Adama Science and Technology University

School of Civil and Architectural Engineering

Civil Engineering Department
CENG 5002 - Construction planning and management
Chapter 2: Contract and procurement management

Instructor: Fikreyesus Demeke (MSc)

E mail:-fikreyesusd@yahoo.com
2/4/2019 March 2016 1
 Content
CHAPTER 2: CONTRACT AND PROCUREMENT MANAGEMENT
2.1. Introduction
2.2. Procurement & contract management delivery systems
2.3. Contract Planning Process
2.4. Contract management Process
2.5. Procurement management Process

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 2.1. Introduction

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 2.1 Introduction
 After a contractor has been selected then agreement done for some
consideration (payment).
According to Article 1675 of the Civil Code:
 A contract is an agreement whereby two or more persons as between
themselves create, vary or extinguish obligations.
 Agreement:-at least two parties creating legal obligation between and
capable of being enforced by the court of law.
 Contract = offer + acceptance + consideration.
 However, not all agreements or promises are contracts.
 Some may lack enforceability at law.

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 2.1 Introduction
Definition & legal aspect of contract
Agreement must consist of an offer and acceptance of the offer
 Offer (proposal)
 Revocation (withdrawal):- before accepted
 Acceptance: must be unconditional.
 If conditional it becomes counter offer.
 Consideration :- without this there no contract (what ever the amount)
 Rectification:-in case of error, mistake. If both parties agree, mistake can
be changed.

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 2.1 Introduction
Elements of Contract
According to Article 1678 ( Elements of Contract) of the Civil Code:
No valid contract shall exist unless
 The parties are capable of contracting and give their consent sustainable at
law.
 The object of the contract is sufficiently defined and is possible and lawful.
 The contract is made in the form prescribed by law.
The following are the fundamental elements of contract.
Capacity of the contracting parties;
Consent of the contracting parties;(offer &acceptance)
Object of the contract; and
Form of contract, if any;
2/4/2019 Consideration 6
 2.1 Introduction
The purpose of the contract is to produce
 A quality construction project

 On time construction project

 Construction project with in budget

 Safely executed project

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2.2 Procurement & contract management
delivery systems

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2.2 Procurement & contract management
delivery systems

2.2.1. Decisions made in determining kind of contract

 Number of contracts

 Basis of payment

 Project Delivery system

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 Number of Contracts
Single Prime Contract – most common, uses competitive bidding .

 Owner has contract w/ A/E & contractor; but A/E & contractor do NOT

have contract

Multiple Prime Contract – Owner divides the work among several

contractors & has separate contract w/ each of them.

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 Major Contract Types (traditional)based on Payment

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 Lump Sum Contract
 Work must be well defined at bid time.

 Fully developed plans and specifications

 Cost known at outset and fixed

 One price for the whole contract & Contractor selection is easy.

 Lump sum includes costs plus overheads and profits

 Payment based on a scheduled percentage scheme (monthly progress claims)

 The contractor is free to use means and methods to complete the work and
responsible for proper performance
 Changes is difficult and costly ( pricing for change difficult).
 Low risk on the owner, Higher risk to the contractor

 The risk to contractor is high and likely to submit very high price to cover
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 Unit Price (measurement)
 Quote Rates / Prices by units

 No total final price

 Re-negotiate for rates if the quantity or work considerably exceeds the

initial target.

 Payment to contractor is based on the measure.

 Ideal for work where quantities can not be accurately established before
construction starts.

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 Unit Price contract
• Time & cost risk (shared)

 Owner : at risk for total quantities

 Contractor : at risk for fixed unit price.
• Large quantities changes can lead to increase or decrease of unit price.

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Unit Price / Requirement
 Adequate breakdown and definition of work units

 Adequate drawings.

 Payment based on the measurement of the finished works.

 Quantity sensitive analysis of unit prices to evaluate total bid price for
potential quantity variation.

