#017 Procurement and Tendering (PART 1) 💼
Updated: Oct 18, 2021
In this post I'm going to go through the Procurement and Tendering competency. Full disclosure at this point - my practical experience with this competency is limited therefore I may not be able to provide comprehensive understanding for each and every point. I've recently started working on a new commission where I will be undertaking some procurement activities, so I may come back and edit this post again!
The below refers to some notes I have made after attending APC lectures about this competency, along with some of my own research.
So what is Procurement and Tendering all about?
The RICS QS pathway guide describes it as follows:
This competency covers how a project is structured and delivered in terms of risk allocation and contractual relationships and how tendering processes are used to establish a contract price. Candidates should have a clear understanding of the different types of procurement and tendering commonly used and the advantages and disadvantages of each to the parties involved. They should have a detailed working knowledge of the procurement routes and tendering procedures used on their projects.
Level 1 of this competency is about the following:
Demonstrate knowledge and understanding of the main types of procurement. Demonstrate knowledge and understanding of the tendering and negotiation processes involved in procurement.
DISCLAIMER: the following is not an exhaustive set of notes, but it's an attempt to help those who, like me at the beginning, did not know where to start! Please feel free to let me know if I have said anything incorrect or out of date!
The main types of procurement used in both the public and private sectors, both nationally and internationally
In general, there are four main types of procurement route:
Design and Build
Some text books may describe sub-variants of the above, but the general principles tend to be the same. I know our friends across the pond in America have some specialist procurement strategies … my lack of knowledge in that regard means it won't be covered here.
Traditional: This is where the design of a proposed asset is completed by the client (through their design team) prior to going out to the market for tendering.
Design and Build: This is where the client initially has a basic set of requirements, but the final design and construction completed by the contractor. There are three variants of this:
Pure Design and Build
Halfway House - A balanced approach
Design and Dump
Management Contracting: Here the Employer engages a design team who produces a outline/brief design. A tendering process is started to select a management contractor who tenders on the basis of preliminaries and fees. When the contract is signed with the Management Contractor (MC), it splits the works into packages. Each package is designed by the clients design team, and tendered to the market by the MC. The packages are designed on an on-going basis, this allows three activities to happen together (i.e. design, tender and construction). Theoretically, this means there should be an early start, and early finish.
Construction Management: The Construction Manager (CM) is a consultant who is appointed in the same way that the other client consultants (design team) is appointed. There is no initial design produced, but the CM splits the works in basic packages (generally trade order packages). These are then designed by the client team and the tender process is managed by the CM (on behalf of the client). The package is designed and let in such way that continues until completion, which allows the project to be completed quicker.
The difference between this route and the previous is that the work package sub-contractors here are in a contract with the client rather than the Construction Manager, which means that if the work package sub-contractors fail to perform, the client will suffer the consequences.
Tendering and Negotiation processes involved in procurement
People often confuse procurement and tendering, they are not the same thing but they are related. Procurement is the route to obtaining your desired asset/product/partner, but tendering is the mechanism.
For example you could have Traditional Procurement route, but decide to use a Single Stage Tendering route, or a Serial Tender, both of which have different characteristics and uses. We will go through them below. There are 6 main types of tendering routes:
Single Stage Selective Tenders
Two Stage Selective Tenders
Open Tenders: This is where anyone in the market 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 equal opportunity to any organisation wishing to submit a tender. Once the advert is out, an expression of interest is made by prospective tenderer(s). After this a Pre-qualification stage filters out the large group of interested parties into a smaller number. Those who pass the pre-qualification stage then get an Invitation to Tender (ITT).
Single Stage: With this mechanism, there is technically no expression of interest, an Invitation to Tender may follow the completion of a pre-qualification process (in response to an initial sift by the client).
Two Stage: This variant is used to allow the early appointment of a contractor, prior to the completion of all the information required to enable them to offer a competitive fixed price.
1st Stage - A limited amount of design information is produced. This is then tendered along with:
Overhead and Profit (OHP)
Pre Construction Service Agreement (PCSA) fee
The successful tenderer in this 1st stage will move on to the next step.
2nd Stage: The project is split into different packages, each package is designed and tendered for separately. The employer's design team produces the design, the successful tenderer provides a price for each work package. This continues until there is a fixed lump sum price at the end.
Negotiated Tendering: This where the employer has a preference of contractor (most likely due to a previous working relationship or because the contractor is a 1-of-1 specialist).
Serial Tendering: This is a form of strategic partnering. Tenderers are asked to bid for a project on the basis that if perform well, other (similar) projects of a similar type will follow and the same rates will be used. This variant tends to be used for repetitive works.
Framework Tendering: This is used for clients that are continuously commissioning construction work and might want to reduce their procurement timescales (think of large public sector bodies who are responsible for assets like railways and roads, Although private companies do use frameworks too). Frameworks allow clients to invite tenders from suppliers of goods or services over a period of time on a call-off basis, as and when required. Framework contracts should clearly define the scope of works during a defined time period. One or more suppliers are then selected and appointed. When specific works arise, the client is able to select a suitable framework supplier and instruct them to start work.
Ancillary processes such as partnering and framework agreements
I've discussed framework agreements in the section above as this it was taught to me as a form of tendering process.
Partnering is an interesting one because in my view it seems to be quite an abstract, theoretical mechanism which is being promoted in the construction industry. If you do a quick google search you will find many similar definitions, but I think the most simple variant to understand is as follows:
A long-term commitment by two or more organizations for the purpose of achieving specific business objectives by maximising the effectiveness of each participant’s resources. This requires changing traditional relationships to a shared culture without regard to organization boundaries. The relationship is based upon trust, dedication to common goals, and an understanding of each other’s individual expectations and values. Expected benefits include improved efficiency and cost-effectiveness, increased opportunity for innovation, and the continuous improvement of quality products and services. - Construction Industry Institute (1991)
I found it quite difficult to actually source some live case studies of Partnering in construction (if you know of any please let me know).
Nevertheless here are some good sources of info for Partnering:
Building Partnerships: case studies of client-contractor collaboration in the UK construction industry - Mike Bresnen and Nick Marshall (2000)
Codes of practice and procedures commonly used
There are several codes of practice/procedure which are commonly used to implement a procurement and tendering exercise. I am aware of:
JCT Practice Note 2017; and
BS8534 - which is the British Standard for Construction procurement policies, strategies and procedures - Code of Practice.
Many of you will have access to the above through your organisation's internal library or through university access. JCT PN17 is easy enough to read through and it gives you an idea of what a robust procurement and tendering exercise should look like.
In a future post I will go through the tendering process i.e. what happens from when an advert is placed to when a contractor is selected.
That's it for now - if you have any queries on the above please let me know!