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PROFESSIONAL

PRACTICE 1

BACHELOR OF QUANTITY SURVEYING

GROUP MEMBER:

LEE PEI GIE 0315653

KHOO XIN YEE 0316180

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Content 1. Introduction

2. Procurement

Traditional Contract

Design and Build Contract

Management Contract

Construction Management Contract

Recommendation

3. Tendering

Open Tender

Selective Tender

Negotiated Tender

Recommendation

4. Conclusion

5. References

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Introduction We from Innovative Cost Consultant Sdn. Bhd. has recently appointed by our client,

Taylor’s University Sdn. Bhd. to provide advice on the procurement system and the

tendering methods that are to adopted in carrying out the project. They plan to build

a branch campus in Kota Kinabalu, Sabah.

Decision making in which procurement and tendering method to be adopted are

complex due to uncertainty about many factors. Selection criteria for procurement

method includes quality of work, time allowed, cost anticipated, risk allocation,

complexity of project, flexibility of changes, employer’s involvement and so on. Some

of the procurement methods that we will consider are Traditional Contract, Design

and Build Contract, Management Contract and Construction Management Contract.

On the other hand, we will consider open tender, selective tender and negotiated

tender while recommend which tendering method to be used.

Taylor’s University also acknowledge us some of their requirements are of priority.

The cost to completion has to be within the budget fixed and the branch campus is to

commence operation in mid-2019, which is approximately 3 years from now.

We will take into account of Taylor’s University requirements and recommend which

procurement method and tendering method to be adopted by Taylor’s University in

this report.

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Procurement

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Procurement Procurement is the process of purchasing goods or services. There are many

different routes by which design and construction of a building can be procured. The

selected procurement route should fit client’s criteria on his desired project. The

procurement assessment criteria are as followed:

Time – Is early completion required by the client?

Certainty of time – Is project completion of time essential?

Certainty of cost – Is a firm price needed before any commitment to

construction given?

Flexibility for changes – Are variations necessary after work has begun on

site?

Complexity – Does the building need to be highly specialized, technologically

advanced or highly serviced?

Quality of work – Is high quality of the product in terms of material and

workmanship and design concept important?

Responsibility – Is single point of responsibility required by client or direct

responsibility from the consultants desired?

Risk allocation – Is the transfer of the risk of cost and time slippage from the

client important?

The choice of procurement route is vitally significant to the success of any

construction project. A number of different procurement routes exist and there are

pros and cons between those procurement methods. In this section underlying

characteristics of the most common form of procurement method used are

described.

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Traditional Contract The traditional procurement system remains by far the most popular method, followed by

design and build.

In the traditional approach, the client must engage consultants such as Architect, Engineers

and Quantity Surveyor to design the project. Those consultants design must meet the

client's budget and satisfied by client. Once it is not meet client's budget the Architect and

Engineers need to redesign the project and the Quantity Surveyor must recalculate the cost

of the project.

After the designed was satisfied by client and met client's budget, client, Architect or

Quantity Surveyor will call tender to give contractors to price and bid for the tender. Client

will base on the most suitable price that priced by contractors to make decision, which

contractor will be the successful tenderer for the project.

The price is not always the lowest but is the most suitable price for the project. Factors to

choose a successful tenderer other than price, the contractor must have reputation, pass

projects, good financial strength, skills and the contractor cannot have too many projects in

hand.

The successful contractor must follow the contract drawings and specifications to start the

construction work. Contractor also must responsible for his workmanship and material,

including work by sub-contractors and suppliers. Any defects, design errors or generated

misuse, the contractor has to use his own money to repair or settle the problems.

Figure 1.1.1: Traditional Procurement Chart

Image retrieved from:

http://www.scquantitysurveyors.com/procurement

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Advantages

The benefits of traditional procurement for clients include:

A tried and test method of procurement which the market is very familiar with. This method

of contracting remains popular and in its favor it can be said that most employers and

contractors would have experience of it.

It is also thought that this route offers some price certainty if the design has been fully

scoped out prior to construction and gives the employer greater control of the design as the

employer controls the design team. Since client can control everything through using the

traditional procurement method, contractors have no chances to adjust the project prices to

become higher than the normal prices. Logically, this procurement system is very fair for

client to get lower cost because all the competitors (contractors) must apply the price to the

projects base on the bill of quantity that calculate by quantity surveyor.

