Project preparation and tendering - Trent Global · 2016. 10. 28. · Project preparation and...

School of the Built Environment

Project preparation and tendering

Unit 1 Learning Outcomes Project set-up models and contractual arrangements

Company operational policies and how they relate to project

tendering

Tendering procedures and processes

The risks involved in construction contracts and how these are negotiated



Planning and Control Functions Introduction

Almost all projects require formal and detailed planning due to

constraints of time and resources.

The integration of the planning activities is necessary as each functional unit may develop its own planning documentation with

little regard for other functional units.

There are four basic reasons for project planning:

To eliminate or reduce uncertainty

To improve efficiency of the operation

To obtain a better understanding of the objectives

To provide a basis for monitoring and controlling work.



Planning and Control Functions

‘Planning’ can best be defined as ‘the function of selecting the

enterprise objectives and establishing the policies, procedures, and programs necessary for achieving them’.

Planning is decision making and involves choosing from alternatives

Planning is a required management function to facilitate the comprehension of complex problems involving interacting factors

There are involuntary and voluntary reasons for planning Involuntary reasons are mandatory functions of the organisation or external correlations to environmental fluctuations, uncertainty and discontinuity. Voluntary reasons for planning are an attempt to secure efficient and effective operations




Planning in a project environment may be described as establishing a predetermined course of action within a forecasted environment.

The project’s requirements set the major milestones, which the line managers hope to meet.

If the line manager cannot commit because the milestones are perceived as unrealistic, the project manager may have to develop alternatives, one of which may be to move the milestones.

Upper-level management must become involved in the selection of alternatives during the planning stage.

The project manager is the key to successful project planning. It is desirable that the project manager be involved from initiation to end




Project planning must be systematic, flexible enough to handle unique activities, disciplined through reviews and controls, and capable of accepting multifunctional inputs. Successful project managers realize that project planning is an iterative process and must be performed throughout the life of the project. The main objective of project planning is to completely define all work required so that it will be identifiable to each project participant because:

If the task is well understood prior to being performed, much of the work can be pre-planned. If the task is not understood, then during the actual task execution more knowledge is gained that, in turn, leads to changes in resource allocations, schedules, and priorities. The more uncertain the task, the greater the amount of information that must be processed in order to ensure effective performance.




Typically, the essential elements behind a well-managed plan will

involve: Forecasting - Involving (e.g.) diagnosis of situation, collation of information, consideration and prognosis, formulation of logical conclusion…etc.

Strategising - The process of forethought as to (e.g.) how, when and where a specific operation is to be executed.

Organising - Provides the static structure enabling the executive functions to operate, involves the definition of responsibilities and duties of personnel, analysing relationships and formulating and implementing standard procedures.




Further typical elements behind a well-managed plan will involve:

Motivating - A social process of cultivating morale, inspiring loyalty & producing a climate conducive to optimal productivity.

Controlling - The comparison of actual performance with planned standards, the application of corrective measures and recording results for future planning.

Coordinating - The prevention of separation into units competing with one another as a consequence of specialisation, and the preservation of unity.

Communicating - The catalyst for the management process, the methods of transmitting information & plans, directing & instructing.




Formulating Policies and Procedures

Project policies must often conform closely to company policies, and are usually similar in nature amongst projects.

Top management must carry out its planning function by laying down the company policy after having considered both present and potential resources.

In accordance with company policy, tenders are put forward after pre-tender planning processes (refer to later unit) and cost estimates for a particular contract have been established.

Pre-tender planning establishes output standards in the form of long term plans for a contract via a master schedule.





Using the long term plan as a basis, short term planning is carried out to achieve the overall plan and to account for current developments.

Control is maintained by comparing actual progress with both short term and long term plans.

This process provides feed back of performance information to the pre-tendering department for the preparation of future tender plans.

Procedures, on the other hand, can be drastically different from project to project, even if the same activity is performed.





Planning varies at each level of the organisation. At the individual level, planning allows problems to be foreseen & the necessary adaptations made before irrevocable actions are taken. At the working group or functional level, planning must include:

Increased commitment to group goals Lateral communications.

Regardless of organisational or project level, planning must include: Recognition and resolution of group conflict of goals Assignment and acceptance of group responsibilities Increased motivation and commitment to organizational goals Vertical and lateral communications Coordination of activities between groups





Company /

Project

Policy

Production

Policy

Training

Plant &

Equipment

Procurement

and Contract

Potential

Resource/Asset

Current

Resource/Asset

Material

Resource

Continual

Education

Trade

Policy

Financial

Policy

Manpower

Policy

PR &

Marketing




Obstacles to Effective Planning

Managers do not always plan effectively due to the lack of understanding of the obstacles influencing the planning function.

Obstacles to planning in the building industry include: Time Span - As the duration of future operations increases, the accuracy of planning decreases. This arises from both the increase in probability of unforeseen factors disrupting the plan, and the natural tendency for current status and affairs to dominate the planning process. Unpredictable Events - In building, human aspects, political and economic interferences and force majeure may have unforeseen influences on production. Thus plans must be flexible enough to adapt to unpredictable events.




