method can give client and consultants more time to check and
develop the design, drawings and specifications to create a better tender document.
Disadvantages
The disadvantages of traditional procurement for clients include:
This type of procurement can be a timely process to produce the full contract documentation
prior to tendering. Tender documents from an incomplete design can be produced but can lead
to less cost and time certainty and may lead to disputes.
The major drawback is the overall project duration may be longer than other procurement
methods due to the design and budget must meet and satisfy by the clients. Additionally, the
strategy is sequential and construction cannot be commenced prior to the completion of the
design.
Traditional procurement has often been criticized for its inability to integrate the separate
design and construction functions and impossibility of the contractor becoming involved
sufficiently early in the procurement process to make any significant contribution. There is no
input into the design or planning of the project by the contractor, as they are not appointed
during the design stage. This can, and unfortunately often does, lead to disputes about whether
defects are really design defects for which the employer is responsible or defects in materials
and workmanship for which the contractor is responsible.
Also, it may be too cumbersome for the client to coordinate with the various consultants such
as architects, service engineers, structural engineers, quantity surveyors and so on.
The other major disadvantage of this route is that the final design is often not fully developed
before construction starts and this can create problems and price uncertainty.
Design and Build Contract

A design and build contract is a contractual arrangement whereby the contractor offers to
design and build a construction project for a contract sum which is inclusive of both the design
and construction costs.
The design and build contractual arrangement is an attractive option for clients. It simplifies the
contractual links between the parties to the main contract because the contractor accepts
responsibility for both design and construction. The client instead of approaching an architect
for a design service, chooses to go directly to the contractor for a complete design and build
service.
In design and build procurement, the client may choose to retain the services of an architect
and quantity surveyor to act as independent professional advisers for the client to provide
essential advice in terms of cost, time and quality, and also to assess the building contractor's
proposals with regards to both design and cost, and to monitor the work on site.
Valuations for payments on account will be made by the employer's quantity surveyor and he
will value any variations requested by the employer and negotiate them with the design and
build contractor.
A design and build contractor may commission design and cost services from outside design and
cost consultants such as an architect or quantity surveyor, or he can employ an in-house design
team from within his own contracting organization.
* Research has suggested that design and build contractors organise their activities in three
different ways (Rowlinson, 1987):
I. Pure design and build - here, the contractor strives for a complete and self- contained
approach where all the necessary design and construction expertise resides within one
organisation that has sufficient resources to complete any task that arises. In such
organisations, all aspects of design and construction have the capacity to be highly integrated.
II. Integrated design and build - in this form, a core of designers and project managers exists
within the organisation, but this type of contractor is prepared to buy in design expertise
whenever necessary. Although more effort is needed to integrate the internal and external
members of the design and build team, in-house project managers are employed to co-ordinate
these functions.
III. Fragmented design and build - many contractors, both large and small, and including
national builders, operate a fragmented approach to design and build projects, whereby
external design consultants are appointed and co-ordinated by in-house project managers
whose other main task is to take and refine client briefs. Under this regime, many of the
integration and co-ordination problems of traditional approach are likely to manifest
themselves along with some role ambiguity among
the professions as they come to terms with the builder as leader of the design and construction
team.
Advantages
The benefits of design and build contracts for clients include:
The single point of the contract between the client and the contractor means that the client has
the advantage of dealing with one single organisation that is responsible for all aspects of the
project. Accordingly, the need to commit resources and time to contracting with designers and
contractors separately is significantly reduced.
Apart from this, the prices which reflect more closely the final cost to the client which provided
that the client's requirements are accurately specified, certainty of final project costs can be
achieved and this cost is usually less than when using other types of procurement systems.
The use of integrated procurement systems enables design and construction to be overlapped
and should result in improved communications being established between client and
contractor. These two characteristics enable shorter overall project periods to be achieved and
project management efficiency to be improved.
This strategy also enables an integrated contractor contribution to the design and project
planning. Design and build provides the necessary multi-disciplinary approach and integration
because it forms designer-contractor team at early stage in the process, bringing all the
participants onto the same side.
Disadvantages
The disadvantages of design and build contracts for clients include:
Difficulties can be experienced by clients in preparing an adequate and sufficiently
comprehensive brief. As a result of insufficiently defined client's brief which does not
communicate his precise wishes to the contractor, great difficulty can be experienced in
evaluating proposals and tender submissions.
The client is required to commit to a concept design at an early stage and often before the
detailed designs is completed.
Furthermore, the absence of a bill of quantities makes the valuations of variations extremely
difficult and restricts the freedom of clients to make changes to the design of the project during
the post-contract period. Bids are difficult to compare since each design will be different, the
project programme will vary between bidders and prices for the project will be different for
each different design.
Nowadays, there are relatively fewer firms offer the design and build service so there is less real
competition. The performance of design and build contractors is subject to considerable
variation dependent upon whether they are pure, integrated or fragmented organisations.
Although well-designed and aesthetically pleasing buildings can be obtained using this method,
the client's control over this aspect of the project is less than when using other methods of
procurement.
Management Contract
Management contracting is an approach where the management contractor is appointed early
in the process to manage the work through works contractors, and those works contractors are
contractually accountable to the management contractor.
The client normally engages the management contractor to have them advice on the design,
program and buildability in the project at an early stage and because of this the management
contractor is normally an experienced contractor.
The overall design is the responsibility of the client's consultants, but a management contractor
is normally responsible for defining packages of work and then for managing the carrying out of
those work packages through separate trades or works contracts. Management contractor will
obtain tenders for the works which are awarded on a competitive lump sum basis, firm price
contract from them.
A management contractor is not employed to undertake the work but is employed to manage
