Deciphering Tenders: A Comprehensive Guide to Technical and Commercial Analysis in Construction Tendering

In the realm of construction, the tendering process plays a pivotal role in securing successful project outcomes. Central to this process is tender analysis, a thorough evaluation of all tender submissions. Its objective is not simply to identify the lowest price but to unearth the proposal that offers the best value, considering a multitude of factors such as quality, capability, financial stability, and the proposed methodology, to name but a few.

This article sets out to provide a comprehensive guide on how to navigate through the nuances of tender analysis, centred on two primary areas: technical and commercial analysis. Drawn from the guidance and best practices set forth by the Royal Institution of Chartered Surveyors (RICS), the insights provided herein will shed light on the key considerations in tender analysis, guiding practitioners towards more informed decision-making.

The intention is not to deliver hard and fast rules; every project has its unique set of variables. Instead, the aim is to equip readers with a deeper understanding of the critical aspects of tender analysis, enabling them to tailor their approach to best suit the specifics of their project and, in turn, increase the likelihood of a successful, value-adding procurement outcome.

Understanding Technical Analysis

Technical analysis is a critical step in the construction tendering process, however, it is often overlooked in small and medium size projects. It involves a comprehensive assessment of a bidder’s qualifications, technical capabilities, resources, methodology, and quality management approach, all of which contribute to the bidder’s overall ability to deliver the project successfully.

A rigorous technical analysis allows for a deeper understanding of a tenderer’s ability to meet the project’s objectives beyond just cost considerations. Ignoring or giving inadequate attention to technical analysis can result in selecting a contractor who might offer the lowest price but lacks the required competence, resources or methodology to deliver the project to the required standards and within the agreed timeline. The importance of assessing technical competence alongside cost can’t be understated for the overall success of a project.

It is important to stress that the criteria and scoring for the technical analysis should be agreed on with the client and their professional team when the tendering strategy is set out, this is typically some time before the tender process starts.

Key Elements of Technical Analysis

Key elements of a technical analysis typically include:

• Tenderer’s Qualifications: Assessment of the tenderer’s professional qualifications, credentials, and relevant industry certifications.
• Capabilities: Examination of the tenderer’s technical abilities, including their skills, knowledge, and experience related to the project at hand.
• Resources: Evaluation of the resources that the tenderer can bring to the project, such as their workforce, equipment, and technology.
• Methodology: Review of the tenderer’s proposed approach to managing and executing the project, including their plans for risk management, quality control, and project scheduling.
• Quality Management Approach: Appraisal of the tenderer’s quality assurance and control processes to ensure that they can deliver the project to the required standards.

The assessment criteria may vary depending on the project but often include considerations like previous project experience, staff expertise, equipment and technological capabilities, proposed project methodology, and quality control mechanisms.

The Process of Technical Analysis

Undertaking a technical analysis, in line with RICS guidelines, typically involves the following steps:

• Initial Screening: Begin by screening the tender documents to ensure all mandatory requirements are met.
• Detailed Assessment: Conduct a detailed review of each tender against the predetermined technical criteria. This step involves closely examining each tenderer’s qualifications, capabilities, resources, methodology, and quality management approach.
• Scoring: Finally, score each tender against the technical criteria using a predetermined scoring system.

Scoring systems can vary widely, but they generally assign different weightings to the various criteria based on their importance to the project and is set out in the tender strategy document. The tenders are then scored against these weighted criteria, allowing for a comprehensive and fair assessment of each bid’s technical merits.

Understanding Commercial Analysis

Commercial analysis in the context of construction tendering is a systematic assessment of the financial dimensions of a bid. It aims to ascertain the financial viability of a tender and its implications on the overall project cost, risk allocation, and delivery. More than just cost comparison, the commercial analysis provides a balanced evaluation, incorporating financial capacity, pricing rationale, contract terms, and risk mitigation, thereby complementing the technical analysis.

It helps discern the financial soundness of each tender, which could potentially influence the project’s feasibility and financial outcomes. Further, the commercial analysis sheds light on the commercial aspects, offering valuable insights that could make or break the project’s financial success.