In the early stage of this system, client may require more money to pay those consultants,

which helped client design the project. However, this giving client a guarantee to get the

good price to complete the project due to all the designs, drawings and specifications are

fully developed and described in detail before contractors start to bidding for the tender.

By using this procurement method, the roles and responsibilities of consultants and

contractors are well defined and understood to avoid conflict and dispute.

Correspondingly, traditional procurement method can come out with a construction project,

which is high quality controlled compare with other methods. This method gives a lot of

advantages to the client to compare the consultant designs, to decide which design suits his

or her budget as well as to manage the projects. The quality of the project is well controlled

by the consultants due to giving professional advice and construction expertise between

consultants and contractors. Using this method can give client and consultants more time to

check and develop the design, drawings and specifications to create a better tender

document.

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Disadvantages

The disadvantages of traditional procurement for clients include:

This type of procurement can be a timely process to produce the full contract documentation

prior to tendering. Tender documents from an incomplete design can be produced but can

lead to less cost and time certainty and may lead to disputes.

The major drawback is the overall project duration may be longer than other procurement

methods due to the design and budget must meet and satisfy by the clients. Additionally, the

strategy is sequential and construction cannot be commenced prior to the completion of the

design.

Traditional procurement has often been criticized for its inability to integrate the separate

design and construction functions and impossibility of the contractor becoming involved

sufficiently early in the procurement process to make any significant contribution. There is no

input into the design or planning of the project by the contractor, as they are not appointed

during the design stage. This can, and unfortunately often does, lead to disputes about

whether defects are really design defects for which the employer is responsible or defects in

materials and workmanship for which the contractor is responsible.

Also, it may be too cumbersome for the client to coordinate with the various consultants such

as architects, service engineers, structural engineers, quantity surveyors and so on.

The other major disadvantage of this route is that the final design is often not fully developed

before construction starts and this can create problems and price uncertainty.

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Design and Build Contract A design and build contract is a contractual arrangement whereby the contractor offers to

design and build a construction project for a contract sum which is inclusive of both the

design and construction costs.

The design and build contractual arrangement is an attractive option for clients. It simplifies

the contractual links between the parties to the main contract because the contractor

accepts responsibility for both design and construction. The client instead of approaching an

architect for a design service, chooses to go directly to the contractor for a complete design

and build service.

In design and build procurement, the client may choose to retain the services of an architect

and quantity surveyor to act as independent professional advisers for the client to provide

essential advice in terms of cost, time and quality, and also to assess the building

contractor's proposals with regards to both design and cost, and to monitor the work on site.

Valuations for payments on account will be made by the employer's quantity surveyor and

he will value any variations requested by the employer and negotiate them with the design

and build contractor.

A design and build contractor may commission design and cost services from outside design

and cost consultants such as an architect or quantity surveyor, or he can employ an in-

house design team from within his own contracting organization.

* Research has suggested that design and build contractors organise their activities in three different ways (Rowlinson, 1987):

I. Pure design and build - here, the contractor strives for a complete and self- contained approach where all the necessary design and construction expertise resides within one organisation that has sufficient resources to complete any task that arises. In such organisations, all aspects of design and construction have the capacity to be highly integrated.

II. Integrated design and build - in this form, a core of designers and project managers exists within the organisation, but this type of contractor is prepared to buy in design expertise whenever necessary. Although more effort is needed to integrate the internal and external members of the design and build team, in-house project managers are employed to co-ordinate these functions.

III. Fragmented design and build - many contractors, both large and small, and including national builders, operate a fragmented approach to design and build projects, whereby external design consultants are appointed and co-ordinated by in-house project managers whose other main task is to take and refine client briefs. Under this regime, many of the integration and co-ordination problems of traditional approach are likely to manifest themselves along with some role ambiguity among

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the professions as they come to terms with the builder as leader of the design and construction team.

Figure 2.1.1: Design and Build Procurement Chart

Image retrieved from:

http://www.scquantitysurveyors.com/procurement

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Advantages

The benefits of design and build contracts for clients include:

The single point of the contract between the client and the contractor means that the client has the advantage of dealing with one single organisation that is responsible for all aspects of the project. Accordingly, the need to commit resources and time to contracting with designers and contractors separately is significantly reduced.

Apart from this, the prices which reflect more closely the final cost to the client which provided that the client's requirements are accurately specified, certainty of final project costs can be achieved and this cost is usually less than when using other types of procurement systems.

The use of integrated procurement systems enables design and construction to be overlapped and should result in improved communications being established between client and contractor. These two characteristics enable shorter overall project periods to be achieved and project management efficiency to be improved.