the process. All the work is subcontracted to works contractors who are directly employed by
the management contractor. The client usually needs to be given the opportunity to approve
the terms and conditions of the trades or works contracts before the packages are
subcontracted.
A management contractor can be appointed through a tender process to obtain competitive
fees or by negotiation.
Advantages
Management contracting procurement method benefits the client as the client deals with only
single point of contact and responsibility, which is management contractor firm, thus such
convenience allows good coordination and collaboration among client, designers and
contractor. Roles, risks and responsibilities for all parties are clear. This brings to the breakdown
of the traditional adversarial barriers because the management contractor is part of the team
since early stage and involve in discussion during design stage. Consequently, less confrontation
will occur.
Next, management contracting also benefits the project process in terms of quality and time.
The percentage of having quality or design risk is low because there is a close link between
client, designers and constructors. Furthermore, there is higher buildability potential and
programming input from the management contractor who acts as a consultant at the same
time. Meanwhile, management contracting allows flexibility for changes in design. The design
can be adjusted as construction proceeds, without sacrificing cost control. Late changes can as
well be easily accommodated. On the other hand, the time risk is also lower as the total
construction duration is a consequence of package selection. This means, there is potential for
time saving for the overall project as design and construction activities are overlapped,
concurrent work is inherent.
Disadvantages
However, management contracting has its limitation in term of construction cost. There is poor
certainty of price as the actual cost is unknown until the last work package is let. Cost increases
can be extensive, and there is often a tendency for the initial cost plan to be adjusted upwards.
In addition, it relies on a good project team. In this respect, informed and proactive client is
required. A good quality brief to the design team by the client is required as the design will not
be completed until resources have been committed to the project. Nevertheless, client still loses
direct control of design quality which is influenced by the management contractor. Hence, this
procurement method depends upon a high degree of confidence and trust.
Tendering
After a client has selected an appropriate procurement strategy for his building project, the next
stage will be a review of how best to obtain the resources that will be necessary for him to have
the work carried out. In most instances, client organizations will have limited skills and
resources relating to construction work and they will have to rely on others to provide the
necessary services, expertise and resources, designers, engineers, surveyors and contractors.
The client will therefore need to identify and contact suitable personnel or organizations to
assist him with his project, and agree with them the scope and nature of their work or the
resources to be supplied and the basis of payment.
This will be achieved through a process of tendering. Tendering is the process by which bids are
invited from interested contractors to carry out specific packages of construction work. It should
adopt and observe the key values of fairness, clarity, simplicity and accountability, as well as
reinforce the idea that the apportionment of risk to the party best placed to assess and manage
it is fundamental to the success of a project.
Tendering is an important stage of the building project, as the decisions taken at this point will
help to determine the quality and caliber of people and organizations involved in the building
process and the price to be paid for their services. 20
Open Tender
Open tender is by far the most commonly used procurement method. It is a one staged
procedure in which any interested supplier may submit a quotation in response to publication of
an invitation to tender. Thus, the contracting authority does by no means try to limit the
number of tenders. Open tendering requirements call for the company to advertise locally, have
unbiased and coherent technical specifications, have objective evaluation measures, be open to
all qualified bidders, and be granted to the least cost provider without contract negotiations.
Invitations to tenders are usually advertised in newspaper, official websites of developers and e-
procurement service online. The advertisement would include pertinent details such as type of
work, requirements to tender as well as details of submission comprise of time, date and place
of submission.
Then contractors who wish to tender shall respond to the advertisement to collect the tender
document whereby they are also required to pay the tender document fee. In general,
contractors are required to submit tender deposit or tender bond that is used as a security
required by client against the risk of the successful bidder failing to enter into the contract when
the client obtains tenders for a contract. Contractors then return the completed tender by the
stipulated date and time.
Upon tender opening, the client and consultants will record the tender price of each tenderer.
Tenderers are then evaluated by consultants and report has to be prepared and submitted to
client, justifying the reason of recommended tender. The client will then decide which tender to
award, the contractor with the best price and meeting all the technical requirements will win
the tender. 21
Advantages
Open tendering is the conventional method of tendering. All tenderers are familiar with the
process thus it creates the greatest competition and benefits client in selecting the best tender
with best price and work performance.
While every contractor who is eligible can participate and tender for the work, open tendering
avoids work being restricted to the same old contractors. It gives other suitably qualified
contractors or emerging suppliers an opportunity to secure work, which may be beneficial,
especially if they are more efficient or have lower overheads.
Additionally, it gives freedom to contractors out there to decide whether they want to
participate and tender for the project. There is no obligation to tender therefore tenders
received will be genuine.
Disadvantages
However, this tendering method is certainly more costly. It is said to be wasteful of contractors
resources since many may spend time preparing tenders to no effect. Also, knowing their
chances of gaining the contract are small, contractors may not study the contract in detail to
work out their minimum price, but simply quote a price that will be certain to bring them a
profit if they win the contract. On the other hand, cost of tendering can be extensive due to
unanticipated number of tenderers which may be a lot, thus requiring the production of many
copies of tender documents.
Not only open tendering is wasting money, but it can be wasting time too. Open tendering has
been criticized for attracting interest from large numbers of tenderers, some of whom may be
entirely unsuitable for the contract and as a result it can waste a great deal of time and effort
during evaluation process.
Lastly, open tendering can also affect the selection of quality contractor. The lowest tender
selection may result from underpriced contractors which lead to the risk whereby the successful
tenderer may not be able to deliver what he has promised due to undercutting of prices causing
poor quality of work performance. 22
Selective Tendering
Selective tendering may be either single or two stages, depending on whether the full benefits
of competition are desired (in which case single-stage tendering is used) or whether limited
competition plus earlier commencement of the works on site is considered advantageous (using
two-stage tendering).
-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
maintained by the client (as many public authorities do), or may be specially chosen. In the
latter case the contractors may be invited, through suitably worded advertisements in the press,
