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Last edited 08 Feb 2021
Tender price appraisal in the construction industry
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.
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.
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.
- 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.
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.
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.
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