This strategy also enables an integrated contractor contribution to the design and project planning. Design and build provides the necessary multi-disciplinary approach and integration because it forms designer-contractor team at early stage in the process, bringing all the participants onto the same side.

Disadvantages

The disadvantages of design and build contracts for clients include:

Difficulties can be experienced by clients in preparing an adequate and sufficiently comprehensive brief. As a result of insufficiently defined client's brief which does not communicate his precise wishes to the contractor, great difficulty can be experienced in evaluating proposals and tender submissions.

The client is required to commit to a concept design at an early stage and often before the detailed designs is completed.

Furthermore, the absence of a bill of quantities makes the valuations of variations extremely difficult and restricts the freedom of clients to make changes to the design of the project during the post-contract period. Bids are difficult to compare since each design will be different, the project programme will vary between bidders and prices for the project will be different for each different design.

Nowadays, there are relatively fewer firms offer the design and build service so there is less real competition. The performance of design and build contractors is subject to considerable variation dependent upon whether they are pure, integrated or fragmented organisations.

Although well-designed and aesthetically pleasing buildings can be obtained using this method, the client's control over this aspect of the project is less than when using other methods of procurement.

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Management Contract Management contracting is an approach where the management contractor is appointed

early in the process to manage the work through works contractors, and those works

contractors are contractually accountable to the management contractor.

The client normally engages the management contractor to have them advice on the design,

program and buildability in the project at an early stage and because of this the management

contractor is normally an experienced contractor.

The overall design is the responsibility of the client's consultants, but a management

contractor is normally responsible for defining packages of work and then for managing the

carrying out of those work packages through separate trades or works contracts.

Management contractor will obtain tenders for the works which are awarded on a

competitive lump sum basis, firm price contract from them.

A management contractor is not employed to undertake the work but is employed to manage

the process. All the work is subcontracted to works contractors who are directly employed by

the management contractor. The client usually needs to be given the opportunity to approve

the terms and conditions of the trades or works contracts before the packages are

subcontracted.

A management contractor can be appointed through a tender process to obtain competitive

fees or by negotiation.

Client

Project Manager

Client's Designers

Management Contractor

Works Contractor

Works Contractor

Works Contractor

Sub Consultant

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Advantages

Management contracting procurement method benefits the client as the client deals with only

single point of contact and responsibility, which is management contractor firm, thus such

convenience allows good coordination and collaboration among client, designers and

contractor. Roles, risks and responsibilities for all parties are clear. This brings to the

breakdown of the traditional adversarial barriers because the management contractor is part

of the team since early stage and involve in discussion during design stage. Consequently,

less confrontation will occur.

Next, management contracting also benefits the project process in terms of quality and time.

The percentage of having quality or design risk is low because there is a close link between

client, designers and constructors. Furthermore, there is higher buildability potential and

programming input from the management contractor who acts as a consultant at the same

time. Meanwhile, management contracting allows flexibility for changes in design. The

design can be adjusted as construction proceeds, without sacrificing cost control. Late

changes can as well be easily accommodated. On the other hand, the time risk is also lower

as the total construction duration is a consequence of package selection. This means, there

is potential for time saving for the overall project as design and construction activities are

overlapped, concurrent work is inherent.

Disadvantages

However, management contracting has its limitation in term of construction cost. There is

poor certainty of price as the actual cost is unknown until the last work package is let. Cost

increases can be extensive, and there is often a tendency for the initial cost plan to be

adjusted upwards.

In addition, it relies on a good project team. In this respect, informed and proactive client is

required. A good quality brief to the design team by the client is required as the design will

not be completed until resources have been committed to the project. Nevertheless, client

still loses direct control of design quality which is influenced by the management contractor.

Hence, this procurement method depends upon a high degree of confidence and trust.

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Construction Management

Construction management procurement method is based on the arrangement whereby a

client appoints a construction manager on a fee basis to manage and co-ordinate the design

and construction phases of a project. The construction manager becomes a member of the

professional team, contracting to manage rather than to build. The client enters into direct

contracts with numerous specialist contractors for construction works. As a member of the

design team, the construction manager is expected to coordinate the design and

construction programs and ensure the interfaces between the different trades are well

managed. On the other hand, the construction management procurement approach is also a

method where overall design is the responsibility of the client's consultants.

