Hong Kong Institute of Vocational Education CON4126 - Building Procurement and Contract Administration

Department of Construction

Chapter 4 – Tendering Procedures

4.1 Introduction
The selection of a contractor to carry out a construction project requires careful thought.
An inappropriate contractor may lead to miserable client-contractor relationships,
dissatisfied clients and even, possibly, insolvent contractors. No contractor is suitable for
all types of jobs. In practice, each contracting organisation is geared to engaging in a
particular nature and scale of a project and may be less efficient in contracts with
different natures or in projects which are beyond their capabilities.

Currently, a great portion of work carried out in the construction industry is secured
through the process of tendering which is intended to be an unbiased means of selecting
a contractor. The methods of tendering commonly used are open competitive tendering,
selective competitive tendering and nomination. Sometimes you will see a combination
of both. The tendering procedures vary widely depending on whether the client is public
or private. The criteria for contractor selection are determined by the client through an
evaluation of the client’s needs for their particular project.

4.2 Open Tendering

According to the guidelines as given in the Tender Procedures for Government
Procurement, governmental departments should normally adopt open tendering for
invitation of tenders. Notice of tender invitations are published in the Government
Gazette and, if necessary, in the local press, as well as on the internet and in selected
overseas journals for the particular trade. All interested contractors are free to submit
their tenders. However, because of certain expertise required for construction, most
public works are not bided by open tendering. On an equal footing, private sector clients
generally avoid open tendering.

The main characteristics of open tendering are given below.

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Advantages
 There will be no accusation of favouritism as might be brought where a selected
list is drawn up (this is a special concern of the Government who tends to use
open tendering more than other clients).

 A capable firm, which might not be included in the selected list as drawn up by a
professional adviser, can be provided with an opportunity to submit a tender.

 This method of tendering has the benefit of attracting a number of tenders;

therefore, the prices obtained are usually very competitive.

 There is no obligation to tender so all tenders received will be genuine.

Disadvantages
 Cost of tendering is expensive to the client who must bear the cost of
reproducing multiple copies of drawings, bills of quantities, and so on.

 The total cost for tendering the job is high as all the tenderers will have to recoup
their costs eventually through those tenders which have been successful. The
higher the proportion of unsuccessful tenders the higher the cost to be recovered
on the job.

4.3 Selective Tendering

For public works, a number of government departments such as ASD, Drainage Services
Department and Highways Department procure their services through selective
tendering where only contractors on approved lists are invited to submit tenders
(Appendix 3). These lists are on the website of the Development Bureau. There are five
categories of public works (building, port works, roads & drainage, site formation and
waterworks). In addition, contractors are classified into Groups A, B, C or P depending
on their relevant experience and financial status. The value of works which each group
of approved contractors can tender is as follows:

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Group A Contracts of value up to HK$30 million

Group B Contracts of value up to HK$75 million
Group C Contracts of any values exceeding $75 million
Group P Probationary status in the category indicated

There is also a long list of approved specialist contractors who do air-conditioning

installation, ground investigation field work, landscaping and road marking. They are
further divided into classes and groups in terms of work nature and size of the projects
they are able to undertake. For example, under landscaping, Class I signifies general
landscape work and Class II for hydroseeding, Group I is for contracts up to $2.3
million but there is an unlimited value for Group 2 contractors.

Selective tendering is mainly used by clients in the private sector to invite contractors to
submit their bids for a specific project. Under this procedure, a short list of contractors is
drawn up who are considered to be suitable to carry out the proposed project. This is by
far the most common arrangement because it allows price to be the major deciding
criterion, other selection factors being dealt with at the pre-qualification stage. Pre-
qualification involves assessment of a contractor’s ability and competence to undertake
the work. Once qualification has taken place, the assumption is that all those selected are
competent to undertake the work. Certainly, both private and public sectors may use of
this formula to select the most appropriate contractor.

The preparation of the list of tenderers is a very crucial decision affecting the choice of a
competent contractor and ultimately the quality of the construction project.

When selecting a short list of tenderers, clients should consider their:

 General experience and reputation in Hong Kong
 Recent experience in the type of construction to be undertaken
 Financial stability and records
 Availability to take on the project, considering their current workload
 Management and company structures - their adequacy for the type of contract
envisaged
 Genuine interest in submitting a competitive tender

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The names of competitive contractors can be selected from an approved list or a “panel”
maintained by the client. Where the employer has built up an approved list of
contractors, this should be reviewed on a regular basis to exclude firms that have
performed unsatisfactorily or become unsuitable. Appropriate contractors will then
replace those that were deleted.