Further obstacles to planning in the building industry include:

Mental Ability – Not all managers hold the required level of skill in planning. Those of optimistic outlook must anticipate pessimistic occurrences. Past personnel errors must be examined to prevent recurrence. Lack of Information - Planning may be influenced by lack of information or deficiencies in accuracy and quality. These limitations must be accounted for. The Human Element - Planning is not a panacea that deprives site supervisors of their responsibility or authority. Also a system is only as good and efficient as the quality of its operatives. The Cost of Planning – Although planning requires time and money, it should not be considered a luxury. Planning costs are considered overheads and thus are indirectly related to the quantity of work.




Planning to Build

Construction plans are often initially structured through the breaking-down of the entire project into the appropriate elements. From these component parts, a chronological link can then be established to reintegrate all parts and to complete a logical project-time flow (master) schedule. For a contractor, the planning process for a project consists of three stages that run from the point at which a planner starts the plan for the construction of a facility, to the point at which the evaluation of the final output of the construction process is finished, namely

Estimation stage Monitoring and control stage Evaluation stage




Planning to Build

Estimation stage involves the development of a cost and duration estimate for the construction of a facility

It is the stage in which assumptions of resource commitment to the necessary activities to build the facility are made by a planner. A careful and thorough analysis of different conditions imposed by the construction project design and by site characteristics are taken into consideration to determine the best estimate. The success of a contractor depends upon this estimate, not only to obtain a job but also to construct the facility with the highest profit. The planner has to look for the time-cost combination that will allow the contractor to be successful in his commitment.


Project preparation and tendering Planning and Control Functions

Planning to Build

Estimation stage is critical for any project as;

The result of a high estimate would be to lose the project, and the result of a low estimate could be to win the project, but to lose money in the construction process.

When changes are made they should improve the estimate, taking into account not only present effects, but also future outcomes of succeeding activities.

It is very seldom the case in which the output of the construction process exactly echoes the estimate offered to the owner.




Planning to Build

Monitoring and Control stage - Here the construction manager has to keep constant track of activities’ durations and ongoing costs.

It is misleading to think that if the construction of the facility is on schedule or ahead of schedule, the cost will also be on the estimate or below the estimate, especially if several changes are made.

Constant evaluation is necessary until the construction of the facility is complete.

When work is finished in the construction process, and information about it is provided to the planner, the third stage of the planning process can begin.




Planning to Build

Evaluation stage – In this stage the results of the construction process are matched against the estimate.

A planner deals with this uncertainty during the estimate stage.

Only when the outcome of the construction process is known is he/she able to evaluate the validity of the estimate.

It is in this last stage of the planning process that he or she determines if the assumptions were correct.

If they were not or if new constraints emerge, he/she should introduce corresponding adjustments in future planning.




Site Management Functions

The management of construction projects requires knowledge of modern management as well as an understanding of the design and construction process.

Construction projects have a specific set of objectives and constraints such as a required time frame for completion.

While the relevant technology, institutional arrangements or processes will differ, the management of such projects has much in common with the management of similar types of projects in other speciality or technology domains such as aerospace, pharmaceutical and energy developments.





Generally, project management is distinguished from the general management of corporations by the mission-oriented nature of a project.

The discipline of project management can be defined as:

“The art of directing and coordinating human and material resources throughout the life of a project by using modern management techniques to achieve predetermined objectives of scope, cost, time, quality and participation satisfaction.”

(PMI ‘96)





The basis of a project management framework is formed via a balanced combination of general management, specialised knowledge, and supporting disciplines.

A working knowledge of general management and familiarity with the special knowledge domain related to the project are indispensable.

In fact, modern management practices and various special knowledge domains have absorbed various techniques or tools that were once identified only with the supporting disciplines (e.g. computer-based information systems are now essential tools for general management).

Similarly, many operations research techniques such as linear programming and network analysis are now widely used in many knowledge or application domains.





The functions of project management for construction generally include the following:

Specification of project objectives and plans including delineation of scope, budgeting, scheduling, setting performance requirements, and selecting project participants.

Maximisation of efficient resource utilisation through procurement of labour, materials and equipment according to the prescribed schedule and plan.

Implementation of various operations through proper coordination and control of planning, design, estimating, contracting and construction in the entire process.

Development of effective communications and mechanisms for resolving conflicts among the various participants.



Pre-Tender Planning

The Tender Process

Due to the unique nature of constructed facilities, it is usual to have a separate price for each individual element of the works. The contract price that a contractor submits typically encompasses the direct project cost plus an allowance for overheads, profit and overall attendance (know as preliminaries). The factors influencing the pricing strategy of a contract vary by type of facility and location. Within each of the major categories of construction such as residential housing, commercial buildings, industrial complexes and infrastructure, there are smaller segments that have very different environments with regard to price setting.