to apply to be considered for inclusion in the tender list. This gives the client the opportunity to
exclude any firms thought to be unsuitable, and to limit the number of tenderers. At the same
time, it gives any firm the opportunity to apply to be considered.
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.
-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 bringing 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. 23
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 contractors
participation during the second stage.
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 consultation 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 contract 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 arrangements for the signing of a contract. 24
Advantages
experience, are financially sound, and have the resources and skills to do the work, which
provide a high quality of workmanship as well as reduce the risk of failure. Thus, with selective
tendering in either one or two stages, a limited number of organizations are invited to tender
after some form of pre-selection or pre-qualification has taken place. In this case, award to the
lowest conforming tender is not such a high-risk strategy.
Apart from this, since only half a dozen or so contractors are selected, each contractor knows he
has a reasonable chance of gaining the contract and therefore has a great incentive to study the
tender documents thoroughly and put forward his keenest price to win the tender.
Selective tendering will also provide a shorter tender period as there is no need for the
consultants to evaluate the tenders. As a matter of fact, the tender evaluation is only based on
the price, which mean the contractor is awarded the job with the lowest tender price.
The cost of tendering is reduced, supposedly resulting in lower prices in the market place.
Economic use of resources and reduced tender documentation can result in lower tendering
cost. As the number of tenderers reduced, hence requiring the production of many copies of
tender documents also reduced.
Disadvantage
A problem with selective tendering is that a contractors circumstances can change after he has
submitted his tender. He can make losses on other contracts, which affect his financial stability
or may be so successful at tendering that he does not have enough skilled staff or men to deal
with all the work he wins. Neither method of tendering nor any other means of procuring works
can therefore guarantee avoidance of troubles.
In addition, contractors who do not want the work may bid high rather than declining to bid.
They will do this in order to avoid getting removed from future tender or pre-qualification lists.
It should be noted that, under English Law, it is definitely illegal.
Selective tendering has a greater chance of collusion. Contractors have been known to collude,
which forms a cartel in order to keep prices high. Alternatively, contractors may use a slate
system to divide up the contracts amongst themselves. For example, there is an 25
agreement between tenderers as to who should be the successful tenderer, any meeting of
tenderers to discuss the tenders prior to submission of the tenders, exchange of information
between tenderers about their tenders prior to awarding of a contract or commission. Thus, as
part of a selective tendering process, tenderers may be required to complete a Declaration of
Non-Collusion. This is intended to prevent corruption in the tender process by requiring a
declaration from the tenderer that they have not colluded with any other party in the
preparation of their tender.
Tendering period tends to be longer in selective tendering because it involved two distinct
stages. Going through the selective tendering might take a longer tendering process because
the contractors need to go through the qualification stage as well as pre-qualification stage
before the actual tender. The consultant also require to go through every detail of the
contractor firms such as the background, financial statement, past project performances and so
on in order to make sure that only eligible contractors are qualified to tender the project.
Selective tendering can results in favoritisms that may occur in the short listing. A short list of
contractors is usually drawn up by use of the pre-qualification process. However, the shortlist
can also be selected by the clients tendering team based on their experience of the
contractors past performances. This method is more favoured by the private sector. This will
result in an unfair and discriminatory manner for the other contractors that fail in tendering the
project. For example, the client may choose the second lowest tender price instead of the
lowest tender price because the contractor that provides the second lowest tender price has
worked in the previous project with the client. 26
Negotiated tendering occurs when the client approaches a single contractor based on their track
It is used when the client has a preference for a particular firm, often because it has done
satisfactory work for him before. Negotiating with a single contractor may be appropriate for
highly specialist contracts where there may be a limited number of potential contractors, or for
extending the scope of an existing contract.
One should be fairly certain, however, that a worthwhile benefit would 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 pricing 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 contractors senior estimators
and the surveyor (either a partner, associate 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 surveyors will meet to negotiate the unpicked ones. When
agreement on the whole is reached, a contract will be entered into between the client and the
contractor 27
Advantage
Best alternatives for the employer to adopt are special circumstances such as emergencies,
security reasons and when there is a very tight deadline of a particular project. Thus, a
based on previous satisfactory working together by the employer and the contractor.
When invited to tender, the contractor submits his prices, and if there are any queries these are
Negotiated tendering reduces the risk of failure as reputable contractor with proven experience
engaged. It also can give the client the confidence of working with a contractor they already
know, which can reduce the duration, costs of tendering and can allow early contractor
involvement. It eliminates from attracting tenders from a large number of contractors. Some of
who may entirely unsuitable for the contract and as a result it can waste a great deal of time,
effort as well as money.
Other than that, this tendering method allows early commencement of work on site. It shortens
the period involved in appointing the contractor. The client can have the direct approach to the
known acceptable firm and such tender mainly used for specialist work such as lift system or
airport project at big level, in such case there are limited number of contractor who do such
work in the market. It is based on one-to-one discussion with contractors to negotiate the terms
of contract, which result in shorter tender period.
Apart from this, the contractor works as part of the team and may provide practical assistance
and construction knowledge that can influence detailed design. The contractor will look for a
design to be buildable which may sound obvious, but it is surprising how often designers do
not put enough thought into the practicalities of working on a restricted site.
have a particular contribution. Specialists as lift engineers, kitchen specialists, door and window
fabricators, ironworkers, landscape gardeners and so on can all help with ideas and advice to
help produce a good result.
Disadvantage
relationships to develop between the client and the contractor. Even in the absence of formal
collusion, oligopolies are less likely to respond to open tenders with highly competitive quotes.
Instead, they may frame their bids based on their knowledge of their competitors likely
responses. This strategy tends to generate higher prices than those likely to be obtained in a
fully competitive market. Obviously, if only one firm tenders for a job, competition is eliminated
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.
