Construction Bids and Tenders Tips

Invitation to tender

When all the preliminaries are completed and the owner has decided to proceed with the work,
tenders are invited. Legally this is an attempt to check if there would be interested contractors to
carry out the work within the estimated limit of time and finance. The invitation to Tender is not
binding to the owner to proceed with the work and does not cause any liability for any expenses
to which contractors would spend in preparing and submitting their construction bids.

Information to be given in a Call for Bids Notice

The notice must be as short as possible, but conveying an adequate idea of the nature and scope
of the proposed work and all essential details.
The text of a good advertisement should at least include the following information:
Mode of submitted bids: Bidders should be asked to submit bids in sealed covers, in order to
maintain secrecy of quotations.
Form of Bid: It is advisable to get all offers in the same form to facilitate scrutiny, and
comparison
Name of the inviting authority: This helps the bidder know the persons he will have to deal
with and the co-operation he may receive, if his bid is accepted, and such may also affect his
quotation.
Nature of the work and its location: If the nature and location of work is within his operating
area, the prospective contractor will want to learn more about the job; else he may not waste time
in reading further details
Estimated cost of the work: This most briefly indicates the magnitude of the work and enables
him o see whether it is too small to interest him or perhaps too large for him to handle.
Time Limit: The time limit within which the work is to be completed should be mentioned. This
will be of great help to the bidder to work out a realistic price of the work.. The time limit may
influence the type and number of construction equipments and workers to be employed, and will
vitally affect the contractor’s bid.
The availability of Data and forms:
where, from whom, at what cost and up to which date blank bid forms and specifications may be
obtained and whether a refund will be made upon their return in satisfactory conditions.
Earnest money required with the bid: The amount and form of security; whether the amount
will be accepted i the form of cash, bank guarantee, check or others. Also the number of days
within which the amount will be refunded to the unsuccessful bidder.
Performance security: The amount, form, and procedure of recovering.
Information regarding drawings: where and when drawings can be examined by bidders.
Last date, place and time of receipt of sealed bid.
The date, time and place and procedure of opening bids.
Reservation to reject bids.

Tips for consideration in preparing construction bids

Careful study of the contract documents: The contract documents issued to the contractor or
supplied for his inspection include general contract conditions, drawings, specifications, bills of
quantities etc. These documents are to be studied carefully to check if any unusual conditions,
specifications, or any feature of the work would demand special attention during pricing.
Sub-contractor’s work: Make relative inquiries about prices with sub-contractors and material
suppliers for their respective portions of the job.
Site visit: This is important to ascertain the conditions under which the work has to be carried
out and their impact on pricing.

* Difficulty to access the site

* Limited space on the site for vehicle movements
* Type of soil and depth of water table
* Availability of space for storing materials on site
* Availability of materials, their sources and prevailing market prices
* Local availability of skilled and unskilled labor, prevailing wages for workmen
* Source and cost of water needed for construction
* Power and lighting source, and the cost of erecting, marinating and dismantling power
connection to the site

Time for completion: The bidder then estimates the length of time the work will take and the
number and category of permanent staff suggested by the nature of the work for construction
management . This helps to calculate the establishment charges.
Temporary works: The value of any temporary works needed to commence the construction
and to clear away on completion, such as temporary office required for construction management
purpose, store sheds for building materials, access road, water supply, depreciation of
construction equipments, insurances, taxes, etc.

Construction Contract
Definition of a construction contract

The term Contract used in the Construction management can be defined as: “An agreement
entered into by two parties under the terms of which one party agrees to perform a specific job
for which the other party agrees to pay. Contract documents attached to and/or stated in the
agreement form integral parts of the contract”.

Essentials of Contract validity

* The parties to the contract must be competent, and legally capable of playing their intended
part. The law can not enforce the agreement on someone who has not the legal capacity to enter
into an agreement. This could be due to infancy, lunacy, drunkenness, or being restricted from
entering into such agreement by a prior in date agreement or scope of authority.
* The subject matter of the contract must be lawful and definite in respect of requirements and
duties of each party. For example a contract violating municipal regulation is not binding and is
void in courts. Also uncertainty in respect of the what is wanted may result in the contract being
not enforceable by law.
* Proposal and acceptance: There must be a proper proposal by one party and its absolute and
unqualified acceptance by the other party. The proposal is not binding without a clear acceptance
and is not binding beyond its date of validity.
* Free consent of parties to the contract: Consent is said to be free when it is not caused by
force, or undue influence or fraud or misrepresentation.