Pre-Tender Planning

The Tender Process

Common Systems of Tender

Competitive/Open Bidding Lump Sum Unit Price

Negotiated Contracts

Cost plus fixed percentage

Cost plus fixed fee Cost plus variable fee Guaranteed maximum price or cost



Pre-Tender Planning

The Tender Process

Common Systems of Tender

Competitive/Open Bidding Used for most Public Sector contracts Usually based on prepared plans and specifications Lump sum on complete design, Unit price when design uncertain

Negotiated Contracts

Mainly used in the Private Sector

Gives flexibility to enter contracts when design is incomplete Requires more control from the Client



Pre-Tender Planning

The Tender Process

Pre -Tender Procedures

Broadly speaking, pre-tender planning can be divided into five

primary stages, namely:

Feasibility assessment of notices and invitations

Tender appreciation

Pricing of contract items (i.e. bill of quantities) and formulation of

outline contract plan (i.e. schedule, method statement etc.)

Final tender decisions

Anticipation of award and post-tender negotiations and

administrations.



Pre-Tender Planning

The Tender Process


General Sequences of Pre-Tender Planning

Feasibility Assessment

of Notices & Invitations

Tender Appreciation

Pricing of Bill of

Quantities

Preliminary Contract

Plan

Anticipation of Award /

Post-Tender Administrations

Tender Finalisation

Stage 1

Stage 2

Stage 3

Stage 4

Stage 5



Pre-Tender Planning

The Tender Process

Feasibility Assessment of Notices and Invitations (Stage 1)

The cost of preparing tenders is high and only those contracts that

have profit or prestige potential receive full attention Those with less

potential may utilise a more limited planning and estimation resource.

For this reason, higher management should classify tender notices

and invitations into the following:

Those definitely wanted

Those desirable at the right price

Those not obviously attractive

Those not wanted at any price.



Pre-Tender Planning

The Tender Process

Feasibility Assessment of Notices and Invitations (Stage 1)

Evaluation of the project is subject to the following considerations:

The Company’s niche market within the industry itself (e.g. a contractor who specialises in refurbishment may not consider bidding for a new-build contracts, as it will not be as competitive Company’s financial status (current & within reasonable forecast) Company’s capability to mobilise ALL necessary resources to deliver the tender description of contract in full to the client . Statutory restrictions/ tender criterion Previous encounter/conflict with client, consultants and all confirmed/key contract participants.



Pre-Tender Planning

The Tender Process





Tender Appreciation

Pricing of Bill of

Quantities


Plan



Tender Finalisation

Stage 1

Stage 2

Stage 3

Stage 4

Stage 5


Project preparation and tendering Pre-Tender Planning

The Tender Process

Tender Appreciation (Stage 2)

This stage involves the collection of all relevant information and material that will form the basis upon which the tender sum and preliminary plans of contract be derived.

Much of this is contained in the contract documents (i.e. drawings, specifications, pro-forma, tables, schedules and the like),

It is imperative for bidding contractors to acquire ancillary information in support of their tender appraisal so as to enhance accuracy of the bid, and also to gain that added advantage over potential competitors

Most bidding contractors will conduct their own site inspections, but few will endeavour to find out about (e.g.) site history, client’s intentions, the client/consultant team(s), any previous conflict of interest, any ‘hidden’/implicit elements or extraordinary requirements/restrictions



The Tender Process: Tender Appreciation (Stage 2)

Some basic points to note in a site survey:

Whenever possible, conduct an outline pre-condition survey of the existing site, its properties and those from the surrounding areas

This may prove invaluable in fine-tuning the tender price and also should disputes arise during or after the contract undertaking.

Status and locations of service runs may have to be surveyed, soil information and overall ground conditions to be ascertained...etc. Check to confirm if the site is close to sensitive structures. Owners will enforce the manner in which the work has to be carried out when encroaching

Confirm information on existing grid and site level and any restrictions due to topography of the site.

Ensure that all existing or proposed traffic routes remain, or can be made obstruction-free and pose no hazard and hindrance to the public.

Find out if there is neighbouring restrictive construction activity



Pre-Tender Planning

The Tender Process





Tender Appreciation

Pricing of Bill of

Quantities


Plan



Tender Finalisation

Stage 1

Stage 2

Stage 3

Stage 4

Stage 5



Pre-Tender Planning

The Tender Process

Tender Preparation (Stage 3)

In general, the pre-tender phase can be divided into two sections:

1) The pricing of the bill of quantities

The company must examine the bill of quantities and drawings at this stage to formulate the general policy for the contract.

The estimator will make a decision regarding which trades may or should be sub-contracted

These sections of the bill, together with the relevant documents (e.g. drawings, specifications…etc.) will be duplicated and formally issued as soon as possible to the respective external/specialist firms for an early and accurate set of quotations.



Pre-Tender Planning

The Tender Process

Tender Preparation (Stage 3)

In general, the pre-tender phase can be divided into two sections:

2) The preparation of the pre-tender plan – The planner will extract planning quantities and interpret the

construction at all stages. It must be understood that quantities measured according to (e.g.)

the Standard Method of Measurement (SMM) do not always convey the most economical or practical method of construction.

The planner must also establish requirements such as: class of workmanship required, special methods and/or sequences of construction, formwork limitations, bay sizes of RC floors, maximum spans between expansion joints…etc.



Pre-Tender Planning

The Tender Process

Tender Preparation (Stage 3a) - Construction Cost Estimation

Cost estimating is arguably the most important phase in pre-tender planning.

