4.2 Preparing a competitive tender
What is a competitive tender?
When a path needs to be built, or some other access project undertaken, the organisation commissioning the work (the ‘Client’) will ask several suitable teams (the ‘Contractors’) to assess the project, discuss it if necessary and provide a proposal and price for carrying out the work. The documents that each contractor submits (usually a letter, some notes, a safety plan and a project plan) is called the ‘tender’, and ‘competitive tendering’ is the process of communication between the client and the contractors that leads to one team being chosen for the job.
All the common types of contract used in pathwork can be suitable for competitive tender – all that differs is what is actually being priced and competed over.
Type of contract
- Fixed-price contracts can be placed by competitive tender and, as the name suggests, one price covers the whole of the specified job. (See Best Value).
- Negotiated contracts can also be placed through a process of competitive tender, with teams being asked to offer a skilled team at a price per day or week. Alternatively, contracts may be negotiated with one team against a ‘benchmark’ price taken from an earlier round of tenders.
- Maintenance and small works contracts can be allocated by competitive tender, either by looking for fixed prices for the maintenance needs of a whole path network or by inviting bids for a daily rate. Alternatively, a flat daily rate day may be specified, with teams offering to work for this rate when available.
In summary, it is possible to select the most suitable type of contract for any particular job while still adhering to competitive procurement policies.
Good competitive tendering depends on having a ‘level playing field’ for all contractors. All contractors have the opportunity to prove their competence and join the pool of selected contractors, and all chosen contractors receive the same information and have the same opportunity to bid. A good specification should mean that the needs of the client will be met whichever team is chosen. Good competitive tendering is about ensuring that the best bid is selected and that this is done through a fair and consistent process.
What does a successful tender contain?
Path contracting companies win work by submitting successful tenders. They are assessed primarily on the information they submit for each new job, backed up by other information and their track record. Well-thought-out tenders often do best: four to eight pages containing all the information requested plus some original thoughts on how best to perform the key tasks is sufficient. Teams that are very able on site often do not show their abilities and expertise at the tender stage. Only by demonstrating the necessary knowledge at the planning stage will contract teams get the opportunity to prove it on site.
From the point of view of the client, the offer to carry out work (a ‘tender’) is most likely to produce a successfully delivered project if it can demonstrate:
- that the contractor will be able to complete the project – many tenders fail because they contain insufficient information for the client to assess competence, not because the contractor is incompetent.
- that the work can be completed within budget – very low-cost tenders are often weeded out as they show an unrealistic estimate of the job and may lead to corners being cut during the project.
- that the work will be carried out in a safe and professional manner – the safety method statement is not only a risk assessment, the client is looking for good sequencing of work and care for the public on site.
- good working methods – a full list of work (the ‘bill of quantities’) and description of the job (the ‘specification’) are usually provided by the client, but different contractors will approach this differently: describe how your team will sequence the work, divide up the site and adapt the work to fit the site.
Successful tender preparation requires good communication between the parties involved: this includes an easily read and succinct tender submission.
Preparing a tender: a six-step process
Preparing a good tender involves information-gathering and decision-making. It is better to prepare the tender systematically. A good tender for a medium-sized contract worth £20,000 will take 2 or 3 days’ work to prepare, spread over a period of 2 or 3 weeks.
Source of advice
Work plans; information on other jobs coming up; diary; advance warning of tender; brief description of the job.
Do you want to bid for the job?
Other potential clients
Site plans; bill of quantities; on-site information on materials, design, use and conditions.
Is it feasible, having seen the site?
Detailed design for each element; good idea of team skills and productivity; plant, materials and other costs.
How much will it cost you to deliver?
Contract details; your own project plan; site information; team certificates; path ‘portfolio’.
Can you meet all the conditions?
Cashflow forecast; weather trends; feasibility analysis.
Is it a risky job?
Local site knowledge
Client decision and feedback.
Is your bid the best?
