The Role of a Project Manager
April 4, 2024
The tender process is used to effectively select a vendor using a particular evaluation approach. This approach would lead to the most suitable vendor being selected so that the relationship is effective and mutually beneficial. An efficient bid and tender management system will result in a better supply chain, reduced costs and good risk management.
There are 4 common tender routes that can be followed; an open tender, selective tender, negotiated tender and competitive tender (single-stage and two-stage tender). We’ll take a closer look at the competitive tendering route, i.e. single-stage and two-stage tenders – how they work and how each approach differs.
A single-stage or traditional tendering route is used when all information necessary to calculate a lump sum fixed price is available when tendering commences. The main incentive for adopting a single-stage strategy is to maximise the element of competition between the bidding vendors, thus securing the best or lowest cost and potentially securing further cost reductions during a negotiating period.
Where clients need lump-sum cost commitment from their selected vendor and they have the time available, single-stage tendering continues to be the more viable route for obtaining good-quality, competitively tendered bids.
Single-stage tenders are an ideal method for obtaining good quality, competitive tender submissions. However, as the tender market becomes more time-sensitive, the two-stage tender approach has also become a widely chosen method.
Clients can gain insight into the total cost for the project upfront without having to wait until a later stage to get this information. This can help with achieving the budget and making sure the project runs according to the costs provided at the start.
The appropriate supplier can be chosen at the outset, which means that the rest of the project will likely go according to the client’s plan with the chosen contractor working on it. It also means that the contractor can begin work and complete the project without interruption.
A drawback to this method is the fact that some of the project details may not have been accounted for at the outset, and these unforeseen costs or details can add onto the total cost at a later stage. Contractors may need to make up for these costs elsewhere, and this could come at the expense of the project’s quality.
The other drawback to consider is that some contractors may cut corners in order to achieve a competitive price initially and therefore compromise the integrity of the project from the beginning. This may only get worse as the project continues.
The single-stage tender process can take longer to choose between various contractors. This approach also does not allow for early engagement with contractors the same way as the two-stage approach does. This means that clients do not have a relationship formed with the contractor until later in the project
The two-stage tender approach differs from the single-stage in that it allows a supplier to be engaged earlier, before all the information is available, to be able to determine a fixed price. This is classified as the first stage. Then the supplier can begin working on the project and in the second stage they can propose a fixed price for it, which will be negotiated until a final price is settled on.
Stage 1:
This stage involves an initial collaboration between the contractor and the client, and the aim is to outline the project and the potential costs involved. A pre-construction agreement should be established which should include, but not limited to, the following information:
Stage 2:
The second stage of the two-stage tender process is then the execution of the project details that were agreed upon in the first stage. A construction contract is negotiated which includes a final price for the project, which will be approved by the design and client teams to get the project underway.
The pricing for the project can be discussed and agreed upon at the start, and this clarity may help clients understand how the costs are distributed. This also means that any costs that crop up thereafter can be negotiated and fit into the expectation that was initially agreed upon
The client can engage with the contractor and any sub-contractors throughout the process to gain greater insight into the project. This creates open lines of communication and relationships can be formed, which will lead to a smoother process and workable solutions.
The initial demolition work and other construction preparation can begin early and therefore save time on the project, sometimes even a few weeks.
The final price is typically already known or expected, and the client and contractor are likely to be on the same page long before the end of the project. This means little to no surprises or last-minute negotiations will be needed.
Pre-construction services can cost a contractor extra money initially. This can be a disadvantage if the contractor isn’t prepared for these costs.
The costs for these tenders are generally higher than the costs for a single-stage tender as there is less competition and contractors can charge more.
The client can end up on the back foot during the second stage of the tender, as the contractor has already begun working on the project and is, therefore, in a better position for negotiating. This means that this method may end up costing more for the client.
The single-stage and two-stage approaches to tenders are both effective, and the choice between the two largely depends on the nature of the project and what the client wishes to gain from it. Naturally, getting the lowest price for the project is an attractive option which makes the single-stage tender approach a commonly used method.
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