Normally, five to eight contractors would be invited to tender depending on the size of
the contract. A larger number of tenderers is generally not recommended, considering
the high cost involved in preparing the tender by the contractors. Once a list of tenderers
has been confirmed, one or two additional construction firms should be considered as
substitutes for any firms on the list that may decline.

Advantages
 Only capable and approved firms submit tenders.
 It tends to reduce the aggregate cost of tendering.

This controls the number and suitability of contractors on the list and hence reduces
wasted resources in abortive tendering.

Disadvantage
Due to less competition and the higher calibre of the tenderers, the price of the submitted
tenders will generally be higher.

4.4 Nomination
This is sometimes referred to as single tendering and is, in effect, a subset of selective
tendering where there is only one contractor included in the short list. It is used when
the client has a preference for a particular firm, often because of his previous
satisfactory performance. Obviously, if only one firm tenders for a job, competition is
eliminated and this will almost inevitably lead to a higher price. The client may think
that it is worth paying more in return for a quicker job or for better quality than he might
get otherwise. One should be fairly certain that a worthwhile benefit will accrue before
advising a client to nominate rather than go out for competitive tender.

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After a contractor is nominated, the contract sum will be arrived at by a process of

negotiation. Sometimes, when a large project is to be carried out in successive phases, a
combination of selective tendering and nomination will be employed. This is sometimes
called serial tendering. The contractor is chosen for the first phase by means of selective
competitive tendering. The accepted tender forms the basis of payment for the resulting
contract in the normal way. The tender is also used for the second and later phases,
provision being made for doing so in the initial contract by the inclusion of a formula for
updating the prices. Alternatively, the contract for the first phase of the project may
specify that the negotiation of new rates should be based upon the tendered prices, and
as the means of determining the payment for each successive phase in the project.

The main purpose of serial tendering is to gain the benefits of continuity. The contractor
for the first phase of the project has set up his site organisation, offices, mess, storage
huts, plant and equipment, which are already in use on the site. Hence, when the second
phase commences, all necessary facilities are readily available. This facilitates a smooth
transition from one construction site to another and less expense than if a different
contractor was to be employed. In addition, the contractor’s workforce will be familiar
with the details of the construction after building the first phase. It should lead to greater
cooperation between the designer and the contractor during the construction period and
will typically work more quickly and efficiently on the second and subsequent stages.
Where an early start on site is required, this clearly offers distinct advantages.

Design and build contractors can be appointed either by negotiation or in competition.

With those projects requiring particular expertise, such as the construction of hospitals
and universities, tenderers are sometimes limited to certain contractors, and appraisal of
potential competitors should be made before tendering. In some instances, no
competition of tender is obtained and direct negotiation is used.

For government projects, single tendering is strictly used in a number of situations, such
as when there is extreme urgency brought about by unforeseeable events, or where there
is no response to open or selective tender, or where it can be demonstrated that “patent”
or “proprietary” items are the only items which can meet the specification and where
services are to be provided by utility companies.

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4.5 Tendering Procedures

4.5.1 Preliminary Enquiry

About one month before sending out tender documents, it is recommended that a
preliminary enquiry letter be sent to all of the invited firms to ascertain if they are
willing to submit a bona fide tender.

This avoids a situation where some contractors decline to tender or submit a “cover
price” (a price high enough to be well above the lowest tender) when they really do not
want the job.

Sufficient information about the project should be given in the preliminary enquiry letter
to enable each contractor to decide whether he is in a position to comply and, if so,
whether he would, in view of his other commitments, be able to carry out the contract if
it is awarded to him.

4.5.2 Period for Preparation of Tenders

The quality of the returned tenders is often said to depend on the length of time given to
contractors to prepare their tenders and the completeness of tender documents. It is
important that tenderers are given sufficient time to make all necessary enquiries from
suppliers, sub-traders, etc. Hence, the date for the return of tender should be fixed with
evaluation of the amount of work likely to be involved in preparing a tender of a
particular project - taking into account the complexity of the project and the extent of
the subcontracting anticipated. For tender based on drawings and specification, time
should be allowed for contractors to calculate the quantities of labour and material
which will be required to build the project.

