AQS - Kegalle Construction Contracts & Tender Procedure Lecture 2

Methods of Contractor Selection:

The selection of a contractor to carry out construction works in a project is a very important matter. A
wrong choice may lead to an unhappy employer / contractor relationship. It also may end up with
dissatisfied employer and sometimes even with an insolvent contractor.
The employer’s professional advisers should find a contracting company;
o That is financially stable / and has a good business record.
o For which the size of project is neither too small nor too large.
o That has a reputation for good quality workmanship and efficient organization.
There are three principal methods for choosing a contractor:
(a) Open tendering, (b) Selective tendering, (c) Nomination

- Open Tendering – Initiated by employer advertising in newspapers and / or inviting contractors to apply
for bid documents and to bid in competition for carrying out the work. Usually a deposit is required to
discourage irresponsible applicants, the deposit being returnable on the submission of the bid.
o Advantages –
 There can be no favoritism.
 Can get the maximum benefit from competition.
 An opportunity is provided for any capable firm.
o Disadvantages –
 There is a danger that a firm inexperienced in preparing bids may submit the lowest bid.
 There is no guarantee that the lowest bidder is sufficiently capable or financially stable.
 Total cost of bidding is increased.
- Selective Tendering – A short list drawn up of contractors who are considered to be suitable to carry out
the proposed work. Names may be selected from an approved list or ‘panel’ maintained by the employer. It
is recommended that the number of bidders should be limited to a manageable number, depending on the
size of the contract. If the firms on the list are all reputable, well established and suitable for the proposed
work, then the selection is resolved into a question of price only.
o Advantages –
 Ensures that only capable and approved firms submit bids.
 Reduce the cost of bidding.
o Disadvantages –
 Cost level of the bids will be higher due to less competition and also due to the higher caliber of
the bidders.
- Nomination – Sometimes referred as ‘single tendering’. It is a special case of selective tendering where
the short list has only one name. Used when the client has a preference for a particular firm, often because it
has done satisfactory works for him before. Competition is eliminated and that will lead to a higher price.
Contract sum will be arrived by a process of negotiations. When a large project is to be carried out in

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AQS - Kegalle Construction Contracts & Tender Procedure Lecture 2

successive phases, a combination of selective tendering and nomination is employed – this is sometimes
called “serial tendering”.

Serial Tendering - The contractor is chosen for the first phase by means of selective competitive tendering.
The accepted tender forms the basis of payment for the resulting contract. The tender is also used for the
second and later phases, provision being made for so doing in the initial contract by the inclusion of a
formula for updating prices. The purpose of serial tendering is to gain the benefits of continuity. The
contractor for the first phase of the project will have his site organization set up, his offices and storage
huts, etc., already in use and plant of various kinds on the site. When the second phase commences, these
facilities will be already available. It allows smooth transition with less additional expenses. In addition,
the contractor’s workforce will be familiar with the details of the construction after building the first phase,
and it helps to work more speedily and efficiently.
Negotiated Contracts: This may be done using bills of quantities / schedules of rates. The rates and prices
are discussed and agreed until eventually a total price is arrived. Usually negotiation will be conducted
between the contractor’s quantity surveyor and the project quantity surveyor. One party will usually price
the tender document first of all, and then the other party goes through the rates and prices ticking off those
which are acceptable and other rates negotiated and agreed. When agreement is reached, a contract will be
entered between the client and the contractor. This process is sometimes called Single stage negotiation. In
this procedure, absence of competition usually results in a higher price.
Therefore, with a view to gaining the benefits of competition as well as the advantages of negotiation, a
process of limited competition for the selection of contractor, followed by negotiation with him on the
details of his tender, is used. This process is usually known as two-stage negotiation.
In the first stage tenderers are informed of the second stage intention and are asked to tender on the basis
of - 1) Schedule of rates consisting of the main/ significant items only.
2) Prices for the main preliminary items.
3) Construction program showing estimated times.
4) Labor and plant resources/ construction methods.
5) Details of all labor rates / material prices / discounts, etc.
Discussion with each of the tenderers may be conducted in order to clarify their proposals. Having selected
a contractor at the end of the competition stage, negotiation will follow on the basis of a detailed tender
document as in single stage negotiation.
Two-stage negotiation is the method normally used to select a contractor to carry out management contract,
in which the general contractor does little or none of the construction work himself but organizes sub-
contractors to do the work.