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Tendering: Here's how to avoid a race to the bottom

James York

Procurement and tendering may not be topics that immediately set the heart alight.

But in construction, the way the very beginning of a project is managed can have a dramatic impact on both the quality and the cost of the finished development. 

Not enough emphasis is currently placed from the outset on making sure client briefs are answered realistically, and that the design is completed once – and correctly.

Consider the analogy of buying a car: while you’re able to add all the extra luxuries you want later on, you’d have initially settled on the basic requirements, before you began tagging on those heated seats and alloys. 

So why then, when designing buildings, has it become the norm to start with something aspirational, only to go back to the drawing board when the budget doesn’t quite match the vision? 

The problem lies in the two traditional ways work is procured. And solving it will require a new approach. 

Single stage vs two-stage tender 

While historically two-stage tendering for contracts was the more popular method, this has shifted in recent years. 

It’s easy to understand the appeal of single-stage. In theory, clients can use the competitive tendering process to drive costs down. This is usually a false economy, however, as compromises in quality need to be made in order to meet the price expectations.

With a lack of specialist expertise at the outset, it’s not unusual for unforeseen costs to mount up. Clients are left returning to market, needing a contractor that will keep costs down in order to help them recover. 

“We need to halt the slide towards an increasingly transactional and volatile way of winning projects”

Often, clients are forced to choose from a pool of tier two and three contractors, who in turn need to find ways of cutting costs. This invariably comes with a drop in standards to keep margins healthy. 

The result can be a race to the bottom. 

In contrast, the more collaborative two-stage tender can de-risk the process. If two-stage procurement is managed effectively, insight from supply chains can be provided early, and designs can be tailored more appropriately to budget. 

This can mean fewer snags and projects get to site more quickly. This process also widens the pool of interested contractors, making better-quality results more likely. 

Yet despite these benefits, single-stage tenders still look attractive on paper and the debate over which approach to use continues.

A third way?

But could there be a way that better balances both the requirements of a project, and the interests of the parties involved. 

I believe the industry must move in a direction that sees contractors brought on earlier and asked to take more risk managing the design to cost, but given greater ability to influence the outcome. 

For example: the client brings in the contractor at concept stage, allowing them to create a cost plan based on the brief, and then manage the design to the proposed costs. The contractor would pay for their own time, but the client would pay any external fees incurred. 

If the contractor is unable to deliver to the brief for the budget suggested, the client is free to walk away and take the project to the open market, as they will have paid for the design, and own all of the intellectual property. 

In this model, both parties shoulder some risk. The contractor must commit to paying for staff time and expertise, while the client must meet any external costs. 

However, because the two parties are working collaboratively from the outset, the likelihood of agreeing on an affordable design is increased. There’s a greater chance of the contractor being able to take the project through to completion. 

Clients can reap the benefits of the contractor acting not just as a builder executing a design, but as a strategic partner from the outset. 

We need to halt the slide towards an increasingly transactional and volatile way of winning projects, which revolves around some main contractors cutting quality to make projects work. 

It’s up to leading companies to drive this, with innovative approaches and an evolution in the way we work. 

James York is area director at Morgan Sindall Construction & Infrastructure

Readers' comments (5)

  • I think the third option is widely used, true collaboration starting with the client should pay all upfront costs including the contractor, why only the external consultants being paid?


    PM

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  • The contractor to cover their own costs? Allowing the Client to change course before construction stage with a fully detailed design and head out to the market to seek the cheapest price they can get.

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  • Maybe clients are turning to tier 2 or 3 contractors not because they are forced, but because they will get a clearer route to the people that own and manage the company. Negotiated contracts as described in option 3 a very common now when dealing with private clients.

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  • Let’s take the analogy of buying a car a bit further::
    Define your requirements,
    Have a look around the show rooms at what’s available,
    Customise to suit,
    Recieve several quotes and delivery dates on the spot,
    Compare, haggle a bit and commit with confidence in the deliverer.
    Choose from a variety of interesting payment methods.
    Fleet purchasing options available.

    No tendering as such required.
    80/20 rule applies, could be applied to most new builds completely and in the case of infrastructure to big chunks of it.
    This will encourage offsite manufacturing, contractor show rooms ( these could be virtual), healthy competition, buying what you can afford, new product fucussed supply chains.

    Let’s concentrate the available support from Government on enabling this model, identifying the 80%, perhaps funding to set up few show rooms in a sample of sectors and lining up a set of first buyers.




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  • There is an option 3A widely used - early contractor involvement through the use of a Framework in the public sector. It provides option 3 and more - early collaboration, design to budget, early supply chain engagement and tangible social value. Organisations such as Scape, NEPO, Procurement Hub and LHC have developed market leading models to give the industry exactly this with positive outcomes.

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