by Reginald Judkins
Property developers are often dissatisfied with normal competitive tendering procedures using the “lump sum” standard form of contract with bills of quantities, a method which tempts contractors into making cut-price bids, particularly when work is scarce. This can lead to pressure being put on site managers during construction to try and make do with minimal resources. When delays occur there follows, all too frequently, recrimination and argument between client, contractor and consultants which can undermine the common effort needed to bring the job back on programme. The contractor is also tempted to exploit any failings in the consultant team to avoid the financial sanctions imposed by the contract.
Failings may indeed exist, particularly on projects where it is essential to start work before the completion of detailed drawings, or where co-ordination of the main contractor’s construction programme with that of specialist subcontractors cannot be effected, or where consultants are unaware of any unusual sequence of information required by the main contractor until after he has been selected.
Management contracts have advantages over the standard form of “lump sum” contracts in better co-ordination of subcontract programmes and procurement of the relevant information. This is achieved by providing for the managing contractor to preplan the subcontract and the procurement of information programmes, prior to the commencement of construction. However, management contracts suffer the significant disadvantage of not having a single contractor responsible for the execution of the works for a stated sum in a stated time — the main benefit of the “lump sum” idea.
To obtain the best of both systems our practice is advising developer clients to utilise a “two-stage tendering method”. This idea has been developed to enable projects to be completed in the shortest practicable time under conditions in which the advantages of the management contract can be obtained without abandoning the “lump sum” idea.
We advocate that the contractor and consultants alike should take responsibility for agreeing a schedule of dates for the release of information to the contractor, a schedule which forms part of the contract documents.
The procedure is that the client and consultants agree on a list of main contract tenderers suitable for the project and establish their willingness to participate and their ability to meet a tender date. Following this, a “first-stage tender” document is produced for the selected tenderers, together with outline drawings and specification.
The tenderers are then required to state the profit and overhead percentage which they would require on the net cost of works, as well as the period of construction they would consider necessary, or whether the works could be completed by a stated date, depending on the client’s needs.
An indication of the net cost and make-up of the preliminaries, such as site set-up, plant and supervision, is also required. Just as important, the tenderers are asked for suggestions as to how construction time and/or cost could be saved by amending the specification and drawings without reducing quality. For example, a tenderer may have particular expertise or preference for using fire-sprayed steel frame in place of concrete frame construction.
The tenderers are asked to provide an outline of their preferred method of construction and an outline programme for the works, together with a schedule giving the latest dates for release to them of basic construction information on which the programme is based. At this stage, the tenderers are also asked to indicate the key staff they would be employing on the project, together with their CVs, and provide other information relating to the firm’s previous and current experience of similar work.
Between two and four weeks are given for the preparation of the tender, depending on the complexity of the project. Advance warning is given at this stage of interview dates to enable the tenderers to make their personnel available if they are selected for interview.
On receipt of the first-stage tenders, the consultants consider the various submissions with the client and make a selection of the firms to be interviewed. Client and consultants carry out the interviews and the consultants make a joint recommendation as to acceptance of the first-stage tender.
It is clear at this juncture that, while the tenderers have been asked to involve themselves by programming and contributing their own ideas on the best method of approaching the project, they have not been put to the time, trouble and expense of producing a full tender.
Upon selection of the preferred firm, one or two other tenderers will be asked to keep their tenders open until the second-stage tender is accepted, to provide for the unlikely event that negotiations with the selected firm should fail to produce an agreed contract. However, no further approach is made to those tenderers until second-stage negotiations are abandoned.
At this stage, the consultants consider any suggestions from the contractor for saving construction time and/or cost and the selected contractor joins the project team in developing the construction programme as more details emerge. This programme may be modified to suit the consultants’ ability to provide the information. Detailed schedules giving dates for release of information to the contractor are agreed between contractor and consultants corresponding to the construction programme, and agreed lists of suitable tenderers are compiled for the subcontract packages. As soon as sufficient design drawings are developed, bills of quantities are prepared, based on the JCT 80 Standard Form of Contract but modified to provide for agreed domestic specialist subcontractors. These are priced by the selected contractor and negotiated with the quantity surveyor on an “open-book” basis to arrive at a net cost with the main contractor’s predetermined mark-up added. It is estimated that in this procedure only 20% to 30% of the cost of the works will be negotiated, the remainder being the subject of competition.
The second-stage tender is then submitted which, effectively, is a “lump sum” compiled from the negotiated price bills of quantities with the stated completion date. Following acceptance of the second-stage tender, the contract is signed and construction commences. The procurement of subcontract packages can proceed during the first stage and, if necessary, a preliminary contract — for example for demolition or enabling works — can be let to the contractor on the same terms as the main contract, but without commitment to acceptance of the second-stage tender.
This form of tendering has already been successfully used on several multi-million-pound projects by our practice. The most important of these was the £65m Royal Mint Court development on the site of the Old Royal Mint in London for City Merchant Developers, where chief executive Martin Landau was able to sign up John Laing Construction to start preliminary work on site and continue with the main contract without interruption, only six weeks after he was notified of winning the Crown Estates Commission’s bid competition.
Given that clients will continue to require the “fast track” approach to development, we see this contracting method becoming increasingly popular, moving away, as it does, from the adversarial nature inherent in the traditional competitive tendering method, while still retaining a large competitive element and reducing abortive tendering costs — for so long the bane of the construction industry.