Breach of Contract

Breach of Contract is the failure to perform it. However, not every failure to perform an
obligation amounts to a true breach, as there are a number of excuses for non performance. When
a contract has been broken without sufficient excuse or justification, the party who suffers by
such breach is entitled to receive from the party in default, a compensation for any loss or
damage caused by such breach.

Data Required for Preparing an Estimate:

A Contract may be terminated or brought to an end in either of the following ways:

* Full and satisfactory performance by both parties to their obligations under the contract.
* Breach of contract, when the default of one party releases the other party from the contractual
obligations.
* Mutual agreement of the parties to terminate the contract.
* Unforeseen circumstances beyond the control of either party render it impossible to perform
his duties or obligations stated in the contract.
* Operation of law to terminate a void contract.

Types of contracts commonly used in construction

* Lump sum contract

* Item rate or unit price contract
* Percentage rate contract
* Cost plus percentage rate contract
* Cost plus fixed fee contract
* Cost plus fluctuating fee contract
* Target cost contrac.

More details on construction contract will be explained in next posts.

Routes into construction careers

There are several routes to the different careers within the construction industry. Craft
industries offer jobs where employees train while they work through apprenticeships and other
training schemes. Another way, where many construction staff have found success, is through
recruitment agencies.

Technical occupations in the UK require GCSE qualifications or vocational equivalents, either

initially or through on the job apprenticeship training. One example is that of Quantity
Surveying. Quantity Surveyors are effectively cost managers within the construction industry
and may be: (1) employed by Chartered Surveyor practices (referred to often as “PQS” derived
from the term Private Quantity Surveyor) who normally represent the client’s interest and liaise
with the Architect on the client’s team, preparing cost plans, preparing tender documentation,
giving cost advice on variations, preparing monthly valuation payments to the contractor,
agreeing the final account with the contractor, generally looking after the client’s interests
(although the role can be referred to within some standard forms of contract as being a neutral
role to value ‘the’ costs of the project), in practice it tends to be looking after the client’s
interests primarily; or (2) employed by Main Contractors, in which role they manage the
contractor’s costs, place subcontract orders, make payments to subcontractors, claim monthly
valuations from the client’s surveyor (Private QS or “PQS”), cost manage variations, prepare
internal cost reports to senior management and directors, generally managing the project
commercially and protect the contractor’s interests contractually. Contractual aspects such as
delays and extensions of time issues are also within the remit of the Quantity Surveyor (QS); or

(3) employed by Subcontractors, in which role they carry out a similar function to Main
Contractor’s QS’s. The main difference is that they are normally submitting monthly valuation
claims for payment to the Main Contractor, whereas the Manin Contractor claims from the
client’s Surveyor (usually a Chartered Surveyor practice or Private QS “PQS”). Large
subcontractors may also employ sub-subcontractors, thereby making the QS role similar in the
cost management role, including placing sub-contract orders (to sub-subcontractors), valuing and
claiming variations, preparing cost reports to senior management, etc; or employed by Local
Authorities (local Councils, etc), whereby the role is broadly similar to that of private practice
surveyors in cost managing project from the funding client’s perspective (in this case the Local
Authority council within which they are employed), dealing usually with main contractors; or (5)
employed by Developers; whereby the role may be a mixture of the role of a client’s surveyor
(the funding client being the developer in this case) mixed with that of a main contractor in
possibly employing package sub-contractors directly Other information: The most recognised
body for surveyors in construction is the Royal Institution of Chartered Surveyors (the ‘RICS’).
It is more common for a private practice surveyor or local authority employed surveyor to be a
member of the RICS, though RICS qualified surveyors do work within main contractors and sub-
contractors (the writer of this Quantity Surveyor segment qualified RICS within private practice
working on the client’s side, then migrated over to work for a large sub-contractor. Such cross-
overs are quite common between client’s side and contracting). Quantity Surveying offers a great
diversity of roles and in career path, working on a variety of projects and within different areas
and facets of the construction industry. The qualification of “Chartered Quantity Surveyor” has
been superseded as the RICS rules have replaced this with simply “Chartered Surveyor” (except
those existing Chartered QS’s who registered to keep the Chartered QS title by a date now
passed), and Chartered Quantity Surveyor practices have now largely adopted the title of
“Construction Cost Consultants” and having the right to call themselves simply “Chartered
Surveyors” – though still often referred to in the UK construction industry as “PQS’s”. It is also
possible for Construction Cost Consultant practices to be occasionally employed by local
authorities, contractors or subcontractors, on a particular construction project although not if they
are already employed as surveyors for the same construction project.