A cost estimate establishes the base line of the contract cost, and at different stages of its development as well, which is extremely crucial to the contractor’s cash-flow budgeting of the project.

This is the time when judgment and experience of the company’s team are utilised in the application of principles and techniques to the problem of cost estimation, cost control and profitability.

Also, construction cost constitutes a substantial percentage of the Client’s project budget and its accuracy will reflect the information available at the time of estimation.



Pre-Tender Planning

The Tender Process

Tender Preparation (Stage 3a) - Construction Cost Estimation For the contractor, a bid estimate submitted to the Client either for

competitive bidding or negotiation consists of direct construction

cost including site supervision, plus a mark-up to cover general

overhead and profits.

The direct cost of construction for bid estimates is usually derived

from a combination of the following approaches:

Subcontractor quotations

Quantity takeoffs

Construction procedures



Pre-Tender Planning

The Tender Process


The contractor’s bid estimates often reflect the desire of the

contractor to secure the job as well as its available estimating tools

Some contractors have better-established cost estimating procedures

than others.

Since more often than not, only the lowest bidder will be the winner

of the contract in a bidding contest, any effort devoted to cost

estimating is a loss to the contractor who is not a successful bidder.

Consequently, the contractor may put in the least amount of possible

effort for making a cost estimate if it believes that its chance of

success is not high.



Pre-Tender Planning

The Tender Process


If a Contractor intends to use subcontractors in the construction of a facility, subcontractor prices are sought. Thus, the contractor shifts the burden of cost estimating to the subcontractor

For any construction that is to be undertaken by the Contractor, the cost estimate is based on quantity takeoffs from plans provided by the Client or based on construction procedures devised by the Contractor

The Contractor will either use either his own or published historical information, or he will assess the cost of construction on a one-off basis

Items such as labour, material and equipment needed to perform various tasks will be used as parameters to compile the cost estimates.



Pre-Tender Planning

The Tender Process

Tender Preparation (Stage 3a) – Scale of Works

Costs do not always vary linearly with respect to different quantities, sizes and amounts of contractual input for example:

It will cost less for a contractor to cast a hundred cubic metres of fresh concrete at a single location via a continuous process, than to distribute the same amount to several locations or to do so with enhanced difficulty in delivery…etc.

Likewise, the unit pricing of asphalt, pre-cast components, labour and the like by a civil contractor intending to resurface a neighbourhood car park will definitely be much higher than his counterpart pricing to do the same to a hundred kilometre-stretch six-lane expressway.



Pre-Tender Planning

The Tender Process

Tender Preparation (Stage 3a) – Estimation of Unit Cost

External Quotations – involves both suppliers and subcontractors. The breaking down of a project into subcontractor items for

quotation involves a minimum work for the general contractor. The accuracy of the resulting estimate depends on the reliability

of the subcontractors Due to the reliance on external parties to provide cost estimates

for materials, workmanship, or both, it is imperative that the contractor keeps records of external quotations (e.g. nature of trade, types of material…etc.) and constantly update



Pre-Tender Planning

The Tender Process

Tender Preparation (Stage 3a) – Estimation of Unit Cost

Quantity Takeoffs - The breakdown of a project into items of quantities that are measured (or taken off) from the contract documents will result in a procedure similar to that adopted for a detailed estimate by the client’s consultant quantity surveyor.

The levels of detail may vary according to the needs of the contractor and the availability of cost data.

Construction Procedures - If the construction procedure of a proposed project is used as the basis of a cost estimate, the project may be further broken-down into items such as labour, material and plant/equipment needed



Pre-Tender Planning

The Tender Process

Tender Preparation (Stage 3a) – Cost Data and Archive

Archived cost data will be useful for cost estimation only if it has been collected and organised in a way that is compatible with future applications, and is regularly updated

Errors in analysis also serve to introduce uncertainty into cost estimates.

It is difficult to foresee all problems that may occur during construction, and there is evidence that estimates of construction costs have tended to persistently understate its actual figures.

This could be due to the effects of overly anticipated increments in costs, variable designs, or simply over-optimism.



Pre-Tender Planning

The Tender Process

Tender Preparation (Stage 3a) – Cost Data and Archive

Since the costs of construction are influenced by many uncertain factors, it is important to recognise that this risk must be borne to some degree by all parties involved, ranging from the Client, the design professionals, the contractors.

It is to the best interest of all parties that the risk-sharing scheme implicit in the design/construct process adopted by the Client is fully understood by all.

When inflation-adjustment provisions have very different risk implications to various parties, the price level changes will also be treated differently for various situations



Pre-Tender Planning

The Tender Process

Tender Preparation (Stage 3a) – Inflation Cost Indices

As construction costs vary in different regions, locational indices

showing the construction cost at a specific location relative to its

regional/national trend are useful for cost estimation.

Since historical cost data are often used in making cost

estimates, it is important to note the price level changes over

time.

