11th April, 2020
Competitive tendering is the most common method of procurement in the construction industry. The supplier or contractor makes a bid in response to an invitation to tender from a client. This bid can include written questions and quotation of cost to complete the works. Most of the time the client will choose the lowest tender price to carry out the works on their project. The reason a client competitively tenders a project is to ‘test the market’ and get themselves the best contractor in terms of quality and price to construct their project.
Competitive Tendering can be stressful for a supplier or contractor, as well as time consuming. To further complicate things most contractors will be bidding on several tenders at once, which means they are overworked and unable to give some tenders their full attention or quality. However, there are a variety of things they can do the lessen the stress and become more effective competitive tendering.
Tendering can be a very time consuming and costly process for a business. A business can also receive a vast number of tenders at any one time, so it is important to have a detailed review of each tender. It is important that once the invitation to tender is received from the client that the contractor closely examines the information and decide if they think they can genuinely win the job. It is important for the contractor to consider how the project is being constructed and whether or not they have experience in building similar projects. For example, if the contractor has only ever built housing then it may not be a good idea to price a 4-storey office block for example, especially if they are tendering against another contractor that only constructs offices.
Another example of where a contractor may feel they cannot win is when one of the companies tendering for the project has a long-standing relationship with the client. If the client is a large-scale developer and they use the same contractor for all their developments, if they are competitively tendering a project it is likely that this means it is only a negotiating tool to use with their regular contractor, so in this instance a contractor may decide not to submit a tender.
As eluded to in the previous point, if a contractor agrees to tender for the project it is important to analyse all the information in great detail. Attention to detail is often forgotten about as contractors are very busy pricing multiple jobs, and it’s simply a case of get a job priced as quickly as possibly and sent to the client and move onto the next tender.
However, what many contractors don’t realise is that spending longer and closer analysing the drawings and details the contractor can gain a competitive advantage on their fellow tenderers who are simply racing through the tender as fast as possible. This competitive advantage could arise in from reading notes on drawings, establishing potential cost savings, noticing mistakes in the information, taking account of provisional sums and exclusions etc.
Minimising tendering costs is crucial in the event of not winning the project. Contractors must tender at their own cost, i.e. only the winning tenderer will ever receive any money from the client. Contractors can speed up the tendering process by using software to take off and estimate the project which can keep costs to a minimum. These systems allow the contractor to keep a bank of rates to save them having to re-build rates for every project, massively speeding the process up. The positive also being the less time a contractor’s estimator spends preparing a tender the more tenders he is able to prepare each week, month and year.
Another way a contractor can reduce the time they spend tendering is to simply pass the costs of tendering to the sub-contractors to price individual packages. This passes the actual measurement and estimating down to them, meaning they are also in need of easy to use take-off and estimating software to minimise their tendering costs. The main contractor simply reviews their tender and adds their own profit margin to each package and submits all packages as a price to the client.
Whilst the contractor is part of a competitive tendering process for the overall project, they should be sending individual trades out to 2 or 3 sub-contractors for prices. This means they can select the cheapest sub-contractor price and therefore will have a cheaper tender figure as a result. This is also competitive tendering and is good practice for a contractor to get specialists to price trades. This will also save the main contractor money and time in the tendering process.
The sub-contractor will then carry out the same measurement and estimating that a main contractor would and submit their tender to the main contractor. The main contractor would then add their profit mark up, combine the package into a total price with all other packages and submit as part of the tender bid to the client.
This tip goes without saying. If a contractor quotes too little, they will win the job and be laboured with a project that’s losing them money, and they are left in a situation where they are trying to claw back losses. If they quote too much, they will not win the job and will have wasted valuable time, effort, resources and money tendering for the work. Using a take off and cost estimating software can greatly increase the chances of winning a competitive tender as the on-screen measurement and estimating software improves the accuracy of the quotation and can remove almost all patent errors in a tender.
Note: the importance of setting a realistic profit margin for a market. In a specific location there are often only a certain number of sub-contractors who will all be pricing work at the same level for different main contractors, if a main contractor or that sub-contractor decides to charge 30% profit instead of a 20% profit margin another contractor is charging this is instantly a 10% difference in their tender figure.
This is the most common tip which is completely overlooked by a contractor when they are unsuccessful in tendering process. They are allowed to ask for feedback on why they were unsuccessful, and this provides the best source of data to continue to improve their tenders going forward. Perhaps the quality of the bid was poor, meaning maybe a professional bid writer is all the company needs to start winning work. Or perhaps a rate has been logged incorrectly in the estimating software which can be amended for the project so that it is not an issue. Feedback allows the contractor to identify and rectify any problems in their competitive tendering processes.
This is a contractor’s only opportunity to find out how far ahead or how far away they are from their competition, and it gives them the opportunity to improve whatever aspect is letting their tenders down.
A programme is the length of time you propose for the construction works to last and the project to be completed. This provides the contractor with another opportunity to score points in the eyes of a client who is searching for the shortest programme possible. Particularly in commercial projects, this can massively sway a tender in favour of one contractor or even take it away from the lowest tenderer. The following example best illustrates this point.
The project is a 200 bedroom hotel. Contractor A’s price is $11.5 million and they are the lowest tender figure, their programme to complete the works is 50 weeks. Contractor B’s Tender figure was $12.7 million and they were the second lowest, however their programme was only 35 weeks. A full hotel with 200 rooms at $100 a night for 15 weeks is $2.1 million in revenue. That makes the $1.2 million difference in tender seem insignificant.
Whilst this is important for tenderers to keep their programme duration to a minimum, it is Important that they aren’t unrealistic and set too short a time frame for completion. In this instance they could be liable for liquidated damages under the construction contract agreed with the client and they may have to pay the client $100 per room for every day they go over programme.
If contractors take on board these 7 tips without even considering how they measure or price their work they will improve their tenders submitted to clients making them more likely to win work.