Furthermore, the basis for the promotion of innovation is not primarily formed in the selection
of a negotiated tender, but in the work on defining and verifying the need and in preparing the
specification and award criteria.
Negotiated tendering may not be permitted by some organizations due to the perceived lack of
accountability and integrity. One of the main reasons why direct negotiations are misused is
that they are convenient. Agreeing to direct negotiations can avoid the expense and trouble of
placing advertisements, preparing evaluation criteria and a panel and generating
correspondence. Similarly, if staffs responsible for contracting are under-resourced or under
pressure to meet deadlines, the temptation to take short cuts is increased. Time pressure due to
poor planning is not a valid reason for entering into direct negotiations. For instance, order
splitting is a short cut to direct negotiations that improperly avoids the competitive process. This
involves dividing a transaction into smaller components with a view to keeping the value below
thresholds that, under agency policy, require additional bids. While order splitting is usually
indicative of a rushed process or inadequate planning, in some cases it may be driven by a
corrupt motive.
Additionally, negotiated tendering normally requires longer time period to negotiate before
award of tender. The risk here is that at a later stage in the project, the client may question
whether or not value for money has been achieved in the absence of competition. Also if the
negotiation between the client and contractor has a chance to be deadlock or prove eventually
unsuccessful, this causes wastage of valuable resources on both sides and loss of time for the
employer, thereby delaying the overall selection of suitable contractor.
1.6 Types of Contracts
1.6.1 Measured or Unit rate Contract
In this type of contract, the price is computed by multiplying quantities of work executed by the
unit rate offered by the contractor in his tender. The rates are usually set out in the Bill of
Quantities
(BOQ).
Such contracts often used where there are significant changes in the quantities or working
conditions.
So, when there are certain reasonable differences of the quantities accepted by all the parties,
then the contract can be paid for by multiplying the actual measured quantities by the unit
rates.
Advantages:
1. Suitability: This type of contract is widely used in the execution of large projects financed by
public bodies or governments. It also suits the works which can be split into separate items and
the quantity of each item could be estimated with reasonable accuracy.
2. The employer pays for the actual work executed.
3. The contractor usually allows for a certain margin of variation, with a clear mechanism for
valuation of such variations.
4. The engineer / employer has liberty to provide some drawings during the execution of the
project, after award.
Disadvantages:
l. The employer cannot be absolutely sure of the total cost of the project until the whole work is
completed. In case the quantities in the BOQ are inaccurate or roughly approximated, the value
of the work may vary considerably. The contractor may try to offer an unbalanced tender on the
basis of his anticipation of the uncertainty of quantities of certain items.
2. Both the engineer and the contractor have to do considerable computations and book-
keeping during the progress of work.
3. Extra works or varied items of work are often a source of conflict. The contractor may press
for higher rates than he would have tendered for in the beginning.
6
1.6.2 Lumpsum contract
In a lumpsum contract, the contractor agrees to carry out the entire work as indicated in the
drawings and described in the specifications, for a specified fixed lumpsum amount.
Sometimes, the contract makes provisions to adjust the lump sum allowing for extra work and
limited variations.
Normally, a bill of quantities is not usually included, and if included it does not form part of the
"Contract Documents", but may be used just for guidance.
Instead, a schedule of rates may be of value to evaluate the cost of extras or omissions.
Advantages:
l. From the employer's stand point, and if no extras are contemplated, the tender sum tells him
the exact cost of the project. Sometimes the employer will be working within a tight margin of
budget.
2. From the contractor's stand point, because the design will often be prepared by him, the
contractor can gain through proper planning and efficient management to increase his margin
of profit and/or to control timing.
3. Both parties need less number of staff for book- accounting and measurement.
Disadvantages:
l. In lumpsum contracts, there should be a complete set of plans and specifications, or what is
called
"Employer's Requirements" which should be sufficiently detailed.
2. Variations in lumpsum contract may trigger conflicts about whether or not a particular item
of work falls within the agreed scope of work, and whether there has been a variation to such
scope.
3. This type of contract will not be suitable for works with scope and nature that cannot be
predicted accurately in advance. The outcome will be unfair for the contractor to assume all
risks and uncertainties, or for the employer to pay a higher cost.
1.6.3 Cost-plus contract
This type of contract differs from both the measured and the lumpsum contract in that the
employer agrees to pay the contractor for the actual cost of the work plus an agreed percentage
of this actual cost to cover overhead and profit.
The contractor agrees to execute the works based on the drawings and specifications and any
other information that will be provided to him from time to time during progress of the works.
The percentage to be paid should not be applied on the costs of salaries of the contractors
staff, whether on-site or off-site.
Advantages:
1. Early completion of the work - The work can be started even before the design and estimates
are prepared. Decisions can be taken speedily, and flexibility allows adoption of alternates for
construction to suit the Employer's Requirements.7
2. The quality of the work can be assured. The contractor is induced to perform the work in the
best interest of the employer.
3. No conflicts will be anticipated as to extras or omissions.
Disadvantages:
1. The final cost to the employer cannot be foretold.
2. Both parties have to do a lot of accounting and book-keeping regarding labour; purchase of
materials and plant and use of equipment.
3. The contractor has no incentive to economize or finish the work speedily.
Suitability:
In spite of some drawbacks in certain cases, this form of contract can be used suitably for:
a- Emergency works that require speedy construction and where no time is available to prepare
drawings for it.
b- Construction of special or expensive projects, such as palaces, where the cost of the work is
of no consequence but the materials and workmanship to be purchased are just to suit the
choice and taste of the employer.
Remark:
An alternate to the cost-plus contract is the cost-plus fixed fee contract, where the contractor
will be paid for the actual cost of construction plus a fixed amount of fees for his overhead and
profit. The fee does not fluctuate with the actual cost of the project. This factor may overcome
the possible drawback of the cost-plus contract.
1.6.4 Construction Management Contract (C.M.)
In this type of contract, the employer engages a specialized construction manager (C.M.) to
provide administrative service for him and manage the work on his behalf. The (C.M.) has full
control on
(Cost and Time), on the budget and programming, and is usually paid on a staff-reimbursement
basis.
The (C.M.) assists in choosing the design consultant and the various contractors for a project
divided into packages (structural, finishes, electro-mechanical, etc.).
The technical role is kept with the design-professional, but as to control, coordination,
certification and dispute resolution, the (C.M.) normally possesses the major role.
CONTRACT
For a CONTRACT to be valid, there must be an offer from the owner in the form of tender
notice to get some specified work to be executed and there must be an acceptance from
the contractor to execute the work, both the offer and the acceptance must be definite
and legal.