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 Unit Price / advantages
 Suitable for competitive bid (easy to compare tenderers)

 The client has a fairly accurate estimate of total cost

 Easy for contract selection

 Early start is possible

 Possible to vary the amount of work during construction

 Flexibility : quantities and scope can be easily adjusted

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 Unit Price / disadvantages
 Final cost not known from the beginning (BOQ only is estimated) details of
BOQ is not completed during start

 Staff needed to measure the finished quantities and report on the units not
completed.

 Contractors raise prices on certain items and make corresponding reductions

of the prices on other items ,without changing the total amount of the bid)

 A tender has no obvious place to put major temporary works costs hence
detailed comparisons may be meaning less.

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Cost Plus (Cost Reimbursement)
1. Actual cost plus a negotiated reimbursement to cover overheads and profit.

2. Different methods of reimbursement :

 Cost + percentage

 Cost + fixed fee

 Cost + fixed fee + profit-sharing clause.

3. Higher risk to owner

4. Compromise : guaranteed maximum price (GMP) reduces risk to owner

while maintain advantage of cost plus contract.

5. By using this type of contract the contractor can start work without a clearly
defined project scope, since all costs will be reimbursed and a profit
2/4/2019 guaranteed. 18
 Cost Plus(Cost Reimbursement)
7 Work can get under way quickly before design completed

8 Suitable for use when amount and type of work not known

9 Client has little idea of total cost

10 Every invoice, pay sheet, material record, must be checked by the Engineer
and his auditors as well as the contractor to ensure it was really paid for
work on the contract and it is reimbursable.

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 Cost + Percent of Cost
Fee = percentage of the total project cost

 i.e. (Cost = $500.000, Fee = 2%)

Contractor is not concerned about losing money on the contract –

high quality workmanship obtained.

Advantages Disadvantages

Profitable for the contractor No incentive to finish job quickly

Owner does not know total price

Larger the cost of the job, the higher

the fee the owner pays

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Cost + Fixed Fee
 Fee = percentage of the original estimated total figure

 Utilized on large multi-year jobs

 Ex: project x(Cost = $200 million, Fee = 1%)

 $200 Million 1% fee = $2 Million

 Contractor is not concerned about losing money on the contract –

high quality workmanship obtained

Advantages Disadvantages
Fee amount is fixed regardless Expensive materials and construction
of price fluctuation techniques maybe used to expedite
construction

Provides incentive to complete

the project quickly
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 Cost Plus Fixed Fee
Most common form of negotiated contracts

 COST = Expenses incurred by the contractor for the construction of the

facility

 Includes: Labor, equipment, materials, and administrative costs

 FEE = Compensation for expertise

 Includes: profit

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 Cost + Fixed Fee +Profit-Sharing Clause
 Rewards contractors who minimize cost

 Percentage of cost under GMP is considered profit and shared with the

contractor

 Guaranteed Maximum Price (GMP)

 % of profit sharing is specified in contract

Advantages Disadvantages

Provides incentive to the Contractor must absorb any amount over the

contractor to save money GMP

Plans & specs. need to detailed

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 Cost + Fixed Fee + Profit-Sharing Clause
Variation of this type of contract is called a guaranteed maximum price
(GMP).

 In this type of contract the contractor is reimbursed at cost with an agreed-

upon fee up to the GMP,

 Which is essentially a cap; beyond this point the contractor is responsible

for covering any additional costs within the original project scope

 An incentive clause, which specifies that the contractor will receive

additional profit for bringing the project in under the GMP.

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2.2 Procurement & contract management
delivery systems
2.2.2. PROJECT DELIVERY SYSTEM
(Construction Contracting&
Procurement Method)

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 Project Delivery Systems(PDS)
PDS describes how the participants are organized to interact, transforming the
owner’s project goals and objectives into a finished facility
Factors affect the selection of PDS:

 Past practices, traditions, and experience;

 The advice of consultants;

 Funding sources and constraints;

 The effective use of staff and working capital;

 The interests of other project stakeholders

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 Project Delivery Systems
Project delivery systems are basically classified in to two broad areas:
a) Outsourced ; and
b) Force Account

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 Project Delivery Systems
Outsourcing
 Design/Bid/Build (DBB)
 Design/Build (DB)
 Turnkey
 Turnkey Variations
 Construction management

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 Project Delivery Systems
Traditional Approach (D-B-B):

 “the traditional or standard approach” or “design-bid-build”,

 Employer assigns the design and construction phases to two different

firms (consultant/designer and contractor).