In formal competitive bid situations, the issuance of the tender notice opens the
tendering period. Apart from the day as specified, tenderers should also pay attention to
the time (often noon) which indicates the latest time for tenders to be received.

Where a tenderer considers that any of the tender documents are deficient in any way
and requires clarification, he should - as soon as possible - notify the architect, with a
copy to the quantity surveyor in practice.
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4.5.3 Parity of Tendering

It is of paramount importance that all tenders should be based on the same information.
Consequently, all the tender documents must be identical.

Not frequently, a tenderer will telephone the architect or PQS about an item in the bills
of quantities or a Clause in the specification. He may question the accuracy of some
quantities stated in the bill or perhaps he has been told by a supplier that a specified
material is no longer available. Such queries must, of course, be answered and dealt with
promptly. Whatever reply given to the enquirer, provided that it adds to or varies in any
way from the information given in the tender documents, must be communicated to all
tenderers.

Communication should be done immediately via telephone and then confirmed in

writing. The same procedure should be followed if any error is found in the bills,
specifications or other tender documents, or if it is decided to extend the time for the
receipt of tenders. Whenever there are changes that are issued as addenda to the bidding
documents, a copy of the addenda should be mailed to each tenderer. Tenderers should
be asked to confirm the receipt of every written communication about additional or
varied information.

If a contractor considers the period as unreasonably short, he should raise the matter
with the architect during the tender period. If it is decided to extend the construction
period, then all tenderers must be informed, as this may well affect their tender sum.

4.5.4 Qualifications
Most tenders state that no qualification of the tenderer or of the tender documents nor
unauthorized alteration or erasure to the text of the tender documents shall be permitted.

In some cases a tenderer may wish to price for an alternative material which he can
obtain more cheaply than the one as stated in the specification. Or he may want to adopt
an alternative form, method or order of construction because of the greater efficiency he
envisaged. The procedures which he should adopt in such a case is to price the tender
documents as printed and to submit, in an accompanying letter or other suitable form,

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details of the alternative material or form of construction with the consequential effect
on his tender sum.

4.5.5 Pre-tender Meeting

Sometimes a pre-tender meeting will be held with contractors, either collectively or
individually. At this meeting, the critical aspects of the project will be explained to the
contractors - the way the job will be organized and controlled, the client’s requirements,
the programme, the general design and construction with particular reference to any
usual features (special construction techniques, services requirements and so on). The
aim should be to draw the attention of the contractors to anything which at first sight is
not obvious in the documents, but will have a significant effect on the contractor’s cost
or programme. It is in everyone’s interest that all contractors tendering for the job have
full knowledge of the facts.

4.5.6 Opening Tenders

Tenders are normally returnable to the architect (sometimes to the PQS). A formal
procedure for opening tenders should be followed so as to eliminate any suspicion of
irregularities.

Tenderers must submit their tenders and deposit them into the prescribed tender box
before the tender closing date and time as stipulated in the tender notices. Where a
tender is received after the stipulated date and time, it is generally advisable to reject it
since there is a possibility that the tenderer may be aware of the amounts of some
tenders before submitting his own.

No tender must be opened before the latest time for submission (specially-marked
envelopes supplied with the tender documents are intended to eliminate accidental
opening). There can then be no possibility of the architect or PQS communicating with
tenderers about the bids. As little time as reasonably possible should be allowed to
elapse before opening tenders. They should all be opened at the same time, preferably in
the presence of the architect and PQS and also the client, if he wishes. A tender register
will record the main details of each tender with reference number, client, price, tender
date and an analysis of performance in relation to the competition.

