What Is Tender in Construction- Distinctive Guide
Tendering is a frequently heard term in construction. It is a mandatory process before starting any project. In this article, I am going to cover the entire aspects of trending starting from the definition to its processes, types, important terms used. So It is going to be the ultimate guide for what is tender in construction.
What Is Tendering in construction
Let’s start with the definition, It is an offer submitted by an individual contractor or a construction firm in writing to execute the work or supply to be made for a specified project, against the proposal/notice issued by the owner of the project or the department ( in case of government project ).
In this offer, some specific articles are required by the department/ owner mentioning the rate, under certain terms and conditions of the contract. Then an agreement is done between the contractor and the owner or the department to carry out the work at the competitive rates.
What Is Tendering Processes in Construction
Let me explain it in a story mode, step by step process involved in tendering from a layman’s perspective.
From the above picture we got to see, tendering is the beginning phase of a project, it is an event of awarding the contract to a qualified contractor.
Pre Tendering Activities
First, tender documents are prepared along with all relevant items of contracts, specifications, and terms and conditions by the department or the owner of the project. Before floating a tender department must have the following conditions fulfilled, so as the allotment of the contract to the contractor becomes a smooth process.
- A set of a detailed drawing of the proposed works with all technical data.
- Material statement mentioning material to be supplied by the department and the material to be brought out by the awarded contractors.
- The time required to complete the project.
- Mode of payments and deductions to be done after each bill as security.
- Penalty to be imposed on the contractor in case of delay on the part of the contractor.
- Complete specification of scheduled items.
- Conditions regarding the agreement of stay of labor and rates of minimum wages as fixed.
All the documents are prepared by the administrative wing, after all the above-mentioned formalities are completed including administrative approval, technical sanction, funds, and lands acquisition, etc. Then sealed tenders are published to invite the eligible contractors and suppliers which is called Notice Inviting Tender. Notices are intimidated by giving advertisements in leading newspapers, by sending letters to reputed contractors, displaying a notice on the notice board of the department, and also they are published in respective departmental websites and E-tendering websites.
The date of the issue of notice should be about 4 weeks before the receipt of the tenders, the mode to send the earnest money should be clearly mentioned, time date and place should also be mentioned, where the drawings can b seen, should also be mentioned in the notice, cost of tender and it’s availability should also be mentioned.
Opening Of Tendering
Tender forms are opened at the place mentioned in the tender form that is in the office of the respective department on the due date and time mentioned. Respective departmental engineers and the administrators will represent one side and the contractor or their representatives are on the other side.
Then submitted tenders are opened in presence of all in case of offline tenders, after checking the tender covers these are opened and signed by both parties, a comparative statement is to prepared item wise by the department and the work is allotted to the lowest bidder. The competent authority has the power to reject the tender of the lowest bidder, but he has to give the justification and confidential remarks, considering the financial position and reputation of the contractor.
Earnest money is returned to the bidders of the rejected tenders. The signature of each contractor is taken as a token of a certificate that tender ware opened in the presence and the allotment has been done to the eligible bidder.
List Of Tender Documents
I am sharing some important lists of documents that are required in tendering.
- Tender Form
- Special and general terms and condition
- Specification and tender drawings
- Bill of quantities (BOQ)
- Labour laws and clauses
- EHS clause
- BIM Protocol ( in case of large & complex project)
Important Terms Related To Tender
Some important terms I am listing below which you must aware of before knowing further about what is tender in construction.
It is a guarantee in the shape of money, given by the contractors along with their tenders, confirming their willingness to work for the department. The mode of earnest money to be sent is informed by the department which is in the shape of a draft in favor of the department ( competent authority). It is generally about 2-2.5 % of the estimated tender value.
In Case if the tender of the contractor is rejected, the money is returned to the contractor immediately, otherwise, it is adjusted at the time of final payment to the contractor.
This is the money that the contractor has to deposit to the department or to the employer when the contract is allotted to them. It is 10 % of the total estimate. This money also includes earnest money already deposited by the contractor.
This deposit is kept as a check so that the conditions of the contract are agreed upon are fulfilled and the work is completed to the satisfaction of the authorities within time. This money can be forbidden by the employer if progress and the quality of the work are not up to the mark.
