Tender price appraisal in the construction industry
Contents |
[edit] Introduction
A tender is a submission made by a prospective supplier in response to an invitation to tender (ITT). It makes an offer for the supply of goods and/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, and so on.
Once tenders have been received, a thorough process of assessment is undertaken to identify the preferred tenderer. The tender pricing document is a key aspect of the tender return that will be assessed by the cost consultant to determine where value lies within the different tenders and to enable a like for like comparison between tenderer prices.
[edit] Preparation
To ensure a like for like comparison, the tender consultants need to ensure that a standard format is completed by all tenderers. The format of the document can be different depending on the form of contract selected.
Examples of pricing formats include:
- Bill of quantities (with quantities).
- Bill of quantities (without quantities).
- Schedule of rates.
- Contract sum analysis.
- Any other bespoke template formulated by the tender consultants.
[edit] Assessment
The tender price assessment will commence once all tenders have been received and opened and reviewed for compliance. Non-compliant tenders may be excluded unless they were specifically permitted in the invitation to tender.
The pricing comparison will then be carried out by a cost consultant. The cost consultant will use their own benchmark document to compare the tender prices against.
The assessment will enable the consultant to:
- Provide a like-for-like comparison between tenderers and the cost plan (benchmark).
- Assess value for money.
- Check arithmetic.
- Identify significant differences in pricing to ensure tenderers have interpreted the specification correctly.
- Identify potential areas of savings that can be negotiated with the tenderers.
- Review rate distribution (ensure that the tenderers have not front loaded the project).
- Prepare a tender report.
[edit] Review and action
Arithmetical errors will need to be reviewed in accordance with the tender guidance rules. Government contracts might have strict guidance on the correction of errors and disallow contract sum changes. The private sector might be more lenient and allow price reduction corrections. It is important to capture any changes and confirm this in writing and keep records of any communication.
Any other areas of qualification by tenderers must also be assessed. Tenderers might add qualifications to their price that will influence the contact sum. An example is a clarification that might limit the tenderers price to only a certain depth when it comes to excavations.
Any other big price discrepancies should be highlighted and reviewed. If a price is too low it can also be a risk to the project. The project can become a financial burden on the tenderer and they are unlikely to perform satisfactorily. The cost consultant will have to assess the reason for the low price. If it is due to misinterpretation of the design or low wages, it can have an impact on the outcome of the project. It is important to distinguish between a legitimate keen commercial price and a non-compliant tenderer price.
The cost consultant will provide a summary of the cost assessment and conclude with a contract sum that will form part of the tender report and subsequently become part of the contractual documents.
However, the tenderer with the lowest price may not necessarily be awarded the contract, as other criteria such as experience, availability, value for money and so on may also be considered. For more information see: Selection criteria.
[edit] Related articles on Designing Buildings Wiki
Featured articles and news
A transformative shift in the design, construction and management of built assets.
Apprenticeship announcement by the Prime Minister
Welcomed but with call for more actionable detail.
Heat pump announcements, what homeowners need to know
An 'ultimate guide to heat pumps' from a heating company.
Construction contract awards reach 7.1bn in February
Their highest level in seven months.
The journey to sustainability in heritage
Research is the key to better understanding.
Heritage approaches to adaptation, mitigation and loss.
Bridging the gap between policy, finance and installation.
Development on brownfield land
Definition, background, policy and the latest consultation.
With the Design Framework for Building Services.
Retrofit of Buildings, a CIOB Technical Publication
Pertinent technical issues, measures and the roles involved.
ECA joins HSE campaign to support mental health
Working Minds’ five simple steps based on risk assessment.
Mental health in the construction industry
Mental health issues in brief with related articles.
Transitional arrangements, Building Control and the BSR.
For pre-October buildings with substantial progress by April.
Why quality counts in domestic ventilation systems
From products, to systems to the installation.
Empowering the Future with CIOB Academy
Lifelong learning, upscaling, and reskilling for the built environment.