At each stage of the process decide whether you wish to proceed – only continue if you still want the job, believe that you can win the tender and think that you can make a profit. You can drop out of the tender process at any stage, and usually up to 30% of bidders do, but you must let the client know immediately: failure to respond by the closing date will not create a good impression for the next job.
Step 1: Do you want to bid for the job?
When you are asked to bid for a pathwork contract, make a brief assessment of the contract and specification and then decide whether to prepare a bid. There are usually between three and six companies competing. Making a bid is a time-consuming process. A tender for a medium-sized path contract will take 2 or 3 days to prepare: 1 day for a site visit and at least 1 day for making calculations, taking advice from the team and subcontractors and preparing the bid paperwork. So ask yourself the following questions: Are you available when work is required? Is your team good at this type of work? Do you really want the job? Preparing a few thorough tenders for the jobs you want is more likely to win work than submitting rushed bids for every job possible.
It is good practice to evaluate invitations against predetermined criteria, although there will obviously need to be some flexibility. Some factors to consider include:
- Does the organisation offering the work have a track record of managing pathwork. Are you confident that it is aware of its responsibilities in managing the job and is it capable of meeting them?
- Does the organisation offering the work have the financial resources available to pay for the work?
- Are you technically capable of undertaking the work? Do you have several suitably skilled staff available or are you relying on one person? What would happen if that person was not available?
- Are you financially capable of completing the work? Check that interim payments are available and that your cash flow can cope with the timing of these, including a contingency for delays in payment.
- Are you likely to be made a better offer by another organisation during the contract period?
- Do you have all the resources available to undertake the work at the appropriate time?
Appraise the tender as early as possible after receiving the invitation as you will need plenty of time for the subsequent stages. Do not spend any further time on a job you do not wish to bid for. Keep the client informed of progress and seek extra information on any points that are unclear. Explain to the client your team’s abilities and areas of special interest, as this will be useful in planning future work and helps build up a good working relationship.
Step 2: Is it feasible having seen the site?
A detailed site visit is required to assess properly almost any path job. It is good practice to attend a pre-tender site meeting for the potential contractors and the client, and many clients will only accept bids as ‘competent’ if you have attended. It is preferable that all contractors visit the site on the same occasion. This allows the client to explain to everyone exactly what is required and answer questions raised. It is also a good opportunity to demonstrate your knowledge and put forward ideas.
Normally the specification will be reviewed by several experts, often resulting in minor amendments being made. It is essential that any amendments to the design or bill of quantity are confirmed in writing to all those invited to tender as soon as practical after the meeting, so that everyone is bidding for the same revised job.
- Make your own assessments of the path use, safety, availability of materials, access for machinery and so on. Take measurements and photographs, and do not rely on impressions. You may want to return on your own for a second visit if you are going to bid.
- Remember that if the job requires staying away from base, you will also need to look for site accommodation and living accommodation.
- If there are factors that will change the way you deliver the work, write them down and decide whether they will affect the cost. Do you know enough to predict each of these factors? If the job is not feasible or to your liking, you can pull out at this point. The site visit also gives you an opportunity to talk to the project manager face to face, to decide whether you will work well with them, and an opportunity to eye up the competition!
Step 3: How much will it cost to deliver?
Price is a key part of any tender; being able to estimate costs accurately is key to setting the price and deciding whether there is a margin for leeway and some profit. With the advent of ‘Best Value’ contract selection, price is a significant factor in choosing who gets the job, but it is not the sole factor. For many pathwork jobs a good team at a reasonable price is a better option than an inexperienced team at cut price.
Cost estimation has several elements:
- Estimate your labour unit costs. As the greatest cost element of pathworks is usually labour, it is important that you are clear about your labour costs. You must include the cost of satisfying the conditions of any statutory requirements that apply, such as holiday and sick pay, personal protective equipment, insurance and so on. Calculate a daily rate inclusive of all costs for your team.