Key Elements of Commercial Analysis

To understand the commercial analysis process, it’s crucial to comprehend its key components:

• Price: The assessment begins by evaluating whether the pricing structure and total cost are within the project’s budget and market norms.
• Cash Flow: The projection of payments throughout the project’s lifespan offers insights into the project’s financial plan, reflecting its impact on the overall budget and the client’s cash flow.
• Contract Conditions: The proposed contract terms must be scrutinised to ascertain fair distribution of risk and responsibilities.
• Financial Status: The tenderer’s financial stability is a significant factor, ensuring they are capable of delivering the project without financial distress.
• Risk Allocation: An evaluation of the proposed risk management approach and the risk-bearing entity is integral to the commercial analysis.
• Qualifications and Exclusions: A thorough examination of the bid reveals whether contractors have allowed for all costs required or whether they’ve excluded certain items or reduced responsibilities through qualifications.
• Provisional and Prime Cost Sums: The review also includes a check on whether contractors have used unreasonable provisional sums (PSs) and prime cost (PC) sums, which could escalate the project cost at a later date.

The Process of Commercial Analysis

The RICS guidelines detail a systematic process for commercial analysis, consisting of several key steps:

• Review the Completeness of Tender Returns and Check for Arithmetic Errors: The first step in the analysis involves ensuring the completeness of tender returns. Every element of the bid should be present and in order. Concurrently, a check for arithmetic errors is necessary. Such errors, though they may seem minor, could cause significant miscalculations in the bid evaluation.
• Examine the Conformity to Tender Requirements: Once the tender’s completeness and accuracy are confirmed, the analysis proceeds to examine whether the tender meets all specified requirements. Any non-compliance could pose risks to the project’s successful delivery and thus needs to be identified early.
• Evaluate the Commercial Viability: The commercial viability of a bid plays a crucial role in the analysis. It requires a thorough understanding of the tenderer’s proposed pricing structure, cash flow projections, and their financial health. An unviable tender could result in project cost overruns or financial distress for the contractor.
• Identify Exclusions or Qualifications and Adjust Accordingly: Sometimes, contractors exclude certain costs or limit their responsibilities through qualifications. These need to be identified and quantified, allowing for adjustments to the bid for a like-for-like comparison with other tenders.
• Assess Risk Provisions: A prudent bid will include provisions for potential risks. The analysis should assess these provisions and, if needed, allocate additional sums to ensure all eventualities are covered. This results in a more level comparison between tenders.
• Compare Tender Returns: All bids must be compared on a like-for-like basis, factoring in adjustments made for exclusions, qualifications, and risk provisions. This comparison aids in understanding the relative strengths and weaknesses of each tender.
• Consider Alternative Proposals: Some contractors may propose alternative methods or solutions to deliver the project. These should be considered and analysed for their potential benefits and risks to the project.
• Seek Clarifications if Required: Lastly, if any ambiguities or uncertainties are found during the analysis, it’s important to seek clarifications from the tenderer. This ensures a comprehensive understanding of the bid and aids in making a well-informed decision. 

These steps ensure a comprehensive and robust commercial analysis, assessing not just cost, but also value. In line with the project’s requirements, this approach fosters a balanced evaluation that aids in selecting a tender that ensures project success without compromising on quality or financial prudence.

Steps for Effective Tender Analysis

In the previous sections, we have discussed, in detail, aspects of the technical and commercial parts of tender analysis. However, an effective bid analysis process is comprehensive, integrating both technical and commercial evaluations to form a complete picture of each bid’s merits and demerits. Let’s delve into the step-by-step process of tender analysis, based on the RICS methodology:

