Columnist

The real cost of tendering for construction SMEs

I still see us doing things the same way when it comes to tendering and procuring work, with single stage tendering remaining the most popular option. 

So, is it time for a change, or should we try something more radical?

When we look at traditional tendering processes, these can be very challenging for SME building contractors. 

The system, while designed to ensure fairness and transparency, often favours larger firms with more resources to prepare tenders.

Here’s why SMEs may struggle with traditional tendering:

High administrative burden

Tendering, including PQQs, can often require extensive documentation, including detailed financial records, programmes, risk assessments/method statements and details around the proposed delivery team. 

For SMEs, assembling these can be time-consuming and costly, especially when they lack dedicated administrative teams. 

Being small also means they have to be agile around procurement, and items around programming and delivery teams may need to change at short notice, which can create duplicate working.

Competitive disadvantage

Larger construction firms will often have specialist bid teams that tailor proposals to meet tender requirements. 

SMEs will not have that resource or time, and equally may not have the expertise or resources to craft polished submissions, putting them at a disadvantage in competitive bidding. 

SMEs also often lack the buying power of larger contractors.

Financial challenges

Traditional tendering usually demands financial stability and guarantees.

SMEs might struggle to meet stringent financial criteria, such as providing performance bonds or demonstrating sufficient cashflow. 

This can limit their ability to bid for projects, even if they have the expertise to deliver them.

Although they may be able to procure bonds for projects, this will come at a higher cost than larger companies and put added risk on the management by requiring personal guarantees.

Lengthy and costly process

The tender process can be long and expensive. 

SMEs may spend significant time preparing bids without any guarantee of winning, making it an inefficient use of resources.

Preference for established suppliers

Many clients prefer working with firms that have an extensive track record on similar projects.

This makes it difficult for smaller, newer contractors to break into established networks, even if their pricing and expertise are competitive.

Complex compliance requirements

Government and institutional tenders often require adherence to strict regulatory standards, including environmental policies, safety measures and diversity criteria. 

While important, these requirements can be overwhelming for SMEs, which may lack the infrastructure to fully comply.

So, what are the alternatives to help SMEs?

Framework agreements - These allow SMEs to be pre-approved for work without going through repeated bidding processes

Direct negotiations - Some clients prefer direct engagement with trusted contractors instead of formal tendering

Digital procurement platforms - New technologies are streamlining tender submissions, making the process more accessible to smaller firms

Clients need to be reminded to spread projects and not create a higher risk profile by using the same contractor over and again.

We must change the client mindset on how projects are completed, and highlight the message again that they will miss out on high quality work if they don't use the SME sector.

Tim Barrett is chair of Construction Alliance North East 

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