As well as the role of Quantity Surveyor, other professions within the UK construction industry
are for example: Architect, Engineer, Project Manager, Planner, Safety Officer. These roles may
be in ‘Building’ (buildings such as Offices, Shopping Centres, Housing); or ‘Civil Engineering’
(structures such as Bridges, Dams, Motorways/Roads/Highways, Harbours/Ferry Terminals).
While projects such as construction of new Power Stations or Naval Bases may comprise a
combination of both ‘building’ and ‘civil engineering’.

Graduate roles in the construction industry are filled by people with at least a foundation degree
in subjects such as civil engineering, construction engineering, architecture, building science and
construction management. Graduates often receive specialized positions and gain qualifications
such as chartered status.

1.1 Introduction to Conventional Construction Contract

The conventional ad-measurement contract is one in which the Employer employs Consultants to design
The Works and to supervise a Contractor in the performance of the Work.
The Contractor is selected on the basis of his suitability for the type of work and the competitiveness of his
price relative to other Contractors. He enters into a contract with the Employer undertaking to perform
the Works in accordance with the terms and conditions of the contract for an agreed price.

The Engineer, who is usually one of the Consultant’s team, acts as the Employer’s expert; as the
Employer’s Manager (with delegated responsibilities); and as initial Arbiter between Employer and
Contractor.
The conventional procedure goes along a path that requires development of sufficient information for
Contractors to tender in competition against each other in respect to the whole scope of works that is the
subject of the contract.

Almost invariably for large projects, bet not of necessity, the price is on a firm basis, either a lump sum or
unit prices with provision for re-measurement of quantities. Provisional sums for certain undefined items
may also be included together with escalation for certain agreed items. .

. The advantages of this conventional approach include the following

 1.2.1 It is conventional, it is accepted and recognized that it works and that all parties are able to
function in their designated roles towards completion of the project. It is time honored and widely
understood.
 1.2.2 It allows the Employer to choose Consultants who will be specialists in their field and among
the best available.
 1.2.3 It allows the Employer time and the ability to develop and express his requirements, in
consultation with his consultant and to ensure that the documents fully describe these
requirements
 1.2.4 It allows the Employer and his Consultant to pre-qualify and select Contractors from whom
tenders will he sought, and choose the most economic conforming tender.
 1.2.5 The contract that results should have a fixed price that will vary only by the extent to which
variations occur sometimes to a specified limit and by a11owed escalation.

. The disadvantages of conventional contracts include the following:

 1.3.1 The considerable amount of time required to take the project through all of the necessary
stages. The Consultant has a distinct role - he has tasks that he must fulfill - he requires time to do
this - there is consultation with the Employer but too much involvement on an ants length contact
divides responsibility and delays the design and the documentation, The design stage is a specific
contractual undertaking and the Consultant must be allowed discretion and scope.
 1.3.2 With the passage of tine during the design and bid stage, it is sometimes necessary to let
contracts with specialist Sub-contractors prior to the letting of the main Contract and this process
can lead to serious interface problems particularly in regard to the overall project schedule.
 1.3.3 In order to place a firm price contract it is necessary that the design and documentation is
fully developed by the time the firm price is requested. A firm price can only by given by a
contractor on the basis of full information, A considerable amount of time must therefore he
devoted purely to the design and documentation stage and during this period no physical
construction work can he undertaken.
 1.3.4 In giving a firm price the Contractor evaluates the information given to him and puts a value
on this. More often than not the true variation between different Contractors conforming tender
prices is the value included for risk and contingencies. Firm price contracting requires that the
Contractor adds money into his prices for these items when in fact they may not he necessary. It is
often more economic for the Employer to cover certain risks himself than to create a situation
wherein the Contractors have to guess at these and include large contingency sum in their prices
which may not he required
 1.3.5 In giving a firm price, the Contractor enters into obligations to perform the work for that
price. These are his obligations but his motivation is to maximize his profit. This is why he is in
business. From the moment the contract is signed the Employer and the Contractor are, to a
degree, adversaries, The common purpose is completion of the contract but the Contractor,
healthily pursuing his own interests, must do so at the best possible return to himself, There
would have to be very special provisions in the contract if this best possible return was achieved
by finishing ahead of time and at a lower cost to the Employer. Probability and experience prove
the contrary. In many cases the cost and time over-run are such that whereas the Employer
 believed that he knew the extent of his commitments at the time of placing a contract, the out-
turn is in fact quite different.

