Member Article

Two Stage Tendering

With Watson Burton LLP Law Firm

What is Two Stage Tendering?

Two Stage Tendering involves appointing a contractor at an early stage in the design and planning process. The first stage involves a preferred contractor being selected on the basis of their first stage tender documentation (e.g. tendering on profit margin details, overheads, preliminaries cost etc). A pre-contract services agreement (PCSA) will normally then be entered into requiring the preferred contractor to work with the design team during stage two. Stage two involves the client and design team negotiating with the preferred contractor to secure a final price, tendering of sub-contractors and agreeing a final design with the main design and build contract being entered into at the end of stage two.

Advantages

The main benefit of this process is speed of programme and the value it offers in respect of design. Other advantages include:

• a quicker start on site at an earlier date;
• The contractor building an early working relationship with the design team (who will be novated to him when the building contract is signed), saving in time and money;
• Contractors can input and advise in relation to issues such as buildability, sub-contractors’ selection, material specification, material supply etc;
• A larger degree of design and programme risk can be transferred onto the contractor by their involvement at an early stage;
• The resulting reduction in tendering time in the second stage.

Disadvantages

• As the contractor has normally tendered at stage one on a % of build cost it is not necessarily in his interest to keep those costs down. However, it will not be an attractive proposition to the employer to re-tender the work, giving the contractor a certain amount of leverage in relation to the second stage of the tendering process as appointing at the first stage loses the element of contractor-to-contractor competition;
• The contractor usually requires a fee for undertaking the pre-contract services. Some clients may feel that they have already paid the design team for this;
• A contractor may also threaten to leave the project prior to the second stage, resulting in the employer having to re-tender. There may be no contractual obligation to submit a further bid in the second stage and a co-operative approach from the contractor is not guaranteed;
• The initial tenders submitted are not based upon a completed scope of works. Once decided, the final costs may end up being outside of the employer’s budget.

Conclusions

There are a number of advantages in involving the main contractor at an earlier stage. However, where the employer requires the security of a lump-sum contract obtained via competitive tender and time is not a priority, a single stage of tendering may be preferable.

Two stage tendering tends to be more appropriate in cases where time is of the essence, the employer wishes to improve buildability from an early stage and he wants certainty of cost.

The Public Contracts Regulations 2006 set out procedures for public sector contracting authorities for the award of contracts and these regulations should be considered before deciding upon the use of a two stage tendering process.

If you have any comments or questions about this article or any other construction related matters, please contact sara.stanwix@watsonburton.com.

This was posted in Bdaily's Members' News section by Ruth Mitchell .