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4.5.7 Reporting on Tenders

Following the opening, a tender evaluation should be undertaken. A tender report should
be prepared by the QS with input from the architect and engineer. Typical considerations
of a tender report include:

 Date tenders received

 Tenders received
- Tenderers’ names
- Tender Sums Ratios
 Scope of tenders
- Works tendered for
- Provisional sums
- Prime cost sums
- Provisional quantities and dayworks schedule
 Type of tenders
 Tender validity period
 Tender addenda, if any
 Tender submissions
 Arithmetic errors
 Comparison of tenders in the form of appendices
- By trades and by sections
- List of major rates
 Examination of tenders with comments on individual tenders
- Tender sum
- Priority
- Arithmetic error
- Technical submissions
- Qualifications, if any
- General price levels
- Items with unreasonably low rates
- Items with unreasonably high rates
- Items incorrectly priced
- Unpriced items or items without specific prices quoted
- Technical merits
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- Capabilities
- Past performance
- Items requiring further clarification
- Conclusion
 Reconciliation with estimate
 Conclusion and recommendation
 Total building or project cost based on the recommended tender
 Tender validity period

Most of the above items are self-explanatory, whilst a number of items are worth further
explanation as follows:

Arithmetic Errors
A reason for the examination of tender details is to reveal whether an arithmetical error
of such a magnitude has occurred that it would not be wise to hold the contractor
because he would then be working at a much reduced profit (assuming the tender sum
was too low). If such an error were in the contractor’s favour, then it would be unfair for
the client to have to pay more than the job was worth.

Arithmetic errors may occur in the item extensions (i.e. the multiplication of the
quantities by the unit rates), in the totalling of a page, in the transfer of page totals to
collections or summaries, etc. Most tender documents indicate that errors in the tender
due to mistakes or misinterpretation in the Tender Documents will been rectified in the
prescribed manner. In fact, each tender may indicate different correction rules for tender
errors. For public works, errors or omissions found in the tender during tender
examination are dealt with in accordance with the principles and rules contained in the
Environment, Transport and Works Bureau Technical Circular No. 41/2002.

For example, if one, or more, pages of the Bills of Quantities is found missing, the rates
for all items on the missing page(s) shall be marked as zero and the costs shall be
deemed to have been allowed for in rates entered elsewhere. Where no extension
amount and no rate has been made against any item or quantity in the Bills of Quantities,
it shall also be deemed that the cost of the item or quantity has been allowed for in rates
entered elsewhere in the Bills of Quantities and again the rate should be marked as zero.
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Qualifications
If a tenderer has an unfair advantage over the others, or is qualified in any way which
makes the comparison with other tenderers unreasonable, then that tenderer should be
given the opportunity to withdraw the qualification without amending the tender sum. If
the contractor is unwilling to do so, his tender should be rejected. It is desirable that the
number of variables in tenders should be reduced as far as possible so that they are more
easily comparable.

Items with Unreasonably High and Low Rates

The PQS, when examining the bills of quantities, the schedule of rates, and so on will
look for any anomalies or peculiarities. The issues which the PQS should look at when
examining bills or schedule of rates include:

A patent error that will sometimes occur in the transition from cube to superficial
measurement, or from superficial measurement to linear, the estimator continuing to use
the basic cube rate for the superficial items, or the basic superficial rate for the linear
items. Should apparent under-pricing is found, the architect may query this in writing
with the tenderer.

A contractor may price the excavation, concrete work and brickwork sections of the job
(those sections which will be largely completed in the earlier construction period) at
inflated prices, balancing these with low rates in the finishings sections. The objective of
the contractor is to secure higher payments in the early valuations, thus improving his
cash flow. However, this bidding strategy would tend to work against the client’s best
interest, particularly if the contractor was to go into liquidation before the contract was
completed and could also indicate a less stable financial situation than previously
thought.

Items Incorrectly Priced

In addition, identical items in different sections of the bills may have been priced
differently without there being any good reason. These differences usually arise because
the estimator has not remembered that an identical item has occurred before or, he has
not bothered to refer to the rate he had been previously used.

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In addition, errors may occur in the item extensions, such as in the multiplication of the
quantities by unit rates. If an offer is accepted, a legally binding contract exists. The
contractor cannot then request a change of any of his rates or prices. However, since the
amount of a lump sum tender is built up from various component parts, any errors in the
bills of quantities or schedules of rates need to be identified and satisfactorily dealt with.
Otherwise, problems will almost certainly arise during the course of the contract and in
the settlement of the final account.