These are the set of drawing which is issued during the tender by the employer. These sets of drawings are issued to have an overview of the volume and complexity of the project. These drawing helps out the contractor to calculate the price for the tender.
These drawings are different from GFC ( good for construction) drawings tender drawings are only given for reference purposes.
Types Of Tenders
Under this section, I am going to share with you all the possible types of tendering processes. Bellow mentioned list is the general types of processing a tender:
- Open Tender
- Selective Tender
- Single Tender
- Global Tender
Open tenders are the process of inviting tender which is open to all eligible contractors, There is some defined pre-qualification for the contractors in terms of credential and financial capabilities any contractors fulfilling the criteria of PQ (pre-qualification) can participate in the tender and can bid their suitable price.
This process of tendering is a common practice by government departments or agencies, In this process of tendering a huge number, a qualified contractor can participate where awarding the job to a contractor becomes very difficult to the department, generally the lowest bidder is awarded the contract.
Some Advantages Or Drawbacks Of Open Tenders Are:
- As the open tenders are competitive, it is very difficult to get a successful contract, the chances of getting a contract are very low as compared to the other tendering process.
- As this is an open tender some novice contractors can bid as lowest as possible in order to get the job awarded, without knowing all items of the contract and without calculating risk, in that case after getting the contract, the contractor might incur huge losses which can affect the project.
- In the case of open tender, it is very difficult to choose as an employer the right bidder with specific knowledge and financial capabilities. If the job is awarded only on the basis of the lowest price without any enquiring about the qualification of the contractor it might end up with absorption of the project.
It is also a process of tender where a bunch of qualified contractors with the right credentials and capabilities is invited to participate in the tender. In this process only invited contractors are eligible to bid their prices. This practice of processing the tenders are followed by privet companies. This process is also called limited tender.
Some Advantage Or Drawbacks Of Selective Tenders Are:
- In this process, it is very easy to choose the right contractor to award the job because only those contractors are invited to participate who have adequate credentials and financial capabilities.
- The time required to award the job to a contractor is very less because decision making becomes easy.
- As in this process, limited contractors have invited the chance of getting the job very high for an eligible contractor with the lowest bided amount.
- All the contractors are eligible hence it is difficult to reject the lowest bid for an employer.
It is the process of tendering where only one contractor is invited for the tender to participate. The invitation for a single tender is given to the contractor who has the previous satisfactory record of completion with the employer.
Or, In the case of highly specialized jobs, where limited reputed contractors are available or some special equipment or engineers are required to execute the job.
After inviting the contractor to submit their price, contractors are requested to negotiate by the employers and then after satisfactory negotiation, immediate LOI ( letter of intent) or LOA ( letter of acceptance) is issued to the contractor. This process is rarely followed by the government or the Public sector units because it is the aginst their policy, But this is a common practice followed by privet sectors.
Some Advantage Or Drawbacks Of Single Tenders Are:
- Sigle tender saves a lot of time and manpower of the employers as it omits the all long process involved in open tendering.
- As the special or well known reputed contractors with a satisfactory past relationship are invited, the risk of finishing the project within time and budget is low from the employers’ end.
- It is also beneficial for the contractor to rely on his client as there is a past relationship is made.
Global tender is the kind of open tender that is processed for highly specialized and large scale of projects like bridges, skyscrapers, large dams, etc. where expert and top construction companies from all over the world are invited to participate the tenders.
In this process price is not the prime concern for awarding the job, the infrastructure and technical competency of the contractor are verified.
Some Advantage Or Drawbacks Of Single Tenders Are:
- Global traders are meant for large specialized projects where bidders come from all over the world hance, it is difficult to choose the best contractor for the employer.
- Sometimes 3rd Party agency can be employed to award the right job to a competent contractor.
- This process can take longer than usual.
Let’s Sum it up, on the above post I have discussed the definitions, types, and the process of tendering. The above-discussed processes of tendering are practiced by the government of India and many other countries as well. In this post, I have tried to include all possible aspects of tendering. One important thing to remember is many people get confused between the tender and contract. A contract is may way different from the tender which will be discussed in another post.