FACULTY OF ENGINEERING

DEPARTMENT OF CIVIL ENGINEERING

2015-2016 FALL SEMESTER

CIVL 493 CONSTRUCTION MANAGEMENT

ASSOC.PROF.DR. İBRAHİM YİTMEN
COST ESTIMATING AND TENDERING
 COST ESTIMATING AND TENDERING

 Awarding contracts rely on competitive tendering

 Estimating department of contractors is important

to provide commercial success:

i) in getting the job

ii) in completing the work with estimated costs

CIVL 493 CONSTRUCTION MANAGEMENT

 Parties Involved in Estimating and Tendering
a) Client's staff or their professional representative
Contract documents are prepared including drawings, bill of quantities,
specifications etc.

b) Contractor's Personnel
i) Senior Management:
 make decisions to tender
 make decisions what tender to submit
 consider the estimate of estimator
ii) Estimators: produce estimates
iii) Planners: produces plans or programs
 pretender plans are prepared
 not detailed activities
 duration & sequence of key activities 4

 approximate resources
iv) Buyers: responsible for purchasing
 responsible for placing orders
 Finding Subcontractors
 provide quotations for materials, plant , etc.
v) Plant manager:
 responsible for company's plant departments
 supply estimators with hire rates and availability of
company owned plant.
vi) Temporary works designers:
 responsible for designs of major temporary works for
bridge, false-work, scaffolding, etc.
vii) Site management:
 responsible for execution of works on site
 agents, managers, engineers, surveyors 5

 Provide advice to estimators on methods of construction

CIVL 493 CONSTRUCTION MANAGEMENT
Parties Involved in Estimating and Tendering

c) External Organizations

 material suppliers
 plant hire companies respond quotations
 subcontractors

CIVL 493 CONSTRUCTION MANAGEMENT

 COST ESTIMATING
PROCESSES
Basic steps of estimating are:
a) Decision to tender
b) Programming the estimate
c) Collection and calculation of cost information.
d) Project study
e) Preparing the estimate
f) Site overheads
g) Estimator's report

CIVL 493 CONSTRUCTION MANAGEMENT

a) Decision to tender (Given by Senior
Management)
Decision to tender is based on such factors
i. the company's current workload, turnover and
recovery of overhead.
ii. company's financial resources
iii. availability of resources to undertake the work
iv. type of work
v. location of contract
vi. identity of client and his representative
vii. detailed examination of contract documents

CIVL 493 CONSTRUCTION MANAGEMENT

b) Programming the Estimate: (two stages)
i. collections and calculations of cost information
ii. study of the project to gain the required
appreciation.
c) Collection of Cost Information:
Cost information for labour, plant, material
subcontractors etc.
d) Project Study:
To gain an appreciation on the project by the
estimator the following tasks are undertaken.
 study of drawings
 site visits, meeting with client's representative
 preparation of a method statement to construct.
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CIVL 493 CONSTRUCTION MANAGEMENT

e) Preparing the Estimates

Estimator establishes the direct cost rates for

 labour,
 plant,
 material,
 subcontractor

exclusive of addition for

 site overhead,
 head office overhead,
 profit,
 risk.

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These will be assessed and added later.

CIVL 493 CONSTRUCTION MANAGEMENT
f) Site Overheads
Site overheads are based on requirements such as,
• site staff
• clearing site
• site transport facilities
• mechanical plant not previously included in the item rates
• scaffolding
• site accommodations
• small plant
• temporary services
• welfare, first aid, safety provisions
• final clearance and handover
• defects liability
• transport of men to site
• abnormal overtime
• risk
CIVL 493 CONSTRUCTION MANAGEMENT
g) Estimator's Reports

Estimators submit estimates to the senior management

with a report including;

 brief description of the project

 description of the method of construction
 notes of any unusual risk not covered in bill of quantities
 any contractual problems
 possible financial consequences
 notes on major assumptions made in preparation
estimates
 assessment of the profitability of the project
 any information concerning market & industrial
conditions. 12