Client

Works Contractor Works Contractor Works Contractor Works Contractor

Project ManagerClient's

Designers

Construction Manager

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Advantages

The advantages of construction management procurement method are similar to

management contracting method. Quality or design risk is low as there is hands-on

involvement of the client on the project. Client has full control over design and construction

process thus enable diminished impact of variation and other kind of disruptions. Likewise,

the process is very flexible, and therefore changes to suit the client's requirements are

relatively easy to accommodate. There is also opportunity for client to package the work to

suit the capability of the trade contractors and to manage on-site interfaces. All in all, it’s due

to the ability of client to influence the selection of trade contractors as well as the ability to

identify and act upon poor trade contractor performance.

Furthermore, construction management procurement method also leads to better control of

cost during design and procurement. The client has better cost and budgetary control, and

there is a higher degree of control due to the project being broken down into trade packages,

which resulting in reduced potential of claims.

Time risk is also reduced as no single organization is solely responsible for timed

completion. There is accelerated programme overlapping design and construction which

leads to time saving. Moreover, the client has closer involvement with the project which

makes the lines of communication with the specialist contractors shorter, thus enabling

faster decision making.

Disadvantages

Major disadvantage of construction management procurement method is the cost

uncertainty. The actual cost is unknown until all packages are let and no single point lump-

sum cost commitment.

Another thing is that this procurement method is only suitable for experienced client.

Otherwise, there is high degree of client ownership of risks associated with design including

impacts of late or incomplete and uncoordinated design. Besides. The client might be

exposed to performance risk and exposure to consequential loss associated with trade

contractor default if they do not have the ability to identify poor performance contractor. In

this case, reliance on management capability of construction manager is essential. Also, a

well-informed or experienced client is needed to be able to take an active role in the project

and provide a good quality brief.

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Recommendation It is said that the importance of procurement in a project cannot be underestimated as an

overwhelming majority which is 87% of people believe good procurement is one of the keys

to a successful project. There are a few aspects to consider when deciding which

procurement method to be adopted. After analyzing the requirement by our client, Taylor’s

University Sdn. Bhd., these are the factors we take into account in deciding the procurement

method:

i) Quality of work

ii) Cost anticipated

iii) Time allowed

Taylor’s University is a well-known university and has been voted “The Most Popular

Private College/ University in Malaysia” in 2009. Taylor’s has scaled greater heights,

constantly expanding its developmental horizons to stay abreast with the times, and also

continue to expand their global brand name to the easternmost state of Malaysia. Thus, the

architectonic and functional quality of the branch building must be taken into account to

maintain its reputation and attract more local and international students. In Design and Build

procurement, the owner of Taylor’s can engage with the contractor and their specialist sub-

contractors and suppliers early in the design process to get a more practical buildable

solution. Without overlooking the design aspect, a concern for aesthetics should permeate

the entire building process. The consultants constantly juggle issues of quality and

aesthetics.

Because the contractor is responsible for the design and the construction, the contractor

and his supply chain are involved in the production of the design to be used, and hence 'buy

in' to that design. Also, it follows that the design is more likely to be 'buildable' and higher

functional quality than may be the case under other procurement methods, novation of

design. There is normally the facility for the client's own designers to be novated to the

contractor. This approach has several perceived benefits, including the owner of Taylor’s

may have used those designers many times previously and will be happy with the quality of

their work, the design team is likely to be more attuned to the client's requirements and thus

provide a more aesthetic building.

The key requirement that provided by the owner of Taylor’s is the cost to completion to be

within the budget fixed. Meanwhile, design and build procurement can provide reasonable

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cost certainty due to them often being procured on a lump- sum basis. The arrangement of

lump sum is based on the contractor’s proposals, promising greater cost and time certainty

as all design proposals and information flow requirements are addressed within the

contractor’s organisation. This should result in fewer problems arising from variations and

late information delay claims during the construction stage. It is generally the case that, as

the contractor can use his experience and expertise in providing a design that allows him to

buy goods and services, which allows him to obtain the best buying margins. Consequently,

the design and build procurement route can be more cost effective and can provide more

cost certainty.

Based on the Taylor’s University plan, the owner requires the branch to be operational,

which involves timely delivery of the facility in order to commence operation in mid-2019.

Hence, time and speed are the important and crucial factors in this proposed project. Three

years construction period is considered as a fast track construction. Design and build

procurement is often said as a rapid means of construction because of the opportunity for

overlapping between the design and construction phase. This characteristic allows

construction work to start early while much of the downstream detail design work is

developed in parallel with site operations, thereby enabling earlier completion dates to be

achieved. There is normally a much quicker delivery time from concept to completed building

than for traditional procurement. In its simplest form, design and build allows work on site to

begin earlier that is before the design is fully complete than under traditional forms of

contract, because of the level of design control given to the contractor. Normally, the design

and build procurement approach allows programmes and budgets to be more easily met and

the speed of construction is also often quicker.