Appointing Appointing Main

Consultant Contractor

Constructing
Designing

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 Design -Bid-Build
Three Sequential Phases
1. Design Phase
◦ Owner hires team of architects and engineers to build plans and specs
used to solicit bids
2. Bid Phase
◦ “open process”-any qualified bidder
◦ “select process”-limited number of pre-selected bidders
3. Construction Phase
◦ Winning contractor becomes General Contractor
◦ General Contractor hires sub-contractors

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 Advantages of D-B-B Approach
 Applicable to a wide range of projects.
 Well established and easily understood.
 Clearly defined roles for all parties.

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 Disadvantages of D-B-B Approach
 Innovation not optimized;

 Disputes between parties;

 Client retains risks; Owner responsible for errors & omissions;

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 Design-Build Approach
 Design-build approach is a project delivery system involving a single contract
between the project employer and a design-build contractor covering both the
design and construction of a project.

 The design-builder performs design and construction according to

 design parameters,
 performance criteria and
 other requirements established by the employer or his representative.
Appointing design &
construction contractor

Tendering Designing Constructing

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 Design-Build Approach
 The contract might be negotiated with a single design-builder or result from
competitive proposals.

 The selection can be based on low price or on a set of value criteria

(experience, staff, bonding capacity, etc.).

 Design-build provides the owner with a single point of contact for project
responsibilities, eliminating the need to assist in resolving designer-contractor
disputes.

 Construction begins as each segment is designed

 Design and construction phases overlap

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 Design-Build Approach
 The employer approaches a contractor with a set of requirements defining
what the employer wants.

 The contractor responds with proposals, which will include production as well
as design work.

 The other feature is that Design-Build delivery method deals is a guaranteed

maximum price (GMP). .

 As an incentive to the contractor, any savings made by completing the project for
a price below the GMP may sometimes be shared between the client & the
contractor.

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Advantage of Design-Build Approach
 Innovation and quality improvements through:
- Alternative designs and construction method suited to the contractor’s
capabilities

- Flexibility in the selection of design, materials, and construction methods.

 One firm designs and constructs the project

 Reduced delivery schedule

 Saves time, therefore saves money

 Most risks transferred to the design-builder;

 Usually GMP;

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 Disadvantage of Design-Build Approach
 Reduced opportunities for smaller, local construction firms.
 Fewer competitors and increased risk may result in higher initial costs.
 Higher procurement costs.

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 PROJECT DETAILS:
 Employer:

Ethiopian Government; Represented by Ethiopian

Roads Authority/ERA/
 Employer’s Representative:
Beijing Expressway Supervision Co., Ltd. (BES), A
Chinese Consulting Firm
 Contractor:
China Communications Construction Company
Limited (CCCC), A Chinese International
Contractor
 PROJECT DETAILS (Cond):

Project Cost: USD 612 Million without VAT

Currencies and proportion of payment: Local
portion: 43% ETB , Foreign portion: 57% USD
Source of Finance: GOE for 43% ETB and
Government of China (Import-Export Bank of China)
for 57% USD
Type of Contract: Design and Build
Class of Road: Expressway (Toll Road)
Turnkey
 Turnkey adds to the design-builder’s responsibilities the operation and/or
maintenance of the completed project.

 Three forms of turnkey project delivery:

 Design-build-operate-transfer (DBOT)

 Design-build-operate-maintain (DBOM)

 Design-build-own-operate-transfer(DBOOT)

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Turnkey Variation
 Variations on turnkey add financing as a key component.
 FDBT (Finance, design, build, transfer)

 FDBOT (Finance, design, build, operate, transfer)

 FDBOOT (Finance, design, build ,own, operate, transfer)

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Construction Management
CM is of two types:
This distinction determines the contractual approach to CM.