When the inflation rate is relatively small, (i.e. less than 10%), it is

convenient to select a single price index to measure the

inflationary conditions in construction



Pre-Tender Planning

The Tender Process

Tender Preparation (Stage 3a) – Cost Indices



Pre-Tender Planning

The Tender Process

Tender Preparation (Stage 3a) – Computerised Cost Estimation

Numerous cost estimation software systems are available,

ranging from simple spreadsheet calculation software to

integrated systems involving design and price negotiation over

the internet.

While any software involves costs for purchase, maintenance,

training and computer hardware, significant efficiencies often

result. In particular, cost estimates may be prepared more rapidly

and with less effort.



Pre-Tender Planning

The Tender Process

Tender Preparation (Stage 3a) – Computerised Cost Estimation

Features of a computerised cost estimation software include

Databases for unit cost items such as worker wage rates,

equipment rental or material prices.

Databases of expected productivity for different components

types, equipment and construction processes.

Import utilities from computerised design software for automatic

quantity-take-off of components.

Export utilities to send estimates to cost control and scheduling

software.

Archives of past projects to allow rapid cost-estimate updating

or modification for similar designs



Pre-Tender Planning

The Tender Process

Tender Preparation (Stage 3a) – Pricing the Tender

Regardless of the type of construction contract, every contractor should recognise that the actual construction cost will never be identical to the estimate due to imperfect information and the unavoidable variation orders during construction.

Some Clients or Contractors may make use of the need/desire for variation orders (i.e. in the form of additions and omissions to the original design intention as contracted based on the tender submission) to their own advantage.



Pre-Tender Planning

The Tender Process





Tender Appreciation

Pricing of Bill of

Quantities


Plan



Tender Finalisation

Stage 1

Stage 2

Stage 3

Stage 4

Stage 5



Pre-Tender Planning

The Tender Process

Planning and Programming (Stage 3b)

The development of a construction plan is very much analogous

to the development of a good facility design.

The planner must weigh the costs and reliability of different

options while at the same time ensuring technical feasibility.

On the one hand, construction planning is complex since the

building process is dynamic and both the site and the proposed

structure will change over time throughout the contract duration.

On the other hand, construction operations are fairly

standardised, thus providing a rich source of archived reference

relevant to most current and future planners.



Pre-Tender Planning

The Tender Process


Forming a good construction plan is an exceptionally challenging

problem as there are numerous possible plans for any given

project.

While past experience is a good guide to construction planning,

each project is likely to have its own unique problems or

opportunities that may require considerable ingenuity and

creativity to overcome or exploit.

There are some recommendations or issues that can be

addressed to describe the characteristics of good plans, but this

does not necessarily tell a planner how to discover a good plan.



Pre-Tender Planning

The Tender Process


The programming of projects is shaped by the strategic plan of an

organisation, which is influenced by market demands and

resources constraints.

The programming process associated with planning and

feasibility studies sets the priorities and timing for initiating

various projects to meet the overall project objectives.

Among various types of construction, the influence of market

pressure on the timing of a construction contract is most obvious

E.g. the trend of industrial construction moves toward shorter

project life cycles, particularly in technology intensive industries



Pre-Tender Planning

The Tender Process


In order to gain an extra edge, contractors try to fathom the

client’s needs and demands from both tender documents and any

forms of interaction

Subsequently they try to envisage the final requirements based

upon the tender documents.

This exercise is ideal for ‘pre-empting’ the what, where and when

of potential variation orders to be expected during construction.

Some contractors may be confident enough to ‘mark-down’ its

tender bid significantly due to (e.g.) ‘privileged’ information

In the global construction industry, this is a high-risked gamble

that most contractors are willing to take.



Pre-Tender Planning

The Tender Process


Ability to Influence Construction Cost Over Time



Pre-Tender Planning

The Tender Process

Planning and Programming (Stage 3b) – Pre-Tender programme

The first step in formulating the pre-tender programme is to decide the general manner in which the contract will be constructed.

The planner has to deliberate on some basic parameters, such as: The point at which construction begins and the direction of flow The items of major plant and their locations on site The methods for the bulk items of the work Access to and fro the site, as with its internal access routes The necessity for and location of site amenities

All these factors are highly correlated and the planner and estimator must evaluate all the above and select the most suitable taking into account chiefly time and cost constraints.



The Tender Process


The planner has to confirm the outline sequence of works and produce a preliminary method statement for both himself and the cost estimator’s reference

This method statement could be made more detailed and defined by the inclusions of information such as outlined sketches, risk analysis and the like to supplement complex work sequences

Should time permit and additions be deemed important prior to the finalisation of tender, the planner and the estimator will formulate schedules of quantity, plant & labour into the method statement

Once the contract’s works sequence have been mapped out, the planner can then draft out the required contract schedule and has to decide on which method of presentation to use



Pre-Tender Planning

The Tender Process


The procedure for producing a time schedule will be discussed in the Unit 2. In summary however, it is as follows: i. Define and list operations and phases of work ii. Identify the crucial activities and works that command additional

resources or stringent monitoring. iii. Estimate the contract’s overall commencement and completion

dates so as to establish basic timescales. iv. Identify correlated works and mark their predecessors. v. Plot the chart in accordance to a logical sequence whilst

maintaining economical and practical scheduling of labour and resources.