Evaluating how traditional procurement meets client’s requirement, we recommend

Taylor’s University Sdn. Bhd to adopt the said route, which is Design and Build Contract

which benefits in term of quality, cost and time.

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Tendering

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Tendering

After a client has selected an appropriate procurement strategy for his building project, the

next stage will be a review of how best to obtain the resources that will be necessary for him

to have the work carried out. In most instances, client organizations will have limited skills

and resources relating to construction work and they will have to rely on others to provide

the necessary services, expertise and resources, designers, engineers, surveyors and

contractors.

The client will therefore need to identify and contact suitable personnel or organizations to

assist him with his project, and agree with them the scope and nature of their work or the

resources to be supplied and the basis of payment.

This will be achieved through a process of tendering. Tendering is the process by which bids

are invited from interested contractors to carry out specific packages of construction work. It

should adopt and observe the key values of fairness, clarity, simplicity and accountability, as

well as reinforce the idea that the apportionment of risk to the party best placed to assess

and manage it is fundamental to the success of a project.

Tendering is an important stage of the building project, as the decisions taken at this point

will help to determine the quality and caliber of people and organizations involved in the

building process and the price to be paid for their services.

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Open Tender

Open tender is by far the most commonly used procurement method. It is a one staged

procedure in which any interested supplier may submit a quotation in response to publication

of an invitation to tender. Thus, the contracting authority does by no means try to limit the

number of tenders. Open tendering requirements call for the company to advertise locally,

have unbiased and coherent technical specifications, have objective evaluation measures,

be open to all qualified bidders, and be granted to the least cost provider without contract

negotiations. Invitations to tenders are usually advertised in newspaper, official websites of

developers and e-procurement service online. The advertisement would include pertinent

details such as type of work, requirements to tender as well as details of submission

comprise of time, date and place of submission.

Then contractors who wish to tender shall respond to the advertisement to collect the tender

document whereby they are also required to pay the tender document fee. In general,

contractors are required to submit tender deposit or tender bond that is used as a security

required by client against the risk of the successful bidder failing to enter into the contract

when the client obtains tenders for a contract. Contractors then return the completed tender

by the stipulated date and time.

Upon tender opening, the client and consultants will record the tender price of each tenderer.

Tenderers are then evaluated by consultants and report has to be prepared and submitted to

client, justifying the reason of recommended tender. The client will then decide which tender

to award, the contractor with the best price and meeting all the technical requirements will

win the tender.

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Advantages

Open tendering is the conventional method of tendering. All tenderers are familiar

with the process thus it creates the greatest competition and benefits client in

selecting the best tender with best price and work performance.

While every contractor who is eligible can participate and tender for the work, open

tendering avoids work being restricted to the same old contractors. It gives other

suitably qualified contractors or emerging suppliers an opportunity to secure work,

which may be beneficial, especially if they are more efficient or have lower

overheads.

Additionally, it gives freedom to contractors out there to decide whether they want to

participate and tender for the project. There is no obligation to tender therefore

tenders received will be genuine.

Disadvantages

However, this tendering method is certainly more costly. It is said to be wasteful of

contractors’ resources since many may spend time preparing tenders to no effect.

Also, knowing their chances of gaining the contract are small, contractors may not

study the contract in detail to work out their minimum price, but simply quote a price

that will be certain to bring them a profit if they win the contract. On the other hand,

cost of tendering can be extensive due to unanticipated number of tenderers which

may be a lot, thus requiring the production of many copies of tender documents.

Not only open tendering is wasting money, but it can be wasting time too. Open

tendering has been criticized for attracting interest from large numbers of tenderers,

some of whom may be entirely unsuitable for the contract and as a result it can

waste a great deal of time and effort during evaluation process.

Lastly, open tendering can also affect the selection of quality contractor. The lowest

tender selection may result from underpriced contractors which lead to the risk

whereby the successful tenderer may not be able to deliver what he has promised

due to undercutting of prices causing poor quality of work performance.

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Selective Tendering

Selective tendering may be either single or two stages, depending on whether the full

benefits of competition are desired (in which case single-stage tendering is used) or whether

limited competition plus earlier commencement of the works on site is considered

advantageous (using two-stage tendering).