CIVL 493 CONSTRUCTION MANAGEMENT

 TENDER ADJUSTMENTS

• Tendering adjustment is performed by a panel

formed by the staff involved in estimating and
representatives of senior management.
• The panel satisfying themselves that the estimate is
adequate.
• Addition of a "mark up" includes the allowances for:
i) risk or loss,
ii) total overhead to cover company central head office
costs and site overhead costs,
iii) profit in existing market conditions.
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CIVL 493 CONSTRUCTION MANAGEMENT

 CALLING FOR TENDER
There are three commonly practiced tendering
procedures:
– Open tendering (advertising to anyone interested )
– Selecting tendering (Pre-qualified Tendering) (approaching
several potential contractors)
– Negotiating tendering (approaching the preferred contractor).
a) Open tendering:
– Open tendering allows practically any contractor to submit a
tender for a work.
– The procedure usually involves a client (or their advisors)
placing a public advertisement in natural and for technical
press, giving a brief description of the work.
• Advantages: likely to attract the maximum number of tenders
and hence to the most competitive  
• Disadvantages: tenders may be received from contractors
who are ill- equipped to carry out the work either financially14or
technically. CIVL 493 CONSTRUCTION MANAGEMENT
 CALLING FOR OPEN TENDERING

 Publicly advertised (by press) to receive tenders

 Brief and adequate description of the proposed work
and its location is given.
 Client does not bind himself to accept the lowest or
any tender.
 Contractor pays deposit before getting tender file.
 Sometimes, selected tenders are asked (pre-
qualification).
 In this case, experiences, present labour forces,
plant, and equipment capacity of contractors are
asked.
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CIVL 493 CONSTRUCTION MANAGEMENT

 CALLING FOR TENDER (CONTINUED)

b) Selective tendering (Prequalified Tendering)

• The disadvantages of open tendering can be overcome
by selective tendering.
• Selective tendering consists of drawing up a short list of
contractors that are known to have the appropriate
qualification to carry out the work.
• Such a list is drawn up either from the experience of the
client that their advisors or from adverting for contractor
who wish to have their names including on the list.
• Those contractors who seek to be listed are then asked
for further details concerning the technical competence,
their functional standing, and the resources that they
have at their disposal and their experience.
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CIVL 493 CONSTRUCTION MANAGEMENT

CALLING FOR TENDER (CONTINUED)
c) Negotiated tendering
• Without competitive tender, an acceptable tender is
arrived at by discussion between a client, consultant
and a single contractor, without obtaining competitive
tenders from other contractors.
• The circumstances in which a negotiated tender may
be used are:
• where the magnitude of work is not fully established at
the out set
• where an early start is of great importance (jobs not
planned but argued)
• for work which is externally difficult to undertake
• Under forces conditions (such as earthquake, flood,
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war etc.) CIVL 493 CONSTRUCTION MANAGEMENT

 COMPARING TENDERS

 The engineer recommends, but the employer will

decide and act.
 Criteria is the sum of the total offered but check if
there is mistakes in arithmetic of tender.
 The tendering base is the same for all contractors.
 Interpretation of the documents is the same.
 After comparison, a short list of 3 or 4 are selected
and examined in detail.
 What activities are asked higher costs (first or last
activities, total sum could be the same)
 The engineer will not like a contractor making high
profit from same part of the work and lose from the
other. 18

CIVL 493 CONSTRUCTION MANAGEMENT

 CHOOSING A TENDER

 Having completed close check and comparison,

the engineer invites one or two of the lowest
tenderers to his office.
 Engineer investigates further about contractors to
see the proposed method of construction,
proposed program.
 Contact with referees of contractors.
 The decision is made to recommend a contractor
to the client.
 Meanwhile, the engineer will not reveal to any
contractor the prices of other contractors.
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CIVL 493 CONSTRUCTION MANAGEMENT

 Those who can't Take Part in Bidding

1. Member of bidding commission;

2. Employees linked to the bidding commission;

3. Highest ranking of civil or military officials;

4. Fathers, mothers, brothers, children, wives, husbands,

son in-law, father in-law of those given above items
1,2 and 3;

