Last edited 21 Jun 2016

Tender evaluation

A tender is a submission made by a prospective supplier in response to an invitation to tender. It makes an offer for the supply of goods or services. An invitation to tender might be issued for a range of contracts, including; equipment supply, the main construction contract (perhaps including design by the contractor), demolition, enabling works etc.

An invitation to tender may follow the completion of a pre-qualification questionnaire (PQQ) in response to an advert posted by the client and perhaps a pre-tender interview. The purpose of a pre-qualification questionnaire and pre-tender interview is to enable the client to produce a short list of suppliers that are likely to be most appropriate for their particular project who will then be invited to tender. This helps reduce inefficiency and wasted effort in the tender process.

In response to an invitation to tender, invited tenderers will submit a tender, which will include their price for supplying the goods or services along with proposals for how the clients requirements will be satisfied if these have been requested. Mid-tender interviews may be held to allow for clarification of matters that might otherwise lead to an inaccurate tender being submitted. They can also give the client insights into potential problems or opportunities in the project as it is described by the tender documentation.

Once tenders have been received, a careful process of assessment must be undertaken to identify the preferred tenderer.

Historically, assessment of tenders might simply have identified the lowest-price compliant bid. This may still be appropriate for very simple supply contracts, however, for construction contracts, it may not result in the best value tender being selected. There is a tendency under such systems for tenderers to submit low prices and then to find ways to charge more once the contract has been secured.

Assessments that identify the tender that best meets the client’s needs and offers the best value for money can be more beneficial in the long run. This is sometimes referred to as the ‘most economically advantageous tender’ (MEAT) approach as opposed to the lowest-price approach.

The client's needs, priorities and definition of value will be unique for each project, and so assessment criteria will differ from project to project. During the pre-qualification process, assessment criteria are referred to as ‘selection criteria’ whereas during the tender process they are referred to as ‘award criteria’.

Typically, assessments might consider some of the following criteria:

  • Price.
  • Relevant experience.
  • Understanding of the requirements.
  • Past performance.
  • Technical skills.
  • Resource availability.
  • Management skills and systems.
  • Proposed methodology (this might include mobilisation plans, design proposals, and non-compliant proposals if these have been allowed).
  • Compliance with the requirements set out in the invitation to tender.

NB it may be appropriate for some of these criteria to be assessed at pre-qualification stage, rather than at tender assessment.

It is usual to select no more than five criteria. It is important that careful thought is given to the criteria selected, that they are relevant to the priorities of the project and that it is possible to assess them properly from the information that has been provided in tenders. If interviews are to be held and assessed alongside the tender submission, then this must be built into the award criteria.

The criteria are then weighted to reflect how important they are to the client. It is normal to give price a weighting of at least 60%, with the remaining percentage allocated to the other criteria, giving a total of 100%. It is good practice to make the criteria and weightings known to tenderers in the invitation to tender.

Each tender is then given a score against each criteria, often with 0 being the lowest score and 10 the best possible score. Tenders might be scored by a number of assessors, or different assessor might score different criteria.

Scores can be allocated to tender prices by a number of methods, but one common method is:

Score = 10 x lowest compliant price / tenderers price

This gives a score out of 10.

In the most straight-forward assessments, the overall score for a tender can be calculated by multiplying the score for each criteria by its weighting and then adding together or averaging the results for each assessor. Where there are very different scores between assessors, a meeting might be held to identify the reasons.

More complex assessments might include additional benchmarks. For example, there may be certain criteria that are a straight-forward pass / fail issue. For example failure to comply with a particular aspect of the invitation to tender. There may also be criteria for which a very low rating is unacceptable (for example a score of less than 3 out of ten on methodology) irrespective of scores for other criteria. See also: Due diligence when selecting contractors or subcontractors.

Once the client has identified the preferred tenderer they may enter into negotiations with them. These negotiations are an opportunity to agree or clarify any matters regarding the pricing and quality of the proposed works, conditions of contract and programme and may result in further adjustment of the tender documents and the submission of a revised tender. This is the last chance the client and consultant team will have to negotiate with tenderers while they are still subject to the pressures of competition. The client might enter into tender negotiations with two preferred tenderers prior to selection of the successful bid.

Generally, the contract administrator co-ordinates negotiations with the tenderers, but negotiations may be led at different stages by the cost consultant, contract administrator, lead designer or architect, or by a client representative such as a project manager.

It is important that a full audit trail of the entire tender process is maintained. See tender report for more information. Any agreements reached should be carefully drafted and signed by both parties as these will form part of the contract documents.

NB Public projects or publicly-subsidised projects may be subject to OJEU procurement procedures. This requires that contracts must be advertised in the Official Journal of the EU (OJEU), and tendering must be by either an open procedure, restricted procedure, competitive dialogue procedure or competitive negotiation procedure. See OJEU for more information.

NB Two-stage tendering is used to allow early appointment of a contractor, prior to the completion of all the information required to enable them to offer a fixed price. In the first stage, a limited appointment is agreed allowing the contractor to begin work and in the second stage a fixed price is negotiated for the contract. It can be used to appoint the main contractor early or as a mechanism for early appointment of a specialist contractor such as a cladding contractor. A two-stage tender process may also be adopted on a design and build project where the employer's requirements are not sufficiently well developed for the contractor to be able to calculate a realistic price. In this case, the contractor will tender a fee for designing the building along with a schedule of rates that can be used to establish the construction price for the second stage tender..

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