Single-stage Selective Tendering

Under this procedure, a short list is drawn up of contractors who are considered to be

suitable to carry out the proposed project. The names may be selected from an approved list

or ‘panel’ maintained by the client (as many public authorities do), or may be specially

chosen. In the latter case the contractors may be invited, through suitably worded

advertisements in the press, to apply to be considered for inclusion in the tender list. This

gives the client the opportunity to exclude any firms thought to be unsuitable, and to limit the

number of tenderers. At the same time, it gives any firm the opportunity to apply to be

considered.

It is recommended that the number of tenderers should be limited to between five and eight,

depending on the size and nature of the contract. If the firms on the list are all ones which

are reputable, well-established and suitable for the proposed work, and the client fixes the

construction time, then the selection is resolved into a question of price alone and the

contract can be safely awarded to the firm submitting the most favourable tender.

Two-stage Selective Tendering

This procedure is used when it is desired to obtain the benefits of competition and at the

same time to have the advantage of bringing a contractor into the planning of the project,

thus making use of his practical knowledge and expertise. It may also result in an earlier

start on site. The first stage aims to select a suitable contractor by means of limited

competition. The second stage is a process of negotiation with the selected contractor on the

basis of the first-stage tender. First, a short list of tenderers is prepared, as described for

single-stage tendering.

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First stage

When being invited to tender, tenderers are informed of the second-stage intentions,

including any special requirements of the client and the nature and extent of the contractor’s

participation during the second stage.

During this stage, discussion with each of the tenderers may be conducted in order to

elucidate their proposals and to enable the contractors to make any suggestions with regard

to design and or construction methods. When these procedures have been concluded, a

contractor is selected to go forward to the second stage. It is important that in accepting the

first-stage tender, the parties define procedures for either of them to withdraw, should the

second-stage negotiations prove abortive, and what, if any, payment may be due to either

party in that event, including reimbursement of the con-tractor for any site works the

contractor may have carried out.

Second stage

During this stage, finalization of the design proceeds in consultation with the selected

contractor, and bills of quantities (or other detailed document describing the proposed works)

are prepared and priced on the basis of the first-stage tender.

Negotiation on the prices will follow until agreement is reached and a total contract sum

arrived at, when the parties will enter into a contract for the construction works. When time is

pressing and it is desired to start work on site before final agreement is reached, a contract

may be signed earlier. In that case, when the surveyor considers that a sufficient measure of

agreement has been reached on the prices for the principal parts of the work, he will

recommend the client to proceed with arrangements for the signing of a contract.

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Advantages

The advantage to the employer is that he can select only those contractors, who have

adequate experience, are financially sound, and have the resources and skills to do the

work, which provide a high quality of workmanship as well as reduce the risk of failure. Thus,

with selective tendering in either one or two stages, a limited number of organizations are

invited to tender after some form of pre-selection or pre-qualification has taken place. In this

case, award to the lowest conforming tender is not such a high-risk strategy.

Apart from this, since only half a dozen or so contractors are selected, each contractor

knows he has a reasonable chance of gaining the contract and therefore has a great

incentive to study the tender documents thoroughly and put forward his keenest price to win

the tender.

Selective tendering will also provide a shorter tender period as there is no need for the

consultants to evaluate the tenders. As a matter of fact, the tender evaluation is only based

on the price, which mean the contractor is awarded the job with the lowest tender price.

The cost of tendering is reduced, supposedly resulting in lower prices in the market place.

Economic use of resources and reduced tender documentation can result in lower tendering

cost. As the number of tenderers reduced, hence requiring the production of many copies of

tender documents also reduced.

Disadvantage

A problem with selective tendering is that a contractor’s circumstances can change after he

has submitted his tender. He can make losses on other contracts, which affect his financial

stability or may be so successful at tendering that he does not have enough skilled staff or

men to deal with all the work he wins. Neither method of tendering nor any other means of

procuring works can therefore guarantee avoidance of troubles.

In addition, contractors who do not want the work may bid high rather than declining to bid.

They will do this in order to avoid getting removed from future tender or pre-qualification lists.

It should be noted that, under English Law, it is definitely illegal.