• Receipt of Bids: Upon receipt, each bid must be logged and carefully managed to maintain its confidentiality and integrity. This initial handling is the foundation upon which the rest of the analysis process is built.
• Initial Review: This is a cursory check for completeness, compliance, and arithmetic correctness in the bids. It allows the filtering of non-compliant or incomplete bids, thereby focusing analysis efforts on promising candidates.
• Technical Analysis: Involves assessing tenderers’ technical competencies and approach. A concise review of qualifications, capabilities, resources, methodology, and quality management are evaluated, ensuring the tenderer can technically fulfil the project requirements.
• Commercial Analysis: Here, the financial viability of each bid is scrutinised, touching upon price, cash flow, contract conditions, financial status, and risk allocation. This analysis reveals the financial and contractual implications of choosing a particular bid.
• Combined Technical and Commercial Evaluation: The separate technical and commercial analysis results are now combined using a weighted scoring system. This step ensures a balanced evaluation, which takes both technical prowess and commercial sensibility into account.
• Tender Clarifications: Clarifications should be sought for any ambiguities or uncertainties in the bid. This step ensures that the evaluation is based on a clear understanding of each bid.
• Final Evaluation and Reporting: The final evaluation forms the basis of the tender decision. A comprehensive tender report, encapsulating all findings from the bid analysis process, should be prepared to assist in the decision-making process.

This step-by-step bid analysis process offers a structured way to assess bids, ensuring that all relevant factors are considered and the best contractor for the project is selected.

Key Considerations in Tender Analysis

In bid analysis, there are several key considerations that need careful attention to ensure that the best bid is selected. Here’s a discussion of these vital factors:

Program Feasibility: It’s crucial to review the tenderer’s proposed construction schedule and timeline. If these are unrealistic, they may lead to project delays and cost overruns. An honest evaluation of the programme’s feasibility prevents such potential pitfalls.

Payment Terms: Evaluating the proposed payment terms is critical. These will directly impact the client’s cash flow and the overall financial management of the project. Unfavourable terms may cause cash flow problems and need to be negotiated before contract award.

Impact of Alternative Bids: Tenderers often submit alternative proposals. These need careful evaluation against the original project requirements. While they may offer cost or time savings, they may also have implications for the project scope, quality or risk profile.

Balanced Evaluation: A robust bid analysis takes into account both the technical and commercial aspects of a bid. A highly technical competent contractor may charge a premium, but if they can deliver high-quality work on time, this could be a worthwhile investment. 

Evaluation of Risks: Every bid comes with a level of risk, hence assessing the risk allocation and mitigation strategies proposed by the tenderer is key. An effective risk management approach can prevent potential disputes, delays and cost overruns, thereby contributing to the overall project’s success.

Common Challenges and Mitigation Measures

When analysing bids in a construction tender, several challenges can arise. Below, we discuss some of these common issues and propose mitigation measures based on RICS best practices:

Inconsistency in Bid Documents: At times, bid documents might contain inconsistencies or conflicting information. This can make the evaluation process challenging, as it’s hard to compare different bids on a level playing field. A possible mitigation measure is to have a standardised bid document format and explicit tender instructions, minimising room for variations. If inconsistencies are found, seek clarifications from the tenderer before the evaluation process.

Unrealistic Price Proposals: Another common challenge is unrealistic price proposals. These could be either too high, suggesting unnecessary expenses, or too low, possibly indicating that the contractor might not understand the project scope. Mitigation measures here involve a careful review of the pricing details, seeking clarifications, or even independent cost advice if necessary.

Variation in Bidding Methodology: Different tenderers may employ different methodologies in their bids. This can cause difficulties in comparing bids. To mitigate this issue, clearly set out the preferred methodology in the invitation to tender documents. However, if alternative methodologies are proposed, carefully assess these on their merits and potential impacts on the project.

The aim is to find a balance between the technical and commercial aspects of a bid and select a competent contractor who can deliver the project successfully and cost-effectively.

Conclusion

Tender analysis forms a critical cornerstone in the successful delivery of construction projects. Understanding the technical and commercial aspects of each bid provides an in-depth view of a tenderer’s competence and financial viability. With RICS best practices as our guide, we’ve dissected the technical and commercial elements that should be scrutinised during the analysis.

We also examined how to bring these elements together through a step-by-step bid analysis process. Recognising the key considerations like bid bonds, program feasibility, and payment terms helps fine-tune our evaluations, as do insights into common challenges and their mitigation.

In conclusion, an effective tender analysis, which strikes a balanced evaluation of technical and commercial aspects, is instrumental in achieving successful construction outcomes. The diligence invested in this process can greatly influence the course of your project, guiding it towards efficient delivery within budget and timelines.