Tendering and Bidding Theories

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Table of Contents

Introduction
Tendering Decision and Estimation
Competitive Bidding
Tendering Process
Conclusion
References

Introduction

Tendering process involves the determination of the final cost of a project and submitting it for approval (Ashworth, 2002, p.319). Organizations need to make a good estimation for their proposed project to avoid losses. Thus, the estimation department has to obtain an accurate date and consider the factor that is likely to affect the proposed project. Similarly, due to stiff competition from other companies for tenders firms need to have the knowhow of developing winning tenders. The economic situation is affecting tendering process in the construction industry; the current economic meltdown has reduced the number of workers in the pipeline.

Therefore, firms employ strategies and position themselves to compete effectively for the few available projects. Essentially, construction firms position themselves using human resources, partnerships and planning leverage. Through a partnership between contractors and clients both parties benefit from repeat business and elimination of tendering costs (Brook, 2008, p.16).

Tendering Decision and Estimation

The decision to submit a tender for a proposed project should be informed; the company should have the financial capability and technical capability to complete the project within the stipulated time. In fact, bidding decisions are complex due to uncertainty about many factors affecting the outcomes of the bid. Moreover, a company has to consider its current workload, current work profile and its scale and quantity. Furthermore, companies submitting tenders need to consider the following factors; accessibility of the work, need for special skill or designs, quality of work and the working condition (Ashworth, 2002, p.330).

Estimation is defined as a technical process of calculating construction costs by building up rates for each of the items in the tender” (Ashworth, 2002, p.319). Apart from estimators, there are other parties that are involved namely, the client’s staff, professionals, construction contractor’s personnel and external organization. The cost of labor, plant and materials and subcontractors are some of the factors that estimators utilize to determine the final price of a project.

Harris et al. (2006, p.188) note that both planning and estimating departments are involved in the estimation. In addition, estimators and planners use the Bill of Quantities (BOQ) type of contractor to estimate the value of tenders. Estimators incorporate quality assurance to estimating function in order to ensure profitability, efficiency, accuracy, competence, job satisfaction and client satisfaction (Brook, 2008, p.9).

Competitive Bidding

The most common type of bidding theory is competitive bidding where several contractors submit tenders for a proposed project (Harris et al., 2006, p.216). Subsequently, clients evaluate the submitted tender based on costs, quality plan and health and safety plan, then the contract is awarded to the best contractor (Ofori, 1990, p.141). Therefore, the quality of tendering and bidding approach used by firms influences profitability. Moreover, contractors can make claims if their initial tender value is unreasonably low.

Competitive bidding takes one of the following forms, open bidding, sealed bidding or a combination of the two. In open bidding the contactor and the clients are involved in negotiations for the contract price. Furthermore, the contractors are allowed to revise their tenders and to consult competing contractors.

On the other hand sealed bidding is the most common type of bidding in the construction industry. Unlike open bidding, sealed bidding does not permit consultation between competing contractors and revision of submitted tender. In sealed bidding contractors can submit technical proposals and price quotations through single-stage/single-envelope, single-stage/double-envelop or two-stage bidding procedures (Harris et al., 2006, p.217-218).

In single-stage/single-envelope bidding contractors submit their price and technical bids in a single envelope. In cases where there is a need to separate technical and price bids, the single-stage/double envelop method is used. The technical bids are evaluated first, then price bids later. Alternatively, two-stage bidding can be used in place of single-stage/double envelope bidding (Harris et al., 2006, p.217-218).

Tendering Process

Generally, the tendering process involved the following phases developing a capability statement, expression of interest, tender submission, post-tender presentation, final negotiation and conversion. The aim of a capability statement is to establish early contact with clients and to introduce potential clients to the skills and capabilities of the firm. Further, expression of interest is a formal document that demonstrates an understanding of the proposed project. Clients use the expression of interest to select the best tenders.

Conclusion

Tendering and bidding process in the construction industry determines whether a company is profitable or not. The decision of placing a bid is made by firms’ leaders affects making a good assessment of the proposed project and the firm’s capabilities. Essentially, sealed competitive bidding is used by many clients to allocate contracts. They either employ single-stage/single envelop, single-stage/double envelop or two stage bidding process depending on the specification of the tender.

References

Ashworth, A., 2002. Pre-Contract: Development Economies, Tendering and Estimating. Oxford: Blackwell Science.

Brook, M., 2008. Estimating and Tendering for Construction Work. Oxford: Butterworth-Heinemann.

Harris, F., McCaffer, R., Eduw-Fotwe, F., 2006. Modern Construction Management. Oxford: Wiley-Blackwell.

Ofori, G., 1990. The construction industry: aspects of its economics and management. Singapore: NUS Press.

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