Keeping it Simple: The benefit of keeping the tendering process simple, unit price contracts vs lump sum projects, and the pitfalls of sole sourcing a product

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Clive Thurston

Special to Canadian Design and Construction Report

When any owner considers tendering a project they must keep in mind a number of very important facts. Procurement of construction and design in Canada is unique in the world and is governed by its own set of rules and laws based on extensive court decisions. Ignoring this unique system or trying to go around it can lead to major problems for the project.

Perhaps one of the biggest mistakes made is to overcomplicate the tender process. The goal is to attract as many competent and qualified contractors as possible. Using a process that is not overly complicated will have a much better chance of success. We have often asked the question, why does it have to be so complicated?

We understand the fears that owners have, and those fears must be addressed, but they need to take note of what does work. There is a tremendous advantage to using uncomplicated documents. In so doing there is less confusion, less RFI’s, and less time is wasted. There will be more contractors  attracted to the job, and most importantly there are far fewer disqualifications for items that are really not important. We advocate that tender forms need to be simplified, shortened and standardized. This can be done by minimizing attachments, eliminating unnecessary information and focusing on the essentials.

If this is a lump sum tender what is essential? Price and bonds are certainly important.  What is not important is reams of additional information that could have been gathered using a prequalification process. The company’s history, their safety record, their staff, their operational procedures can all be obtained through a prequalification, eliminating the need for unnecessary submissions at the time of closing.

By using standard forms such as the CCDC documents and a reduction in unnecessary information, owners can achieve a better response to their tender.

The clearer and simpler the tender process is while still delivering the key items that an owner needs to be secure, can and will improve the chances for the project to be successful.

When bids become overcomplicated many things can and will go wrong. It is likely there will be more cause to disqualify bidders if the supplementary conditions are too onerous such as an overzealous privilege clause or liquidated damages. Bidders will either not bid or increase their prices, generally driving the project over budget leading to delays, cancellation, or the disqualification of bidders. None of which is in the best interests of anyone.

The more balanced the processes and the contract are, the better response the owner will receive from the industry. Addressing the quality of documents is vital. If sufficient time has not been spent on the development of the documents and specifications, there will be problems. This will become very obvious based on the number of RFIs that are received and the number of addenda that need to be issued. This will often result in multiple requests to extend the closing date. It is important that owners choose the right delivery method for their project. There are many tools in the toolbox that can be used to ensure that a project is tendered successfully.

Two areas often overlooked are the use of Unit price contracts and competitive tendering. The construction industry can be a very busy place when it comes to tendering projects. contractors have to decide which projects to tender among the many that are tendered every week.  Is the scope of work and size of the project within the contractors’ capability? Are the drawings and scope of work well defined?

Given identical projects a contractor is much more likely to price a unit price contract vs a lump sum contract. Why is that? Unit price contracts are usually less risk for the contractor.  Since the scope is well defined there is less uncertainty in determining the scope of work for the project.

There will be less arguments when it comes time to build the project. The tender is easier and quicker to bid if the scope of work is clearly defined.  Some owners may assume that if there are overruns in the quantities or missed items, that the project will cost them more money. This is not usually the case.

The risk for the scope of work is with the owner, however the advantages of the unit price contract outweigh the risk that an owner may have by missing quantities.  In the end the owner receives a price for exactly what was quantified.

The owner has the added benefit of only paying for what has been itemized rather than paying for a contingency that a contractor may apply due to a scope that is not well defined. The unit price contract reduces risk from the contractor’s point of view and allows him to price a project quicker, and more accurately, knowing that the scope of work is well defined. If the scope of work is well defined, risk is reduced and the price will be more competitive. A combination of lump sum and unit price contract can also be used if the lump sum items are well defined.

Some owners choose to specify one particular product or one particular supplier (sole sourcing). This is a serious problem when it comes to the tendering process. It removes the proper competition and also allows one supplier to determine the outcome of a tender. This process should always be avoided.

The sole supplier has the ability to provide a different price to each of the General Contractors bidding on a project and hence has the ability to control the outcome of the tender. This practice has largely been removed from the tendering process but it does appear occasionally in certain sectors. It is totally unacceptable in a fair and competitive environment. The alternative is to provide a cash allowance for any sole sourced products or have the product purchased directly by the owner.

In summary, the key to a successful tender is to ensure that your project is ready to tender. Simplify and shorten it as much as possible, use prequalification, and standardize the contract through the use of  standard language and CCDC documents.

For more detailed and additional information please feel free to contact: Howard Doucette P.Eng., 647-521-9877, Howard.Doucette@gmail.com Clive Thurston, President, Thurston Consulting Services, 905 510 9950, Clive@thurstoncs.com

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