5. Those not allowed to take part in bidding (penalty).20

CIVL 493 CONSTRUCTION MANAGEMENT

DOCUMENTS THAT A BIDDER SHOULD
SUBMIT
1. Registration

2. Bonds

3. Contractorship license

4. Permission to take part in biddings

5. Documents showing that company is active

6. Signature 21

CIVL 493 CONSTRUCTION MANAGEMENT

 BONDS
There are two types of Bonds:
1) Bid bond
2) Performance bond

Bid Bonds:
• Bid bond is guarantee given by the contractor to the client
that if he wins the tender, he will sign the contract with the
client and execute the works.
• Normally, the amount of bid bond is 5 % of tender.
• If a company doesn't win, its bid bond is returned.
• However, if the company wins the contract and doesn't want
to do the work, he loses this bond.

Those accepted as bid bonds:

1) Money
2) Bank guarantee letter
3) National bond 22

4) Company shares
CIVL 493 CONSTRUCTION MANAGEMENT
Performance Bonds
• Performance bond is a guarantee given by the contractor to the client
that,
– he will execute the works according to the contract and specifications.
– the works he did will not have any defects caused from contractorship for
an agreed duration, say one year.
• Any defects occurred in this fixed duration after completion of the
project should be repaired by the contractor without asking any
money from the client.
• Performance bond is the guarantee that one year after, the contractor
will do repairing of any defects not caused by normal using of the
structure.
• The amount of performance bond is normally 10% of the contract
price.
• 5% bid bond that is already paid is transferred to performance bond.
• The rest 5% is either completed as one of the ways of bid bond or
deducted from the payment to contractor during executing the work.
• If second way is selected, 10% of every payment is cut and transferred
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to performance bondCIVLaccount.
493 CONSTRUCTION MANAGEMENT
EXAMPLE

• Offered contract price = 100,000,000 TL

• Bid bond = 100,000,000x0.05 = 5,000,000 TL
• Having awarded the project the contractor should give performance
bond equal to 10% of his offer.
• The total of performance bond = 100,000,000x0.10 = 10,000,000 TL
• The bid bond (5,000,000) is transferred as a part of performance
bond.
• The remaining part of the performance bond (5,000,000) to be
deducted from normal payments to the contractor.
• Assume that,
1.Payment = 15,000,000 TL
for Performance Bond = 15,000,000x0.10 = 1,500,000 TL
Contractor is paid 15,000,000 – 1,500,000 = 13,500,000 TL
2. Payment = 20,000,000 TL
for Performance Bond = 20,000,000x0.10 = 2,000,000 TL
Contractor is paid 20,000,000 – 2,000,000 = 18,000,000 TL
3. Payment = 20,000,000 TL
– for performance bond the amount to be deducted = (Total money to be
deducted for performance bond minus the money deducted until that
payment) = 5,000,000 - (1,500,000+2,000,000) = 1,500,000
– Therefore 3. payment = 20,000,000 -1,500,000 = 18,500,000 TL 24

CIVL 493 CONSTRUCTION MANAGEMENT

TYPES OF BIDDING

1. Closed Bidding;
• Two envelopes one inside the other are used.
• Outer envelope includes name, address and other
documents of company.
• If there is any missing document the second envelope
is not opened.
• Second envelope contains the offered price.
2. Open Bidding:
• Only one envelope that includes all the documents
and the offered price.
• It is used in small jobs.

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CIVL 493 CONSTRUCTION MANAGEMENT

TYPES OF BIDDING (CONTINUED)

3. Limited Bidding:
• A limitation to the contractor is specified.
• So those who are qualified can bid.
• Closed or open bidding method can be used.

4. Bargaining:
It is used for :
i. small, urgent job
ii. jobs that can be executed by only one company
iii. under forced condition (such as earthquake, flood,
war, etc.)
iv. jobs not planned but urgent
v. bids with no offer or offer well above of expected
value.

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CIVL 493 CONSTRUCTION MANAGEMENT