Pre-Tender Planning

The Tender Process

Planning & Programming (Stage 3b) – Information for the Estimator

During the production of the pre-tender programme, the planner supplies the estimator with information which is essential to deriving an accurate forecast of cost, such as: Overall contract duration Types and quantity of plant, equipment, temporary

works…etc. required and duration on site. Labour requirements, accommodation details, supervisory and

staff requirements…etc. Confirmation of the requirements to engage external parties

(e.g. sub-contractors).



Pre-Tender Planning

The Tender Process


The estimator and planner then produce various documents or bundles of information that they have used or calculated during pricing and programming.

These documents will be used in Stage 4 when higher management makes decisions ranging from overheads to profits etc.

Should the contract be awarded to the contractor, this information will be useful to future site management

Some contractors may develop the site organisational structure and its affiliated dissemination of duties at this stage, usually due to client’s requirements.



Pre-Tender Planning

The Tender Process


TENDER PLANNING FOR ST. MUNGO’S SCHOOL - DIAGRAMS



Pre-Tender Planning

The Tender Process


TENDER PLANNING at ST. MUNGO’S SCHOOL– METHOD STATEMENT



Pre-Tender Planning

The Tender Process


TENDER PLANNING at ST. MUNGO’S SCHOOL– PROGRAMME



Pre-Tender Planning

The Tender Process





Tender Appreciation

Pricing of Bill of

Quantities


Plan



Tender Finalisation

Stage 1

Stage 2

Stage 3

Stage 4

Stage 5



Pre-Tender Planning

The Tender Process

Tender Finalisation (Stage 4)

When the estimator has completed pricing the bill items, the basis for the tender is ready for endorsement by higher management

Subsequent decisions and adjustments with regard to the pre-tender team’s proposal can be are made by higher management

They may wish to cut the estimator’s price or the programmed duration due to the desirability of obtaining the contract, or receipt of ancillary information or market intelligence…etc.

As mentioned earlier, this practice though prevalent, is a form of gamble, based on ‘gut-feeling’, and is anything but scientific.

It may also be desirable to offer the client an alternative price and contract duration.



Pre-Tender Planning

The Tender Process

Tender Finalisation (Stage 4) Prior to submitting the tender bid, contractors may like to re-examine

the company’s objectives in bidding ‘for the job’, in parallel with the fundamentals of competitive bidding, and to explore the risk allocations

Competitive bidding on construction projects involves decision making under uncertain conditions as each bidder does not know how its competitors is likely to bid.

Each bid submitted by a contractor will be determined by a large number of factors, including an estimate of the direct job cost, the general overhead, the confidence that the management has in this estimate, and the immediate and long-range objectives of management.

It is impossible for a particular bidder to attempt to predict exactly what the bids submitted by its competitors will be.



Pre-Tender Planning

The Tender Process

Tender Finalisation (Stage 4) - Principles of Competitive Bidding

It is useful to think of a bid as being made up of two basic elements: i. the estimate of elemental tender cost, which includes direct

labour costs, material costs, plant and equipment costs, and direct filed supervision

ii. the mark-up or return, which must be sufficient to cover a portion of general overhead costs and allow a fair profit on the investment.

A large return can be assured simply by including a sufficiently high mark-up.



The Tender Process


However, the higher the mark-up, the less chance there will be of securing the job.

Consequently a contractor who includes a very large mark-up on every bid could become bankrupt from lack of business.

Conversely, the strategy of bidding with very little mark-up in order to obtain high volume of work is also likely to lead to bankruptcy.

Somewhere in between the two extreme approaches to bidding lies an ‘optimum mark-up’ which considers both the return and the likelihood of being a competitive bidder in such a way that, over the long run, the average return is maximised.



Pre-Tender Planning

The Tender Process


Most contractors confront uncertain bidding conditions by exercising a high degree of subjective judgment, and each contractor may give different weights to various factors.

The decision on the bid price, if a bid is indeed submitted, reflects the contractor's best judgment on how well the proposed project fits into the overall strategy for the survival and growth of the company,

It also reflects the contractor's propensity to risk greater profit against the chance of not getting a contract.

One major concern in bidding competitions is the financial ‘gap’ or difference between the winning and the next best bid.

The winning bidder would like the gap to be as narrow as possible.



Pre-Tender Planning

The Tender Process

Tender Finalisation (Stage 4) - Macroeconomic Factors

Contractors generally tend to specialise in a sub-market/niche of

construction and concentrate their work in particular geographic

locations.

The level of demand in a niche market at a particular time can

influence the number of bidders and their bid prices.

When work is scarce in the sub-market, the average number of

bidders for projects will be larger.

The net result of scarcity is likely to be the increase in the number

of bidders per project and downward pressure on the bid price for

each project in the sub-market.



Pre-Tender Planning

The Tender Process

Tender Finalisation (Stage 4) - Macroeconomic Factors

At times of severe scarcity, some contractors may cross the line

between market segments so as to expand their niche, or move

into new geographic locations to get a larger share of the existing

sub-market.

Either action will increase the risks incurred by such contractors

as they move into less familiar segments or territories.

