Evaluating The Tender Process For Contracts
A tender is in simple terms, asking various companies how much they will charge to complete a project. A lump sum contract is a contract with a fixed contract sum that the principal agent has determined in conjunction with a quantity surveyor. The contract sum is then agreed on before the tender commences, this sum must include any anticipated price adjustments that may occur. Once the tenders are submitted the one which will be accepted is the one that is closest to this contract sum.
Step 1: Call for tenders.
Tendering can be dealt with in three ways:
A single tender can be put out to a contractor chosen by the client or principal agent, a price is negotiated between the parties involved and this is usually used for residential and private buildings.
A group of companies can be chosen and invited to tender on a project.
An open tender can be utilised where anyone may submit a tender for the job, this is usually used for public or government work.
For the purpose of the given assignment, number 2 is most suited as a pre-qualification process can be used to ensure that a contractor most suited for the project is chosen.
Step 2: Pre-Qualification.
The principal agent will send out, on behalf of the client, a pre-qualification document to a selected group of contractors who will list their qualifications and experience with similar types of projects, together with this they will be given an opportunity to motivate why they are best suited for the specific contract. This will be returned to the client and along with the principal agent they will decide on the three (3) best contractors for the job, these contractors will then be notified that they must submit a tender.
Step 3: Tender Documentation.
A ‘without quantities’ lump sum contract will be used for the given project. All municipal drawings, schedules and specifications (if required) are made available to the three parties chosen to tender for the project. A lump sum document must also be provided. This is to include amounts predetermined by the principal agent, quantity surveyor and client that need to be included in the amount quoted by the tenderer to cover works, goods, and materials such as sanitary ware and tiling due to the fact that final decisions have not been made on what exactly will be used. Allowances for Nominated and Selected Sub-Contractors must also be made for work that will be carried out by them during the contract period. Full allowances must be made for work that will be done by the contractor and the tenderer must include allowances for anticipated additional costs that may arise during the contract period. This is to include a contract price adjustment allowance for escalation arising from the increase of costs of goods and materials that may occur during the contract period.
Step 4: Period of validity of tenders.
The tender is valid for 45 calendar days as stipulated in the JBCC 2000 unless otherwise specified in the tender invitation, during this time the tender may not be withdrawn or amended by any parties involved.
Step 5: Qualification of tenders.
Qualifications, adjustments and alterations to the tender will only be considered if the main bid has been completed in full. An alternative bid can then be submitted by the tenderer with an alternative contract sum. Tenders may have conditions attached to them such as a contractor can build for x amount if the employer allows him/her to build with an alternative facebrick. If conditions are not wanted this will be specified beforehand.
Step 6: Receipt of tenders.
All the tenders must be delivered in a sealed envelope that does not reveal the companies name anywhere on it and must be delivered to a specific location on a specified date. These tenders are then opened in the presence of all the tenderers and the results are shown. No late tenders will be accepted. The employer is not legally obligated to accept the lowest tender and it is advisable to make this known to all the tenderers to prevent any disputes. The competition board does allow negotiations after the tenders are closed but once again this is up the client and the principal agent.
Step 7: Acceptance of the tender.
Once the chosen contractor has received notification of his/her acceptance a legal contract comes into existence, this can be an oral or written notification unless previously discussed otherwise. The acceptance must be made known to the person who submitted the tender or their legal representative otherwise the contract is not legal.
Step 8: Letter of intent.
The letter of intent is not a formal acceptance of the tender but a letter to show the clients intention to accept, therefore there are no legal obligations attached. It allows the contractor to commence any preparations for the job and to not take on any extra work. Any expense that the contractor may incur based on the letter of intent is done so at the contractor’s own risk. The letter of intent can stipulate that the contractor is conditionally accepted for the job, this can occur due to the client waiting for a loan and the contract comes into effect as soon as the loan has been approved. All of this must occur within the 45 calendar days and the contract does not need to be signed to make it legally binding.
Step 9: Securities and Insurances.
Securities and insurances may need to be shown within 21 calendar days of written acceptance of the tender before the signing of the contract, which securities and insurances are used is up the contractor and the client does not stipulate which ones are to be used. This is stipulated in clause 14.0 of the JBCC 2000, “14.1 The contractor shall have the right to select the security to be provided on terms of 14.3 or 14.4 as stated in the schedule. The choice of security shall be included in the contractor’s tender, failing which the security in terms of 14.3 shall be deemed to have been selected. Such security shall be provided to the employer within twenty-one (21) calendar days of written acceptance of the contractor’s tender." It must be specified during the tendering that securities and insurances will need to be shown if the tender is successful. Failure to provide these documents can result in the cancellation of the agreement.
Step 10: Signing the contract.
Once the securities, insurances and waive of lien are provided, a ‘without Bill of Quantities’ contract will be signed. The documents which need to be included are the JBCC, working drawings, details, schedules, specifications and the above mentioned documents. The principal agent keeps the contracts and must show them on request, a copy must be made for the contractor and the client as well as any sub-contractors which are involved. The client must then hand over the site within the stipulated time to allow the contractor to commence work, the contractor is then responsible for the site. Variations may be made to the contract after signing but only if these are in writing and signed by both parties.
In conclusion, a number of tender processes could be considered, however I believe that the most suitable solution is a lump sum bid, preceded by a prequalification process to ensure that the most suitable contractor is finally selected, resulting in a successful project.