- Estimate the time it will take. For each element of the bill of quantities estimate how long an ‘average’ item will take. For instance, a cross-drain may usually take 2 days of labour to build, but if you have experienced staff and are on a site where block stone is available nearby the estimate for building a cross-drain could be only 12 hours. In the case of such ‘discrete’ tasks the total time will be readily calculated as the time taken to build one cross-drain multiplied by the number being built. Other tasks are continuous. For example, setting up a machine and borrow pit to build 50m of ‘floating’ aggregate path will be a high cost, but once everything is on site the next 50m will be at lower cost.
- Multiply up unit costs. Bring together the labour cost per hour or day and the time taken for each item of work and start working out the total labour costs. Adjust these in light of the information you have gathered on site, for example materials available and ground conditions. Add in any additional time/costs for labour, including site meetings, walk-in time to site, future remedial works and others. This part of the estimation can best be presented in a spreadsheet format, which also makes it easy to try out alternative scenarios and costs.
- Estimate all external costs. Add all the external costs you will incur during the job, including recurrent costs such as fuel, accommodation and plant hire and one-off costs such as materials, small tools and delivery charges. It is usually easier to estimate these costs than labour needs in advance, but more difficult to control them once work is under way.
- Look at cashflow. What are the terms of payment for the job? Can you invoice for stages of work? Will the bills be paid on time? Speak to your bank manager and include a cost for overdraft and other borrowing charges.
Estimating the cost of works is a complicated task, and different contractors may adopt different approaches. Consider the options of using different types of plant or other working methods, such as airlifting materials. This may have an impact on your costs and the price for providing the optimum quality–price ratio. Air-lifting materials may be more expensive, but it will create less disturbance to the site, and this may be of prime concern to the client. Talk to the client and consider offering two options and prices.
Step 4: Can you meet all the conditions?
Contracts contain detailed conditions on how work will be carried out. Some, such as safety and insurance, are fixed for all jobs. Some, such as work within designated conservation sites or access arrangements, vary from site to site. Others, such as working hours and completion dates, may be flexible and can be set by the contractor. The client will often provide a checklist of information to include or a tender questionnaire to complete. If you are uncertain, be sure to cover the following basics: dates, team personnel, track record, plant and materials, price, project plan or method statement.
Give the planned start and completion dates for the job and your usual working days and hours. The contract usually gives a ‘window’ within which work must be completed, often constrained by weather or land use, such a stag stalking seasons.
- Give a list of the personnel, e.g. company, site supervisor, team leader and team members, because clients will look not only at the name and reputation of the team but also at the team members.
- Give a resume of the team’s major contract experience and the Vocational Qualifications (VQs) and skills of individual team members as many clients require a proportion of the team to have pathwork VQs (e.g. 50% of the team to hold the level 2 Pathworker VQ).
- Give a list of all machines and operators, materials and sources. This is particularly important for work on fragile sites and Sites of Special Scientific Interest (SSSIs), as permissions will be needed for use.
- Give a fixed price (usually) for all the work listed and a daily rate for any extra work (the ‘day works rate’). You may also may also require an itemised price for each element on the bill of quantities. State also the frequency of interim invoices and your payment terms.
- Give a brief plan of how your team will tackle the contract, lay out the site, manage the site and complete the job.
- Prepare a Pre-Tender Safety Plan.
Make sure that you provide all this information and any additional requested – it is surprising how many bids are incomplete, and these are the first to be rejected. If you are unable to meet any of the conditions contained in the contract, or are uncertain about how they apply, then bring this to the attention of the client and include this in your covering letter. However, do not make your bid a ‘conditional offer’ by saying that it only applies if certain conditions are met – clients do not like this approach.
Be positive and concentrate on preparing a good method statement: this is a great opportunity to show the client that you have thought through the contract. Having a plan that is prepared and ready to deliver could put your bid ahead of a lower cost but less well-planned competitor. Many successful contractors submit a detailed method statement for every major contract, whether the client requests it or not.
Step 5: Is it a risky job?
All projects contain some level of risk. The price you bid depends on assessing the risks and opportunities the job represents to your business. Contractors can make a profit or loss depending on how accurately the risks have been assessed. Before submitting a tender, the risks and opportunities involved must be identified and assessed.
