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Tender procedures.


Basics of a cost estimate preparation.



The below text explains rules and procedures regarding tenders and cost estimates in traditional contract form (lump sum). Other forms of construction services acquisition are regulated by different procedures. Also the cost estimate for individual investor may vary from methods named below.


Tender offer from the client's and architect's perspective
Perception of the stages of a construction project often varies between the client/architect and the contractor. Client and architect are involved in the project for months before the actual construction work commences, for a contractor however stages of the project include only the tender offer and construction stages.

Tender procedure, from client’s and architect’s point of view, is regulated by NJCC (National Joint Consultative Committee for Building). Most small projects apply the "Single Stage Selective Tendering” which can be characterised in the following way:
  • Invitation to tender – the contractors are contacted if they would be willing to tender. The enquiry is issued in writing 4-6 weeks before the tender and it should contain a brief description of the investment and the commencement date.
  • Number of contractors tenderingr – recommended maximum number of contractors is 6, with additional in reserve. The limitation is due to the fact, that the tenders tend to be expensive and it is irresponsible to unnecessarily inflate prices in the construction industry.
  • Tender documentation – the aim of tender documentation all offers will be presented on the same basis, so the competition may only be about the price. It is assumed that each contractor will complete works in a way specified in documentation.
  • Time to prepare tender offer – in smaller projects it is usually 3-4 weeks, in bigger and more complex investments it can take longer.
  • Changes in tender documentation – contractors should not make any changes. They should instead send an enquiry min. 10 days before the tender date. Architect should send a reply to all contractors to provide them all the same chances.
  • It is often disregarded in practice, due to the short time allowed to prepare an estimate or vagueness.
    • Withdrawal of the offer – tender offer can be withdrawn by the contractor at all times, as long as it has not been chosen by the investor. Acceptance of an offer constitutes an agreement between the investor and contractor.
    • Tender offers analysis – tender offers should be analysed soon after they were returned. After the contract is awarded architect should inform all participants about the offers received, without naming the companies, which put them forward. Even though it gives contractors an insight into competitor’s pricing policy, it is often disregarded.
    • Error check – the winning estimate is checked and the erroneous calculations are sent back to the contractor. There are two procedures to resolve those: "Alternative 1" – where the contractor can confirm or withdraw the offer and "Alternative 2" - where the contractor can confirm the offer or correct mistakes.
    • Price negotiation – procedures allow pricing negotiations leading to lowering the prices if the lowest offer exceeds investor’s budget.
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Tendering procedure programme

Basics of cost estimate preparation

Preparation of tender offer requires various documentation types, as specified by an architect or an investor. They involve different terms of settlement and risk.

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Typical specification

Regardless of the type of documentation one should take into account costs not directly connected with corresponding construction works, e.g. cost of the toilet, on-site safety, company standing costs etc. Those costs are usually included in the "Preliminaries", at the beginning of the estimate.

Specification & Drawings
This type of documentation contains drawings and specification; it can also contain a separate scope of works to clarify the full costs.
Contractor is responsible for surveying the works. Any errors in measurements and cost estimates will not be taken into consideration and the contractor will be required to conduct all the works indicated in the documentation, regardless of whether they are specified by the scope of work. It means that contractor needs to check all documentation carefully, since each its element included in any part of documentation constitutes part of contract and needs to be completed.
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Typical BoQ

Bill of Quantities
In case of bigger projects, tender documents often consist of "Bill of Quantities" (BoQ). It is a list of all required works (with all measurements already made) – the contractor needs to provide their rates for each of the works. BoQ is prepared by "Quantity Surveyor" employed by the investor, according to Standard Method of Measurement - SMM. The latest version is SMM7, but the smaller project still often use.
The rates given in BoQ will be used to calculate the cost of additional works of the same type during the project, it is therefore worth to try to foresee potential additional works and raise the rate for the corresponding type of works.
The errors in the BoQ are the liability of the investor – the contractor needs to be paid for all works required, even if they are erroneous or if some works are omitted. Because of that BoQ is not used often anymore.
If the investor cannot state exact measurements, the approximate quantities are applied.
.
Schedule of Rates
"Schedule of Rates" is the list of the rates and it’s used very rarely, only in case if the scope of work is impossible to define. The contractor is accountable for completed works according to the time and agreed hourly or daily rates.
It is of course an ideal basis for cooperation from contractor's point of view, because they are not at any risk and all the materials and employees working time is being paid for.
In case of such cooperation form it is crucial to keep a detailed record of time and resources spent during the project. Those are necessary to establish the payment and eliminate potential conflicts between contractor and investor.
Provisional Sum
"Provisional Sum" czy "PC Sum" nie jest podstawą kosztorysowania, lecz jest często używana w ofertach przetargowych. Ma ona zastosowanie w przypadkach, gdy nie jest możliwym określenie kosztu konkretnego elementu. Np. kontrakt zawiera wbudowane szafy, ale klient jeszcze nie zdecydował detali. W takim wypadku wpisuje się przybliżony koszt i oznacza się go jako 'PC Sum".
Dzięki takiej procedurze inwestor jest przygotowany na opłacenie danego elementu, a dokładna cena może być ustalona w późniejszym czasie.
Choć takie sumy powinny odzwierciedlać rzeczywisty przybliżony koszt elementu, w trakcie przetargu często są zaniżane, by obniżyć całkowity koszt kontraktu. "PC Sum" nie są w żaden sposób wiążące w trakcie kontraktu.
Sources:

