Disadvantages of open tender

1. Novice contractors- There is the probability of hiring a contractor with no experience as

this method of tendering attracts bidders.
2. The time taken for the tendering process is quite long- since several bidders bid, the
tenders submitted are quite many making it quite time consuming to go through all.
3. There is unreliable competition since open tendering is the most used tendering method
making the tendering cost generally high.
4. Risk of underpricing the tenders due to competition which might result to tenders of low
quality works with poor quality materials.

b) Selective tendering
Selective tendering is an option that has been created to address the limitations of the open tender
system. This tender seeks to improve the quality of proposals received by ensuring that
contractors with the necessary experience can submit bids.
There are two types; -
 single stage selective tendering
Initially, a limited number of contractors will be selected by the owner. If the employer
builds regularly, he will also have a short and approved list of contractors unless he can use
ad hoc lists where the names of the contractors who have proved their abilities and
competency are mentioned.
 two stage selective tendering
This is also known as, ‘negotiated tendering’. In this procedure, the employer takes the
contractor’s service as advice instead of giving him the responsibility for the design. Two-
stage selective tendering consists of two stages.
The first stage: This step includes the process of selecting a suitable contractor and
establishing the price levels using the collected information. Those details should be strong
enough to make such decisions.
The second stage: The selected contractors start the production drawings. As a result of this
stage, they complete the documentation of the contract after making bills to include in it.

Advantages of selective tendering

1. The time taken for the tendering procedure is little. Less contractors involved mean less
time spent on evaluating tender documents and better management of the tendering
process.
2. This tendering methods allows for choice of a dependable and competent contractor.
 3. The cost of tendering is lower in this type of tendering. -Less tender documents are
required to accommodate the participating contractors which lowers the expense fee. This
method also allows for the consultants to know the exact amount of copies of tender
documents to print which isn’t the case for open tendering.
4. Resource utilization is cost effective. - Less contractors involved means less time spent
on evaluating tender documents and better management of the tendering process.
5. The tender processing process is simplified and better. -The contractors participating are
all reputable contractors hence quality of materials and workmanship is standard.

Disadvantages of selective tendering

1. There is risk of bias due to less competition. - There is the likely hood of collusion and
favoritism from the contractors.
2. The amount of work available to other contractors, particularly new contractors is
reduced.
3. Compared to open tendering, the cost of tendering is almost always greater here. The
price of the project is bound to rise because it is not as competitive as there are lesser
contractors tendering for the job.

c) Negotiation tender
This type of tendering is common in the engineering and construction industry where pre-
contract and post-contract negotiations take place.
Negotiation tenders starts with the employer selecting only one contractor due to his reputation
and ability to perform. The contractor shall then proceed to directly price the Bill of Quantities.
Upon completing the pricing of the materials, the contractor will enter a negotiation stage with
the quantity surveyor for the best value for money possible. After the negotiation process,
consultants will prepare the contract documents and send it to all the parties involved in the
project. At this point construction can commence.

Advantages of negotiation tenders

1. There is quality assurance in this tendering method since a reputable contractor is
engaged.
2. The success rate is higher compared to open tenders. - The chance of the contractor
successfully completing the project is high as the contractor has the experience and
resources to do so. This cannot be said for open tendering.
3. Suitable for emergencies as its quick to prepare. - In case of an emergency, engaging a
contractor is crucial and cannot rely on the long process of an open tendering method
Disadvantages of negotiation tenders
1. The cost of the work is likely to be higher - This method prioritizes construction quality
and time but not cost. It is a method with the highest cost when compared to open
tendering and selective tendering.
2. Work for other contractors is reduced, specifically the inexperienced ones.
3. Negotiation period can take longer than anticipated when the parties don’t settle for a
price.

TENDERING PROCESS
A typical tender process on Kenya involves:
1. Project definition and scoping
2. Selection of the method of tendering to be used
3. Tender documentation
4. Development of a criteria for selection
5. Call for tender
6. Tender briefing meeting
7. Amendments to the tender document
8. Submission and closing of tender
9. Tender analysis
10. Tender clarification
11. Tender selection and award

ALTERNATIVE METHODS OF PROCUREMENT

Generally, five functions are undertaken in a project; design, building, management, finance and
operation.
A procurement system defines scope and the responsibilities of each party: Client, Consultant
and Contractor.
Although different procurement methods exist in construction industry, the following factors
should be considered for the suitable selection of a procurement method for a project:
- Complexity nature of project
- Time management
- Quality Assurance