Risks include: financial, adverse conditions, poor weather, reputation, suppliers.
- Does the client have adequate resources to pay for the work and are you confident that they will make stage and final payments as agreed. Does your quote depend on supply of materials or plant or labour at prices that may fluctuate?
- Have you accurately assessed site conditions, such as material availability and ground conditions?
- Have you made adequate provision for poor weather that may hinder operations?
- Will the specification allow you to construct a high-quality path? If not, will your reputation be affected if you are associated with the construction of a poor-quality path?
- Are you confident that subcontractors or suppliers can provide materials or services of adequate standard when required?
On the other hand, the tender may offer opportunities, including:
- making a profit at the end of a contract that reflects the effort expended and level of risk incurred;
- continuity of work, enabling retention of a skilled and reliable workforce;
- developing new techniques and gaining experience, resulting in improved skills in the team;
- boosting your reputation and developing a positive client relationship that may lead to further work opportunities.
The price you bid will depend on many things: if you think there is a high chance of weather lay-offs, increase the price by 10–15% and seek reassurances on being given extra time to complete the job. If you need work urgently and want to impress a new client cut the price by 5–10%. Always set your bid price at a level that more than covers all costs, and never go below this. Add a margin to your total expected costs that gives you room to manage the variables and make a profit if you are successfully able to do this.
Look around at the other teams bidding and particularly the availability of skills at the time the client needs the work done – many larger client organisations prefer higher prices to delayed work. Your price should cover all work anticipated, including site restoration and return visits for any remedial work (usually 3–4% of the construction cost). Do not bid a low ‘core price’ with the expectation of adding plenty of extras when on site – clients will be looking for a realistic, single price that reflects all that the job demands.
Step 6: Is your bid the best?
Submit your bid in the manner requested – often in two envelopes and with an electronic copy – and well before the closing date set. Ask the client how long a decision is likely to take: this can vary from 3 days to 6 weeks depending on the complexity and size of the organisation. There may be a long delay if the information is being relayed to grant aid partners for their approval, but the client should let you know if this is the case. You may be asked for additional information, and a prompt turnaround is essential.
The winning bidder will normally be contacted by telephone and given a brief period to confirm acceptance. Unsuccessful bidders will receive a letter a few days later. It is not standard practice for clients to disclose the winning bid price because of the relatively small number of teams bidding. Whether or not you are successful, contact the client for some feedback: you have spent several days preparing the bid, and feedback will aid your success next time.
Feedback from the client to contractors should include the following: price, quality of tender, future prospects.
- How did the contactor’s price compare with the winning bid? Give a percentage above or below, even if actual prices are not disclosed.
- How did the contactor rate for team ability and skills? Are there gaps in the teams abilities that need to be addressed?
- Did the bid cover everything that was needed? Did the contractor provide the right level of information and did the client understand how the contractor would deliver the job?
- You should let the contactor know of future jobs, and discuss the abilities and availability of the contactor’s team.
Competitive tendering: some good practice pointers for contractors and clients
- Be transparent: explain how the tendering process will work, how bids will be assessed and provide feedback
- Be consistent: provide the same level of information to all involved and confirm verbal instructions or communications in writing.
- Be positive: emphasise the benefits of a thorough and rigorous tendering process – better planning, fairer assessment, less dispute.
- Maintain perspective: the cost of tender preparation should not be greater than the expected contract value.
- Timing: allow adequate time for return of tenders. Some bids may require much more preparation than others.
- Be realistic: do not underprice work. Path work is demanding, and you do not want to working for nothing or at a loss.
- Be thorough: ensure that you understand all of the contract conditions and their implications.
If you are in doubt about preparing a tender seek advice: talk to your local enterprise company; attend a short course; or approach an experienced firm and ask to shadow their work. Tenders for work are the most complex and important pieces of paper in pathwork: how you approach and prepare your bid not only tells others about how you do business, it is also a legally binding contract if you are successful and win the job.