Furthermore, the perceptions of increase in inflation rates and

interest rates may also cause the contractor to use a higher mark-

up to hedge the uncertainty.



Pre-Tender Planning

The Tender Process

Tender Finalisation (Stage 4) - Competition in Bidding

All other things being equal, the probability of winning a contract

diminishes as more bidders participate in the competition.

Consequently, a contractor tries to find out as much information as

possible about the number and identities of potential bidders on a

specific project.

For certain market segments, potential competitors may be identified

through private contacts, and bidders often confront the same

competitors project after project

Most contractors form a supply chain network with a group of

subcontractors with whom they have previous business transactions.

They usually rely on their own experience in soliciting subcontract bids

before finalising a bid price for the project.



Pre-Tender Planning

The Tender Process

Tender Finalisation (Stage 4) - Objectives during Bidding

The bidding strategy of some contractors is influenced by a policy of minimum percentage mark-up for general overheads and profit.

The percentage mark-up may also reflect additional factors stipulated by the Client such as high retention and slow payments for completed work, or perceptions of uncontrollable factors in the economy.

The intensity of a contractor's efforts in bidding a specific project is influenced by the contractor's desire to obtain additional work.

The winning of a particular project may be potentially important to its current mix of work and/or the cash flow implications for the contractor.

The contractor's decision is also influenced by the availability and competence of key personnel in the contractor’s organisation.

A company may reserve its resources for future projects


Site Management and Planning

Pre-Tender Planning

The Tender Process

Tender Finalisation (Stage 4) - Contractor's Comparative Advantages

A final important consideration in forming bid prices on the part of

contractors are the possible special advantages enjoyed by a

particular firm.

As a result of lower costs, a particular contractor may be able to

impose a higher profit mark-up yet still have a lower total bid than

competitors.

These lower costs may result from superior technology, greater

experience, better management, better personnel or lower unit costs.

A comparative cost advantage is the most desirable of all

circumstances in entering a bid competition



Pre-Tender Planning

The Tender Process

Tender Finalisation (Stage 4) - Provisions for Risk Allocation

Provisions for the allocation of risk amongst parties to a contract

can appear in numerous areas in addition to the total construction

price.

Typically, these provisions assign responsibility for covering the

costs of possible or unforeseen occurrences.

A partial list of responsibilities with concomitant risk that can be

assigned to different parties follows



Pre-Tender Planning

The Tender Process


Force majeure Indemnification Liens Labour laws Differing site conditions Suspension of work, Warranties and guarantees

Delays and extensions of time, Liquidated (ascertained) damages Consequential damages Occupational health & safety of workers Permits, licenses, laws, and regulations Equal employment regulations Termination for default by contractor



Pre-Tender Planning

The Tender Process


The language used for specifying the risk assignments in these

areas must conform to legal requirements and past interpretations

that may vary in different jurisdictions or over time.

Without using standard legal language, contract provisions may

be unenforceable.

Unfortunately, standard legal language for this purpose may be

difficult to understand.

As a result, project managers often have difficulty in interpreting

their particular responsibilities.



Pre-Tender Planning

The Tender Process


Competent legal counsel is required to advise the different parties

to an agreement about their respective responsibilities.

Standard forms for contracts may include risk and responsibility

allocations that are unacceptable to one or more of the

contracting parties.

In particular, standard forms may be biased to reduce the risk and

responsibility of the originating organisation or group.

Parties to a contract should read and review all contract

documents carefully.



Pre-Tender Planning

The Tender Process

Tender Finalisation (Stage 4)-Risks & Incentives on Build Quality

All Clients want quality construction at a reasonable contract price, but not all are willing to share risks and/or provide incentives to enhance the quality of construction.

In recent years, more Clients recognise that they do not get the best quality of construction by squeezing the profit of the contractor, unreasonably, and they accept the concept of risk sharing/risk assignment in principle when placing construction contracts.

However, the implementation of such a concept recently has

received mixed results.



Pre-Tender Planning

The Tender Process

Post -Tender Procedures




Tender Appreciation

Pricing of Bill of

Quantities


Plan



Tender Finalisation

Stage 1

Stage 2

Stage 3

Stage 4

Stage 5



Pre-Tender Planning

The Tender Process

Post Tender Provisions (Stage 5)

There are numerous factors for both client and consultants to consider prior to the official award of a contract, with the financial bid being but one of them.

A contractor will have to maintain a good track record for its past and current projects, a clean bill of legal health, strong (if not, adequate) financial standing…etc. in order to ‘win’ the client and his team over.

It is during this post-tender submission stage when the contractor may be called by either the client or his consultants for a tender clarification interview

In most cases a post-tender interview presents a not-to-be-missed opportunity for the contractor to present itself in the best possible light



Pre-Tender Planning

The Tender Process

Post Tender Provisions (Stage 5)

This invitation may come before or after the official release of the provisional tender result (‘Provisional’ because the list reports purely the exact amounts as bid).

Only upon confirmation of award to a particular tenderer, could the result be deemed ‘final’.

Regardless however, should the contractor be sincere and eager to clinch the job, it will prime its own tender team to handle anticipated enquires articulately and to speak supportively as a team.