1.4 Conclusion

The foregoing is a brief statement on advantages and disadvantages of conventional contract seen in the
context of a single contract. When related to a single contract that stands by itself without a great deal of
inter-relationship with other contracts, then the advantages of the conventional approach probably
outweighs the disadvantages subject to there being sufficient time to allow all the conventional processes,
from appointment of the Engineer to award of contract, to take place., Further the conventional and
customary approach has, because it is the norm, been found to be acceptable for Public Sector business
but there is no doubt that when time is not available and/or where flexibility is needed then the
advantages of adherence to all the usual normal processes are outweighed by the disadvantages of this
procedure,
The conventional approach is inappropriate when:

 1.4.1 There is insufficient time for the conventional processes to take their due course or when the
work is of such complexity and size that the project would benefit from physical work being
commenced at an early date prior to complete development of design;
 1.4.2 A project is large and complex with many major Contractors working in varying disciplines
presenting organizational problems particularly at contract interfaces and where each
Contractor’s objectives do not conform to those of the Employer;
 1.4.3 There is restricted access.
 1.4.4 The work is of a high-risk nature;
 1.4.5 There is inadequate definition of the work.
 1.4.6 Emphasis is only early completion.
 1.4.7 There are special industrial relations requirements, including training for the future.
 1.4.8 The Employer requires flexibility in the selection of Plant and equipment;
 1.4.9 The maintenance and operation of the plant is of paramount importance as in the case of an
extension to an existing plant. In this example the Employer/Owner will require to be directly
involved in not only the selection of Plant and equipment to ensure compatibility but also in the
direction of site operations including the commissioning.

One of the alternatives to the ad-measurement form of contract which takes account of the above factors
is the Target Cost/Fee Contract (see next post).

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Related posts

 What is a Contractor?
 Bidder Responsibility Determination
 What is a Subcontractor?
 The Target Cost Contract
 Construction Contract

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One of the alternatives to the conventional construction contract which has many disavantages is the
Target Cost Contract.

1. The Target Cost Contract Alternative

Introduction

Two major weaknesses of simple cost-reimbursable contracts are the lack of knowledge of financial
commitment by the Employer and lack of incentive for the Contractor to control costs. Both may make it
difficult for publicly accountable Employers to demonstrate that they are able to control their financial
commitment. In addition, in sate organizations, there is an attitude that cost-reimbursable contracts are a
last resort.
However, cost-reimbursable contracts, particularly when incentives are incorporated, have many
advantages for both Employer and Contractor. These include flexibility to change, fairer apportionment of
risk, potential saving in the time and cost of tendering, men-book accounting, and a reduction in the
resources of all parties expanded on claims. One of the greatest benefits is the opportunity for the
Employer to establish a common objective for both parties to a contract, with the resulting identity of
interest and elimination of the adversarial stance between them. It is with these parameters in mind that
the Target Cost/Fee type of contract has been developed with the added advantage that design and
construction can coincide leading to early completion reducing the inflation effect on Capital cost and to
sate extent interest charges on borrowings. A further advantage in the case of a hydro plant or other
revenue earning utilities is the benefit of receiving early income from sales.

At the outset of the Contract, targets are agreed in respect of cost, time and when applicable, plant
performance and formulae are devised for the distribution between parties to the contract of the gains or
losses arising from actual variations to the targets.

2. Basic Principles

 2.1 The Conditions of Contract are the International conditions published by the International
Federation of Consulting Engineers (F. I. D. I .C) or similar conditions suitably amended to suit
the particular circumstances of the project. There are standard conditions other than F. I. D. I. C,
which may be as readily amended, but the FIDIC. ones are generally proposed as they are
universally recognized, well understood and trusted. However, the Engineer’s powers require
amendment in the light of the special nature of Target Cost/Fee contracts. Other amendments
would be necessary where the Employer employs a Project Manager
 2.2. A Target cost for the project is proposed by the contractor, then checked and agreed by the
Employer. This Target, which does not include any profit for the Contractor, becomes the
principal instrument in budgetary control of the Works and is updated at regular intervals until
the end of the work when a Final Target Cost is established.
 2.3 A schedule and target time for completion are agreed, and these are regularly updated to take
cognizance of any new circumstances arising during the currency of the contract.
 2.4 Similarly a Performance Target is agreed.
 2.5 Payment of the actual cost of the work as it is incurred is made from a fund established under
the financial provisions of the contract. These payments are limited to the actual net at of the
Work including the Contractor’s overhead costs.
 2.6 The Contractor receives a fee for his services, the amount of which is related to his services
against the agreed targets and is the only payment to him, which allows for his profit. It is
customary for the Contractor to be assured a stated minimum fee. However, additional specific
bonuses can be built into a Target for early completion or the Employer might desire other special
incentives to be incorporated.