Brook M., 2006. Estimating and Tendering for Construction Work. Oxford. Elsevier Butterworth-Heinemann
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Mini Guides
JCT - Joint Contract Tribunal
JCT is an organisation uniting different groups of professionals within the British construction industry. Members of the JCT include professional associations of architects, surveyors, inspectors, estimators, building contractors and many others. Read More...
Forms of Property Aquisition
In the British construction industry acquisition or commissioning of properties or their elements is defined as "procurement". Available procurement routes include Traditional (lump sum), Design and Build, Construction Management, Management Contracting and others. Please refer to our guide for more information. Read More...
Tender offer from client's and architect's point of view.
Perceptions of the stages of a construction project often vary between the client/architect and the contractor. Investor and architect are involved in the project for months before the actual construction work commences; for a contractor however stages of the project include only the tender offer and construction. Read More...
Gantt Chart
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Schedule types
Schedules can be divided into several categories depending on their type and the accuracy of information. This includes Master Programme, Detailed Programme, Purchase schedule and others. Read More...
Risk management
Through use of available supporting software it is possible to include risk management procedures into the schedule. Convenient analysis of possible scenarios for different options of construction work. Read More...
Insurance from the point of view of the contractor
From the contractor’s point of view, construction insurance can be divided into three groups:

- "Employers Liability Insurance" (EL)
- "Public Liability Insurance" (PL)
- "Contract Works Insurance" (CW)

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The JCT contracts categorize insurance types legally required by the contract. One of the ways of categorisation is according to the level of cover: "Specified Perils" (SP) and "All Risk Insurance" (AR).
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Contractor's rights and duties
Contractor’s liability is limited to project between taking it over from the investor and practical completion. Those dates do not have to coincide with the actual construction period. Read More...
Investor's duties
The investor should hold a valid insurance covering the liability for death or bodily injury caused by his or his employees’ actions or negligence. In case of institutional investors PL and EL type of insurance should be appropriate. Read More...
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Contract Documents
A contract may include various documents describing the project and stating the cooperation conditions as long as they are approved by both parties. Read More...
Contract Administrator
person responsible for contract management and certifying any additional works, changes, contract extensions, accounts etc. Contract Administrator is usually the architect who supervised the preparation of the contract documentation. Read More...
Architect's Instruction
Instructions given by the Contract Administrator, which are necessary to carry out any changes to the contract. They have to be stated in writing; in case of verbal instructions the architect has to submit a written document within 2 days. Read More...
Provisional Sum
Refers to the estimated sum included in contract to cover the costs of work, materials or equipment where the actual cost is not known at the time of signing the contract. It is most often used when the work specification has not been completed. Read More...
Interim Certificate
Is a certificate issued by an architect authorising the client to a partial payment for the works completed to date, when the payoff is scheduled before termination of work. It is prepared according to cost estimate presented by the contractor. Read More...
PC Sum (Prime Cost)
Is a term used when creating estimates and defining the price of material and resources, when the actual const cannot be established. Read More...
Base Date
Rarely found in smaller projects, due to their short life span. It is the time when the contractor's offer has been prepared to reflect the current market conditions, usually 10 days before the proposal is put forward. Read More...
Extension of Time
Procedure/certificate which allows a change of the completion date agreed by the contract. The certificate can be issued by the Contract Administrator when due to the circumstances beyond contractor's control work can not be completed on time. Read More...
LADs (Liquidated Ascertained Damages)
Often described as a penalty for late completion of work. In fact it is not a penalty, but a compensation for the costs incurred due to late completion. This sum is stated in the contract and should reflect the actual costs for the client. Read More...
Variation
In general, all variations from the range or specifications of the work. Read More...
ADR - 'Alternative Dispute Resolution'
'Alternative Dispute Resolution' - this term refers to all forms of resolving a contractual dispute, which are not judicial proceedings to change the contractual sum. Every such change has to be confirmed by an architect's written instruction. Read More...
Mediation
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Adjudication
Is a form of resolving contractual disputes existing from 1996 and created especially to the needs of the construction industry. It is included in the JCT contracts as a standard. Both sides have to agree to it when signing a contract. Read More...
Arbitration
An alternative to the court proceedings, established for many decades. Initially this solution was simple and inexpensive, however in the last few decades procedures and costs neared to those incurred by full judicial action. Read More...
Litigation
Is a term to describe formalised judicial proceedings. It is available to both parties of a contract. The only occasion, when parties lose their right to litigation as a consequence of former use of 'arbitration'. Read More...
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