 CM At Free/as Agent &

 CM At Risk/as Constructor.

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 Construction Manager (CM) as Agent
This is a form of CM under which the Construction Manager acts as an agent
of and advisor to, the Owner.
 The Owner enters in to multiple trade contracts with the trade contractors
& suppliers.
 The Construction Manager is retained on a fee for services basis & acts on
the Owner’s behalf in managing & coordinating the trade contracts in the
best interests of the Owner.
 The Owner retains all of the contracting risks inherent in each of the trade
contracts.
 It essentially involves the Owner acting as its own general contractor, with
the assistance of a Construction Manager.
 This form of CM is sometimes also referred to as the “CM as Advisor” or
2/4/2019 “owner contacted form of CM”. 45
Advantages may include:

CM At Free

 Provides a managing & administering for all phases of a project;

 Treats planning, design, construction as an integrated tasks;

 Some costs & schedule control;

CM At Risk

 Good for clients with insufficient staff;

 Responsible for time & cost overrun;

 Holds & manages the trade contractors;

 Constructability design review;

 Same legal position as a General Contractor;

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 Provides a GMP;
Disadvantages may include;

CM At Free
 No contractual relationship with trade contractors;

 No contractual responsibility for outcomes of a project;

 Client retains the risks;

CM At Risk
 Duplication of administration & additional paperwork;

 More paper work for the client;

 Some duplication of administration;

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Force Account
 When the Project Owners engage themselves to undertake the project, it is
called a force account delivery system.

 Used when:

 projects are small and places are remote such that reaching them is difficult

 It provides a comparative advantage in Cost, Time and Quality issues.

 When there is a lack of capacity from the private sector to undertake very
large and technologically new projects.

 When projects are unattractive to bidders.

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 Contract management &
settlement of claims

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 P&CM process
P&CM involves three major processes:

1. Contract Planning

2. Procurement Management and

3. Contract Management

Delivery System Contract Formulation

Procurement Method Contract Administration
Contract Types Contract Closing
Procurement
Contract Management
Contract
Planning
Management

Procurement Preparation
Tendering
Tender Evaluation & Notice of Acceptance
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2.3. Contract Planning Process
Contract Planning Process includes planning of project
 Delivery System
 Procurement Method
 Contract Types

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 2.4. Contract Management Process
Contract Management is the management of its
 Processes,
 Stakeholders and their Performances

 Planning, Implementation and Monitoring +

Evaluation Cycle of the functions of Management.

It’s idealized into three major processes. These include

 Contract Formulation,
 Contract Administration, and
 Closing of Contract Processes

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Contract Management Process

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 Contract Formulation: involves two sub processes:
 Negotiation and
 Signing of Contract Agreement.

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 Contract Administration
Contract Administration: is a process that ensures the successful completion
of the project under consideration with substantial compliance of the Terms of
the Contract.

Identifying contractual responsibilities of Stakeholders.

 Reviewing the Terms of Contract Documents

 Extract Monitoring Responsibilities

 Preparing Monitoring Responsibility Summary Sheets

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 Contract Administration cont.….
Determining and understanding the construction components of the project.

 Reviewing the Contract Drawings and Technical Specifications

 Extract the Construction Methods and Sequences

 Prepare Construction Methods and Over all Sequences Sheets

 Review submitted (Integrated) Schedules and Breakdowns for operations such as

Organizational Breakdowns, Resources Breakdowns & Schedules and Time
Schedules.

Record, Monitor and Evaluate Progress of Mobilizations, Works and

Completions.