Classification of Contracts
1. Lump-sum contract
In this system, the contractor undertakes the execution of a specific work for a
definite lump-sum amount within a specified time period. On completion of the work, it is
checked as per drawings and specifications and if approved the amount is paid to the
contractor.
The quantities of various items is not measured.
For decorative works this system is adopted.
Advantages
Low risk on the owner, Higher risk to the contractor
Cost known at the beginning
Contractor selection is easy.
Disadvantages
in this it is essential that the work be accurately and completely shown on the drawings in
the specifications and the full information about the site condition should be available
otherwise it will leads to disputes.
Contractor is free to use the lowest cost of material equipment, methods.
Difficulty arises in making any intermediate payment.
2. Cost plus a fixed percentage contract
3. Cost plus a fixed fee contract
In this system a fixed fee is given as contractors profit irrespective of the
total cost of work. This is to control the tendency of the contractor to increase the cost of
the project unnecessarily.
Smaller the completion time more is the profit and hence the contractors hurry to
complete the work and the quality of workmanship is not maintained.
This system is not generally used
4. Percentage rate contract
In this system the contractors are required to quote single percentage either higher or lower at
which he wants to execute the job. Here scrutiny of the tenders become easier and as cement
and steel is usually supplied by the department chances of manipulation is less. This the most
commonly adopted system of contract in the different departments of our state.
5. Item rate contract