Selective tendering has a greater chance of collusion. Contractors have been known to

collude, which forms a cartel in order to keep prices high. Alternatively, contractors may use

a “slate” system to divide up the contracts amongst themselves. For example, there is an

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agreement between tenderers as to who should be the successful tenderer, any meeting of

tenderers to discuss the tenders prior to submission of the tenders, exchange of information

between tenderers about their tenders prior to awarding of a contract or commission. Thus,

as part of a selective tendering process, tenderers may be required to complete a

‘Declaration of Non-Collusion’. This is intended to prevent corruption in the tender process

by requiring a declaration from the tenderer that they have not colluded with any other party

in the preparation of their tender.

Tendering period tends to be longer in selective tendering because it involved two distinct

stages. Going through the selective tendering might take a longer tendering process

because the contractors need to go through the qualification stage as well as pre-

qualification stage before the actual tender. The consultant also require to go through every

detail of the contractor firms such as the background, financial statement, past project

performances and so on in order to make sure that only eligible contractors are qualified to

tender the project.

Selective tendering can results in favoritisms that may occur in the short listing. A short list of

contractors is usually drawn up by use of the pre-qualification process. However, the shortlist

can also be selected by the client’s “tendering team” based on their experience of the

contractors’ past performances. This method is more favoured by the private sector. This will

result in an unfair and discriminatory manner for the other contractors that fail in tendering

the project. For example, the client may choose the second lowest tender price instead of

the lowest tender price because the contractor that provides the second lowest tender price

has worked in the previous project with the client.

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Negotiated Tendering

Negotiated tendering occurs when the client approaches a single contractor based on their

track record or a previous relationship and the terms of the contract are then negotiated.

It is used when the client has a preference for a particular firm, often because it has done

satisfactory work for him before. Negotiating with a single contractor may be appropriate for

highly specialist contracts where there may be a limited number of potential contractors, or

for extending the scope of an existing contract.

One should be fairly certain, however, that a worthwhile benefit would accrue before

advising a client to nominate rather than go out to competitive tender. When a contractor is

nominated, the contract sum will be arrived at by a process of negotiation. This may be done

using bills of quantities or schedules of rates, but instead of the contractor pricing the tender

document on his own and submitting his tender to be accepted or rejected, the rates and

prices are discussed and agreed until eventually a total price is arrived at which is accept-

able to both sides.

Usually the negotiation will be conducted between one of the contractor’s senior estimators

and the surveyor (either a partner, associate or senior assistant). To facilitate the procedure,

one party will usually price the tender document first of all, to provide a basis for the

negotiation. The other party will then go through the rates and prices, ticking off those, which

are acceptable and then the two surveyors will meet to negotiate the unpicked ones. When

agreement on the whole is reached, a contract will be entered into between the client and

the contractor

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Advantage

Best alternatives for the employer to adopt are special circumstances such as emergencies,

security reasons and when there is a very tight deadline of a particular project. Thus, a

negotiated tender has a good chance of being satisfactory because, more often than not, it is

based on previous satisfactory working together by the employer and the contractor.

When invited to tender, the contractor submits his prices, and if there are any queries these

are discussed and usually settled without difficulty. Thus mistakes in pricing can be reduced,

so that both the engineer advising the employer and the contractor are confident that the job

should be completed to budget if no unforeseen troubles arise.

Negotiated tendering reduces the risk of failure as reputable contractor with proven

experience engaged. It also can give the client the confidence of working with a contractor

they already know, which can reduce the duration, costs of tendering and can allow early

contractor involvement. It eliminates from attracting tenders from a large number of

contractors. Some of who may entirely unsuitable for the contract and as a result it can

waste a great deal of time, effort as well as money.

Other than that, this tendering method allows early commencement of work on site. It

shortens the period involved in appointing the contractor. The client can have the direct

approach to the known acceptable firm and such tender mainly used for specialist work such

as lift system or airport project at big level, in such case there are limited number of

contractor who do such work in the market. It is based on one-to-one discussion with

contractors to negotiate the terms of contract, which result in shorter tender period.

Apart from this, the contractor works as part of the team and may provide practical

assistance and construction knowledge that can influence detailed design. The contractor

will look for a design to be “buildable” which may sound obvious, but it is surprising how

often designers do not put enough thought into the practicalities of working on a restricted

site.

The contractor may also introduce specialist subcontractors to the table, each of whom may

have a particular contribution. Specialists as lift engineers, kitchen specialists, door and

window fabricators, ironworkers, landscape gardeners and so on can all help with ideas and

advice to help produce a good result.