Also, it may be worthwhile to prepare a presentation to introduce the company to the Client and to highlight its strengths, as well as the its

project knowledge and commitment to the proposed project.



The Tender Process

Post Tender Provisions (Stage 5) - Principles of Negotiation

Negotiation is another important way of arranging construction contracts.

Contracts or project managers often find themselves as participants in negotiations, either as principal negotiators or as expert advisors.

These negotiations can be complex and often present important opportunities and risks for the various parties involved.

E.g., negotiation on work contracts can involve issues such as completion date, arbitration procedures, special work item compensation, contingency allowances as well as the overall price.

Generally, factors such as the history of a contractor and the general & industry economic climate will determine the results of negotiations



Pre-Tender Planning

The Tender Process


However, the skill of a negotiator can affect the possibility of reaching an agreement, the profitability of the project, the scope of any eventual disputes, a client’s intention to impose significant contract changes, etc.

Thus, negotiation is an important task of a manager in construction. Even after a contract is awarded on the basis of competitive bidding,

there are many occasions in which subsequent negotiations are required as conditions vary over time.

Poor negotiating strategies adopted by one or the other party may also preclude an agreement even with the existence of a feasible

agreement range.



The Tender Process


The possibility of negotiation breakdown highlights the importance of negotiating style and strategy with respect to revealing information.

Style includes: extent to which negotiators are willing to be reasonable, the type of arguments chosen, the forcefulness of language used, etc.

Clearly, different negotiating styles can be more or less effective. Cultural factors are also extremely important.

It is often beneficial to all parties to adopt objective standards in determining appropriate contract provisions.

Objective standards can be derived from numerous sources, including market precedent, professional standards, what a court would decide, etc.

By using objective criteria of this sort, personalities and disruptive negotiating tactics do not become impediments



The Tender Process


Negotiations can become more complex both in procedure and in result. So, the sequence in which issues are considered can be very important. E.g., negotiations may proceed on an issue-by-issue basis, and the

outcome may depend upon the exact sequence of issues considered. Alternatively, the parties may proceed by proposing complete

agreement packages and then proceed to compare packages. With respect to outcomes, the possibility of the parties having different

valuations or weights on particular issues arises. In this circumstance, it is possible to trade-off the outcomes on

different issues to the benefit of both parties. By yielding on an issue of low value to himself but high value to the

other party, concessions on other issues may be obtained.



Pre-Tender Planning

The Tender Process

Pricing and Planning Amidst Industrial Risks

The uncertainty in pricing and undertaking a construction project comes from many sources and often involves many participants in the project. Since each participant tries to minimise its own risk, the conflicts among various participants can be detrimental to the project. The Client has the power to moderate such conflicts as it alone holds the key to risk assignment through proper contractual relations with all participants. Failure to recognise this responsibility by the Client often leads to undesirable results.


Socio-economic factors Environmental protection Public safety regulation Economic instability Exchange rate fluctuation Organisational relationships Contractual relations

Attitudes of participants Communication Technological problems Design assumptions Site conditions Construction procedures Construction occupational safety


Pre-Tender Planning

The Tender Process


Risks in construction may be classified in a number of ways, including:



The Tender Process


In order to control costs, some Clients attempt to use fixed price contracts so that the risks related to an overheated economy are passed on to Contractors. However, Contractors will raise their prices to compensate for the additional risks. Economic conditions worldwide have further reinforced the climate of uncertainty with high inflation and interest rates. Clients are keenly interested in achieving a breakthrough that will lower the costs of projects and mitigate or eliminate lengthy delays. Such breakthroughs are seldom planned and only happen when the right conditions exist,


2.0 CONSTRUCTION RISKS COUNCIL SHARED CONTRACTOR SPV Gateway BUILDER FM INSURANCE

Demolition required ✔

Availability and capability of service utilities ✔

Risk of off site works by Contractor (e.g. utilities impacting upon the cost and project programme)

✔

Risk of offsite works by Council and resulting in limited access - cost and programme impact

✔

Site Safety and Health and Safety ✔

Site Security ✔

Risk that site conditions determine additional work to be undertaken prior to or during construction

✔

unforese

eable

Construction Delay (inclusive of all implications, e.g. Cost, Quality etc)

✔

Encumbrances ✔ with workable

restrictions

Contractor cannot start on time – no access ✔

Contractor cannot start on time – cannot mobilise

✔

Third Party Claims – e.g. subsidence, loss of income etc.

✔

Industrial Action ✔ fm prolongation

costs

Adverse Weather Conditions ✔

Compliance with CDM Regulations ✔

Compliance with Asbestos Legislation ✔ fm prolongation

costs

Change in Law – Specific / Discriminatory ✔

Change in Law – General ✔ non-constr. Issues

Contractor Defaults (Prime and all subcontracts)

✔

Project Management ✔ issues project-

wide

Giang

Stamp

Project preparation and tendering - Trent Global · 2016. 10. 28. · Project preparation and...

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Transcript of Project preparation and tendering - Trent Global · 2016. 10. 28. · Project preparation and...