Here the contractor gets the payment depending on the rate at which he has quoted
every item of the work. It was rather difficult to scrutinize the tenders submitted by various
bidders and the system was hence modified and now the department quotes the items of work
along with their quantities and the bidders are required to quote the percentages at which he
can execute the various items.
Advantages
Early start is possible.
Saves the heavy cost of preparing many bills of quantities by the contractors.
Fair basis for competition.
In comparing with lump-sum contract, changes in contract documents can be made
easily by the owner.
Lower risk for contractor.
Disadvantages
Final cost not known from the beginning (BOQ only is estimated)
Staff needed to measure the finished quantities and report on the units.
6. Turn-key contract
In this system all the works related to a project including designing, planning,
execution etc. are to be done by the contractor. Once the project is completed it is handed over
to the owner. The owner has to complete the transaction works and occupy the structure by
simply turning the key, ie. opening the door.
7. Cost plus sliding scale of fees contract

In this type of contract the contractor is paid by the owner the actual cost of
construction plus an amount of fee inversely variable according to the increase or
decrease of the estimated cost agreed first by both parties. thus the higher the actual
cost, lower will be the value of fee and vice versa.
Advantages: in this case the contractor shall not try to increase the actual cost. The actual
cost is lower and lower so both the owner and the contractor will be benefited.
Disadvantages: estimated cost should be accurate. Other wise the contractor get profit if
the actual cost is much higher than the estimated cost.
8. Negotiated contracts
When the work is awarded on contract by mutual negotiation between the
parties with out call of tenders, it is said to be negotiated contract.
Type of contracts according to the following factors