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Disadvantage

Negotiated tendering can be seen as anti-competitive and exclusive, with the potential for

‘cozy’ relationships to develop between the client and the contractor. Even in the absence of

formal collusion, oligopolies are less likely to respond to open tenders with highly competitive

quotes. Instead, they may frame their bids based on their knowledge of their competitors’

likely responses. This strategy tends to generate higher prices than those likely to be

obtained in a fully competitive market. Obviously, if only one firm tenders for a job,

competition is eliminated and that will almost inevitably lead to a higher price. The client may

think it is worth paying more, however, in return for a quicker job or one of better quality than

he might otherwise get.

Furthermore, the basis for the promotion of innovation is not primarily formed in the selection

of a negotiated tender, but in the work on defining and verifying the need and in preparing

the specification and award criteria.

Negotiated tendering may not be permitted by some organizations due to the perceived lack

of accountability and integrity. One of the main reasons why direct negotiations are misused

is that they are convenient. Agreeing to direct negotiations can avoid the expense and

trouble of placing advertisements, preparing evaluation criteria and a panel and generating

correspondence. Similarly, if staffs responsible for contracting are under-resourced or under

pressure to meet deadlines, the temptation to take short cuts is increased. Time pressure

due to poor planning is not a valid reason for entering into direct negotiations. For instance,

order splitting is a short cut to direct negotiations that improperly avoids the competitive

process. This involves dividing a transaction into smaller components with a view to keeping

the value below thresholds that, under agency policy, require additional bids. While order

splitting is usually indicative of a rushed process or inadequate planning, in some cases it

may be driven by a corrupt motive.

Additionally, negotiated tendering normally requires longer time period to negotiate before

award of tender. The risk here is that at a later stage in the project, the client may question

whether or not value for money has been achieved in the absence of competition. Also if the

negotiation between the client and contractor has a chance to be deadlock or prove

eventually unsuccessful, this causes wastage of valuable resources on both sides and loss

of time for the employer, thereby delaying the overall selection of suitable contractor.

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Recommendation There are three main methods of tendering that are available for contractors to

submit tenders as we have discussed, which are open tendering, selective tendering and

negotiated tendering. The method of inviting tenders rests with the client, Taylor’s University

Sdn. Bhd. and they alone will decide the best method for their branch campus project.

Nevertheless, we recommend our client to adopt Selective Tendering method as for the

following reasons.

Firstly, it is time saving. Taylor’s University is not an experienced employer in

construction industry, they might lack of the skills and capability to identify and decide the

suitable tenderer. Hence, it takes a lot of time for them to look through the profile of too

many tenderers and their documentation. In this case, selective tendering is suitable for

them because under this method, the contractors are selected on their integrity, ability and

characteristics before they are invited to tender. It follows that only firms of sufficient

standing and experience in that particular type of work will be approached. Therefore, client

does not need to spend too much time in evaluating the tenders.

Secondly, it is cost saving. The cost of printing tender documentation is lower since

the number of participated tenderers is anticipated. As number of tenderers is lower, the

need to prepare copies of tender documents is also reduced.

Thirdly, the tenders are of higher quality. Since only a few contractors are selected,

each contractor knows he has a reasonable chance of gaining the contract and therefore

has an incentive to study the tender documents thoroughly and put forward his keenest

price.

Evaluating how Selecting Tendering method benefits Taylor’s University, we suggest

the implementation of the said method, which is time saving, cost saving and of higher

tender quality.

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Schedule of project

Month May’16 June’16 July’16 August’16 Sept’16 Oct’16 –

March’17

Apr’17 –

Dec’18

Appointment of

consultants

Project Brief

Preliminary

drawings

Preparation of

tender document

and requirements

Tendering phase

Tender evaluation

and

recommendation

Appointment of

contractor

Appointment of

contractor’s

consultants or

novation

Detailed drawings

Construction

31

Conclusion Different clients and different project circumstances demand different criteria weights. In the

criteria which Taylor’s University Sdn. Bhd. has proposed, we recommend our client to adopt

Design and Build contracting procurement method for the project.

On the other hand, we have emphasized that a proper tendering process fulfills two objects,

whereby client will be able to get competitive and realistic price for the branch campus

project that they are going to undertake, and that the tenderer fully understands the

requirement or nature of the proposed work and client’s requirement. Therefore, we suggest

selective tendering method to be implemented which we believe will benefit Taylor’s

University.

It can be seen that there are some advantages and disadvantages in every procurement and

tendering method that we have recommended. Nevertheless, while choosing the best

among all, we have identified their drawbacks and hence should put attention on them to

prevent unnecessary things that can lead to undesirable loss and dispute.

32

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