The alternative methods of procurement are:

1. Traditional Method
Responsibility of a contractor is limited only to build.
All design works and management of contract are carried out by consultant or engineer.
Finance and operation on project shall be controlled by the client.
This method of procurement is recommended for complex and comparatively huge projects.
2. Design & Build
As name suggests, the design and build responsibilities are covered by the contractor.
The consultant’s scope is only limited to management of contract.
The client is responsible for finance and operation.
3. Management Contracting
This method of procurement system is completely different from traditional method and
design & builds method.
In addition to the client, consultant and contractor, specialized contractors become
participants.
The contractor acts as a manager for the project whereas specialized contractors undertake
the build aspect on their specialized field.
Finance and operation is carried out by the client.
This method will be chosen if there are possibilities to identify projects in packages.
4. Joint Venture/Partnering
Many of the problems that existed in construction are attributed to barriers that found
between parties of contract.
In other words, to overcome barriers, different parties establishing a working environment
based on mutual objectives, teamwork, trust and sharing risks and rewards.
The success of this setup solely depends on memorandum of understanding.
Identifying responsibilities of each party is bit difficult in joint venture procurement system.
5. Private Financing Initiative (PFI)
Contractor is solely responsible for all functions of construction.
After successful completion, project shall be transferred to owner.
This is very helpful for clients who do not have a sound financial background.
This method generally used by governments of developing countries.
NOTE:
 Generally, it is experienced that traditional method provides more quality assurance in a
complex project though it consumes more time than other methods.
Design and build method is suitable for relatively small projects in complexity whereas
management contracting can be possible if the project is identified in package basis.
Joint venture is not a very easy procurement method to adopt since it requires a lot of trust
and mutual understanding.

CHOICE OF SYSTEM
The procurement method selection procedure is determined by means of the case project based
on typical criteria.
It is determined in the following process:
1. Identification of project objectives and constrains to project objectives
2. Identify procurement selection criteria
3. Weightless of client criteria and procurement method
4. Procurement appropriateness
5. Procurement review session
Factors influencing the selection of procurement systems in the construction industry
External environment
Factors from the external environment consist of variables like market competition, information
technology, regulatory environment, natural causes and globalization, politics, finance etc.
Internal environment:
This can be divided under three main factors such as project characteristics, client’s
characteristics and client’s requirements which can be sub-divided into cost related factors, time
related factors and quality related factors.
Socio–economic thought:
It is derived from the four factors: political thought, government (public) or private segment
venture, market or monetary condition and developing innovation.
Client requirements:
This factor incorporates: customer's particular prerequisites, political obstructions, globalization
and customer's level of information.
Capital cost/cash flow:
This factor clarifies the total variation. It is hard to clarify this component, since just a single
variable impacts upon it - customer and fee related variable. If this component measures capital
cost, it is identified with factors of customer necessities variables.
Project characteristics:
This factor is obtained from variance that clarifies the total fluctuation. In particular, impact of
the life cycle on venture, range and technical complexity of the venture.
Time:
Price competition:
Responsibility:
COMPETITION IN CONSTRUCTION MARKETS
In the construction markets there exists different types of competition.
This develops the context of the marketing role by examining different market types.
This has a direct bearing on the tactics used in the marketplace and helps to show the likely
reaction of competitors to any moves a firm may make.
In order to understand the precise relationship between output, revenue and price, a firm has to
know the structure of the market or industry into which it is selling its product.

TYPES OF MARKETS
a) Perfect Competition
The perfectly competitive market acts as a benchmark from which other market situations can be
judged.
Here both buyers and sellers correctly assume that they cannot affect market price.
Characteristics of a Perfect competition
1. The product sold by firms in the industry is homogeneous. - This means that the product sold
by each firm in the industry is a perfect substitute for the product sold by every other firm. In
other words, buyers are able to choose a product from a large number of sellers in the knowledge
that it is essentially the same.
2. Any firm can enter or exit the industry without serious impediments. - Resources must also be
able to move in and out of the industry without, for example, government legislation preventing
any resource mobility.
3. There must be a large number of buyers and sellers. - When this is the case, no single buyer or
seller has any significant influence on price. Large numbers of buyers and sellers also means that
they will be acting independently.
 b) Imperfect Competition
The clients and contractors have to take into account how their individual actions will affect the
market price.