1) Procurement type
a)Traditional method
b)Design and build
c)Management contracting
2) Payment type
a)cost plus percentage fee
b)cost plus fixed fee
c)target cost
Cost reimbursement contract
A cost-plus contract, also termed a cost reimbursement contract, is a contract where a
contractor is paid for all of its allowed expenses to a set limit plus additional payment to allow
for a profit
Cost plus percentage contract
Cost plus percentage of cost pay a fee that rises as the contractor's cost rise. Because this
contract type provides no incentive for the contractor to control costs it is rarely utilized
Cost-plus-fixed-fee contract
A cost-plus-fixed-fee contract is a cost-reimbursement contract that provides for payment to
the contractor of a negotiated fee that is fixed at the inception of the contract. The fixed fee
does not vary with actual cost, but may be adjusted as a result of changes in the work to be
performed under the contract.

Method of Contractor Selection

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Method of Contractor Selection

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Method of Contractor Selection

_ Contractors are invited through an announcement in public media.

1. Design & Build Method

eproject&willsubmitabid,which will incorporate design &

2019 june 01.

Open tendering of construction works

_ The lowest bid contractor may fail to complete the project.

Selective tendering for design & build

Stage 1: Selection of the most preferable or appropriate contract procurement method.

Stage 2: Development of tender list

1.6 Types of Contracts

1.6.2 Lumpsum contract

TENDERING METHODS IN CONSTRUCTION

Selective Tendering Methods in Construction:

Bid Bond Receipt of Tenders Letter of Award

3 Methods of Tendering available to Contractors.

TENDERING METHODS IN CONSTRUCTION

Selective Tendering Methods in Construction:

2.2 Types of tendering

_ Contractors are invited through an announcement in public media.

Keen competition amongst the bidders is generated.

The two-stage tendering approach is useful for:

The preferred contractor may fail to negotiate with competitive prices.

Advantages & Disadvantages

Traditional Procurement Method

Advantages of Traditional Method

Disadvantages of Traditional Method

Contractual Procedure in Traditional Procurement Method

ty (contractor responsible for everything)

ther he is getting his value of money

6.4.1. Management Contracting

Contractual Procedure in Management Contracting Procurement Method

Types of Construction Procurement Systems

Categorization of Construction Procurement Arrangements

2. Measurement Contract: - Here the contract amount/price is accurately recognized on

Advantages and Disadvantages of Separated System

Relationship of Parties for Integrated System

Management Oriented Systems

Organization Structure for Construction Management

Design and Build Contract

5. Item rate contract

7. Cost plus sliding scale of fees contract

Type of contracts according to the following factors

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