Single stage vs two stage tendering
In difficult times, it is easy to understand why construction contractors may cut prices to win work.
We should start by saying that profit shouldn't be a dirty word in the construction industry - after all, businesses need cashflow to survive and to ensure that they remain engaged with their supply chain. However, recent figures within the sector have given some to question the sustainability of such rates, and whether the method of procurement has been a contributor.
In essence, there are two main procurement routes; single stage and two stage tendering.
Single stage tendering
Single-stage tendering, also known as traditional tendering, is when a client issues a tender for the whole project, with all the relevant information provided at the point of issue. The process seeks to ensure that the client is able to secure a competitive price and to this end, the contractor may decide to price aggressively in order to secure the project.
It can be an efficient route to obtaining a contractor. However, if elements from the project specification are missing or are unclear, it can lead to adjustments being made later in the contract, and the final account may be very different as unforeseen costs mount up. The added pressure may mean contractors look for ways to cut costs, possibly at the expense of quality.
The process also means clients are unable to benefit from early contractor engagement. As the process can take a long time and contractors are increasingly reluctant to engage in single stage tenders due to the bidding risks,
Two stage tendering
Two-stage tendering involves an initial information stage, facilitating early collaboration between client and contractor. For most projects, and especially for those that are more complex, it is useful to obtain input before there is sufficient information available for the main contract. This enables early input between the main contractor and client, helping to ensure design and cost certainty, accelerating the project timescales.
This initial phase allows the contractor to submit details under a pre-construction agreement and includes aspects regarding project preliminaries, method statements, design, overheads, and profit.
Ideally, the second stage of the process is then simply a exercise, using the criteria agreed in the first stage. In reality however, there may be some items not previously considered, around which negotiations will ensue. These typically include where sub-contractors are used. The second stage construction contract is negotiated by the main contractor, and subject to the approval of the design team.
The collaborative approach that the two stage procurement process promotes ensures that both the client and contractor can benefit from better outcomes. It also negates the need for value engineering to reduce cost.
Working with SCAPE is all about partnership and our consultancy, civil engineering and construction frameworks actively encourage and promote early contractor engagement and the two stage tender process.
As part of our framework process, we invite potential delivery partners to submit bids based on a quality vs price ratio of 70:30 respectively. This emphasis on quality enables our clients to benefit from delivery partners who focus on ensuring the best possible outcomes, whilst also maximising social value, sustainability, environmental and socio-economic benefits that leave lasting legacies in our local communities.
The price element focuses on assessing for NEC based project agreements, including overhead and profit percentages. Charges for life-cycle, design management, pre-construction and people rates are then included within project agreements - typically, around 10% of the project value. With overhead and profit rates fixed for the framework term, clients receive protection from rising market forces.
In addition, SCAPE delivery partners are required to demonstrate, with a full explanation of their logic and assumptions, how they have derived at the tendered charges, rates and percentages.
SCAPE procurement stages:
Our frameworks are direct award meaning that our clients benefit from early contractor engagement, which facilitates effective communication and collaboration. This is essentially stage one and ensures the client, contractor and wider stakeholders are fully committed to delivering the best possible outcome.
The second stage involves both the contractor and client engaging to fully price the project. In this instance, the SCAPE framework requires the delivery partner to obtain three quotes for each package of works and to evidence value for money. This is true for both option A and C contracts, although the very nature of the option C contract facilitates greater visibility.
Far from promoting a race to the bottom, SCAPE frameworks focus on quality outcomes for clients, evidencing value for money whilst encouraging early contractor engagement and helping clients accelerate projects with collaboration, creating time and saving costs.
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