For example, consider that an error occurred in a bill when multiplying the quantity of
an item by the unit rate. An incorrect amount is shown for that item (concrete grade
30/20: quantity = 100m3 and unit rate is 1200/m3 but the amount is shown as
HK$180,000). If this error was not corrected and the item subsequently was affected by
a variation order, halving the quantity for instance, what should be done (revised
quantity = 50m3)? Should the total amount of this item be halved (HK$90,000) or should
the PQS omit half the quantity at the unit rate shown in the returned bill (50m3 x
HK$1200/m3 = HK$60,000)? The latter course of action could result in the omission of
an amount (HK$60,000 – HK$180,000) which is greater than the incorrect total for the
item. To avoid such difficulties, errors should be found and dealt with in a satisfactory
manner. The circular suggests either to amend the total amount or to amend the unit rate,
but in no case will the alteration of both unit rate and the total be permitted.

Unpriced Items or Items Without Specific Prices Quoted

Sometimes, a tenderer will not price most, or any, of the “preliminaries,” which have
actually been absorbed into some or all of the measured rates. This might create
difficulty should any adjustment of the value of preliminaries become necessary.
Another situation is where, an item which one would normally expect to be priced has
not been priced at all. Should examination of a tender reveal any error, discrepancy,
omission or apparent under-pricing, the architect may send a written query to the
tenderer.

Reconciliation with Estimate

If all the tenders greatly exceed the estimate, an explanation must be given for possible
reasons. Was there, after the preparation of the estimates, an increase in the size of the
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project or an increase in wage and material rates? Was there an alteration in the standard
of work required? Perhaps an extensive period of time elapsed between the preparation
of estimates and the drawings or between the preparation of drawings and instructions to
proceed to tender. Did the contractor have a general lack of interest? They may have had
an excess of projects already or no real interest in the type of work proposed.

Conclusion and Recommendation

The purpose of the report is to enable the client to decide whether to accept any of the
tenders and, if so, which one. In addition to the analysis from QS, the architect and the
engineer also comment on the technical aspects of each tenderer. Some tenders may
indicate marking schemes for the evaluation of tenderers. For public works, technical
assessment and assessment of the price proposals should be carried out by separate
teams which should not communicate with each other until after completion of their
assessment. Assessment panels will apply pre-determined weighting given to the overall
technical assessment and the price proposal. For example, tender will be evaluated in
accordance with the formula approach set out below.

𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝 𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚 𝑎𝑎𝑎𝑎ℎ𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖

W1 ∗ + 𝑊𝑊2 ∗
𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑟𝑟 ′ 𝑠𝑠 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝 ℎ𝑖𝑖𝑖𝑖ℎ𝑒𝑒𝑒𝑒𝑒𝑒 𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚

W1*lowest price: tenderer’s price + W2*marks achieved highest marks

W1: price weighting; W2: technical weighting

In normal circumstances, the contractor with the highest overall score should be
recommended.

It should be remembered that whilst it is made clear in tendering document that the
client does not bind himself to accept the lowest or any tender, contractors naturally
expect that there will be sound reasons for rejecting the lowest tender. The PQS must
therefore be able to give good reasons why a tender is not accepted. The reasons are
usually that the contractor does not have the necessary technical, managerial, financial
capability or integrity to perform the work.
A sample of tender report is given in Appendix 4.

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4.5.8 Notifying Tenders

Having thoroughly checked the tenders, and made an in-depth comparison, the quantity
surveyor will report back to the architect, and a tender report, with a recommendation
stating which tender should be accepted, will be sent to the client. During the period of
open tender, the employer should have either accepted a tender or rejected all tenders, or
alternately, should have accepted a tender subject to modifications to be agreed upon.

A tender list should be drawn up and sent to all tenderers as soon as possible after the
meeting at which the tenders were opened. By doing so, each contractor can know
whether his tender is successful or not and thus be better able to judge his future
commitments and know how to respond to any other invitations to tender.

The tender list should contain all the tenderers’ names arranged in alphabetical order and
all the tender sums in ascending order. Each will be able to identify the position of his
own tender in relation to the lowest. However, it should not disclose the corresponding
tender sums submitted by each tender. At the same time, all except the lowest three
tenderers, should be informed that their tenders have not been successful.

For government projects, the procuring departments are required to provide feedback to
unsuccessful bidders to help improve their competitive performance in future bidding
exercises. The following information, where applicable, is disclosed:
 Winning bid price
 Overall quality score of the winning bid
 Highest score attained for each quality attribute in the exercise
 The bidder’s own overall quality score and score for each quality attribute

A sample letter to unsuccessful bidders is given in Appendix 5.

End of Chapter 4

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