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Types of Tendering in Construction Industry

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Types of Tendering
Types of Tendering in Construction

What is Types of Tendering?

Tendering is the process of obtaining valid offers from the prospective tenderers and evaluate & selecting the successful bidder to award the contract. Therefore, types of tendering are used to choose the most suitable contractor for the project.

Types of tendering can be used for any project, obtain of services, goods or material etc. irrespective of whether it is too large or too small tendering can be applicable. There are many types of tendering that serves for any kind of aspect. When making a selection through the accountability & the transparency of the selection procedure is high. Thus for the selection of government-related aspects, the tendering is a must. Not only the government but most of the private sector investors or clients are also like to use tendering considering the many advantages of it.

Importance of Tendering Types

The selection of a contractor to carry out a construction project is an important matter requiring careful thought. A wrong choice may lead to an unhappy client/contractor relationship, a dissatisfied client and possibly even an insolvent contractor. Anyone contractor will not be suitable for any one job. A contracting organisation will be geared to work of particular size or a price range and will be unsuitable or uneconomic for contracts outside that range.

The client’s professional advisers should aim to find a contracting company:

  • That is financially stable and has a good business record
  • For which the size of the project is neither too small nor too large
  • That has a reputation for good quality workmanship and efficient organisation
  • That has a good record of industrial relation

Types of Tendering

  1. Open Tendering
  2. Selective Tendering
  3. Serial Tendering
  4. Negotiations
  5. Nominated Tendering

You can download the Types of Tendering – Diagram as a PDF.

Open Tendering

In this tendering method, the client is openly inviting bids for a particular project from any prospective bidder without applying any restriction. An invitation will be most of the time in the form of a newspaper notice or gazette notice if it is a government project. Usually, a refundable tender deposit or a tender bond is required to discourage frivolous applications. The deposit is refunded, or the bond is released on the submission of a bona fide tender.

Advantages of Open Tendering

  1. No favouritism
  2. Opportunities are made available for newcomers
  3. Opportunities are available for capable contractors.
  4. Since there is a high competition client can enjoy the maxim benefits.

Disadvantages of Open Tendering

  1. The tendering process has some high cost due to the number of bidders are high.
  2. Much time-consuming.
  3. Due to the open opportunities, inexperienced contractors may bid.

Selective (Competitive) Tendering

This tendering type is an improved version of the open tendering to eliminate the major disadvantages of the Open Tendering. This is practising in the industry as Single Stage Tendering & Two-Stage Tendering.

Single Stage Tendering: Tenderers are shortlisted by the client & the consultant, and the bids will be obtained from the selected tenderers only. The efficient number of tenderers maybe eight.

Advantages of Single Stage Tendering

  1. Bids will be received only from capable contractors.
  2. Savings on time & tendering costs

Disadvantages of Single Stage Tendering

  1. Due to less competition comparatively to open tendering
  2. No opportunities for new capable contractors.

Two-Stage Tendering: In the first stage, suitable contractors will be selected by evaluating their pre-qualification parameters (Past Experience, Strength of Resources, Financial Capabilities, etc..). In the second stage, negations will be carried out with the selected contractors and finalise the contractor who is getting the award of the contract.

Following documents will be examined in the first stage,

  • Schedule of rates for main items
  • Detailed preliminary breakups
  • Construction programme with resources & method statements
  • Percentage of overheads & profit.
  • Basic rates of main resources (Material, Labour and Plant)
  • Past qualification details
  • Past finance details

Serial Tendering

In this method series of negotiations and awards taking place with the project timeline. These type of serial tenders are used for large & complex nature projects where there are many phases of constructions involve.

As the initiation, first phase designs & specifications are completed. Based on those details, the contractor for the first phase is selected. This first selection will be made according to selective competitive tendering & negotiations following the tendering process.

While the constructions of the first phase are progressing on the designs & specifications of the other phases will be completed. Then the negations are carried out to select the contractors for these extended phases. Since there is a selected contractor for the first phase, negations will be started with the same first phase contractor first. Depending on the success or failures of these negotiations, other contractors may become involved or not for the negotiations.

Since the first contractor is already mobilised to the site, he can offer a good competitive offer at the negotiations and client can have some savings on mobilisation costs.

Disadvantages of Serial Tendering

  1. The client may lose competitiveness in the tendering.
  2. High markups may add to the extended phases.

Negotiations

In this method employer is directly inviting one or two contractors of his choice to offer their bids and the negations will be carried out base on these bids. Most often, this method will be used for specialised works, refurbishment work or extension projects. In a negotiated project, there is a good chance of being satisfied for both parties because negotiation is carried out base on the previous satisfactory working experience & the relationship.

Advantages of Negotiations

  1. The client is having an excellent opportunity for getting a good comfortable price.
  2. Time-saving is there since this not required long tender process.

Disadvantages of Negotiations

  1. Not suitable for all types of clients, especially for the public sector.
  2. Limitation to the newcomers.
  3. Favouritism is highly entertained.
  4. The Contractor has a significant chance of manipulating market prices.

Nominated Tendering

Nominated Tendering is also mainly used for specialised works, refurbishment or extension works. Most of the times contractor could offer high prices since there is no competition at all. But the control will take on the invitation will be base on the great relationship between the contractor & the client.

Read more about Stakeholders in the Construction Industry.

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