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Contract Administration cont.….
Report Project Status daily and / or periodically and Completions.
Certify qualities of materials, shop drawings, samples, workmanships and
works.
Measure Works, Record Site Potentials and Certify Payments and
Completions
 Take off sheet and Bending Schedules are used for Measurement of Works
 Method of Measurement is according to standard practices

 Site Potentials such as material, equipment and Manpower on site together

with appropriate site organization is recorded
 Advance, Interim and Final Payments are certified

Mediate Disputes.
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Contract Closing
Closing of Contract looks into issues related to Maintenance Period and
Remedial works, Dealing with Left Over Claims and Disputes, if any, Closing
of Accounts and Completion Certificates.

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 Construction documents
Construction Documents are defined as the written and graphic documents
prepared or assembled by the A/E for communicating the design of the project
and administering the contract for its construction.
2 major groups

1.Bidding Requirements

Used to attract bidders & explains bidding process

2.Contract Documents

Legally enforceable requirements that become part of the contract

Include all construction documents except bidding forms

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 Bid Package
Documents available to the contractor and on which he must make a
decision to bid or not

A set of plans and technical specifications, Proposal form, general

conditions, special conditions,

Description of the project to be constructed

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 Construction Agreement Forms
 Agreement – legal, binding, written document signed by owner & contractor
 Defines the relationships and obligations that exist
 By reference it incorporates ALL OTHER CONTRACT DOCUMENTS

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Agreement
 is a short document signed by both parties

 references the other portions of the contract

 The agreement must contain

◦ Date of the agreement

◦ Names and addresses of the contracting parties

◦ Description of the scope of work

◦ Time durations

◦ Contract payment

◦ Payment conditions

◦ Reference to other documents

◦ Signatures
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Specification
 Define the material and workmanship quality requirements of a contract

 Specifications provide information regarding

 The quality of materials

 The quality of workmanship

 Erection and installation methods

 Test and inspection requirements and methods

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Specification must satisfy
 Technical accuracy and adequacy

 Definite and clear stipulations

 Fair and equitable requirements

 A format that is easy to use during bidding and construction

 Legal enforceability

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 Conditions of the Contract
 Define basic rights, responsibilities, and relationships of the parties involved
in the construction process in greater detail than the agreement

General conditions of the Contract

 General conditions (provisions) set the manners and procedures whereby the
provisions of the contract are to be implemented according to accepted
practices in the construction industry.

 They are not intended to regulate the internal workings of either party to
agreement, except the activities that may affect the contractual rights of the
other party or the proper execution of the work.

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General conditions of the Contract
 Definition and interpretation  Measurement
 Engineer and Engineers representatives  Provisional sum
 Assignments and subcontracting  Nominated sub contractor
 Contract documents  Certificates and payments
 General obligations
 Remedies
 Labour
 Special risks
 Material, plant and workmanship
 Release from performance
 Suspension
 Commencement and delays  Settlement of disputes
 Defect liability  Notices
 Alternation, addition and omission  Default of employee
 Procedure for claim  Changes in cost and legislation
 Contractors equipment, temporary works and materials  Currency and rates of exchange
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Conditions of particular application
Reasons for the particular application

 Where the wording in part I specially requires further information is to be

included.

 Where the type, circumstances or locality of necessity additional clause or

sub clauses.

 Where the law of country or exceptional circumstances necessities an

alternation in part I, stating in part II part one deleted or giving substitute
clause.

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 Supplementary Conditions
General conditions is intended to apply to a relatively broad range of
construction and must be adjusted at times to conform to special conditions a
given project.
• This is accomplished by a section of the specifications called the
supplementary conditions or special conditions.
Common examples of supplementary Conditions:
– Number of contract documents
– Special instructions to the contractor
– Changes in insurance requirements
–Special documentations required by the owner as a condition of final payment.

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 Supplementary Conditions
Additional articles to those in General Conditions:
– Conditions of project location
– Order of procedure
– Times during which the work must proceed
– Owner provided materials or equipment
– Other contracts
– Unusual contract administration requirements
– Early occupancy by the owner
– Time of project completion
– Liquidated damages

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 Contract administration &Settlement of claims or
dispute resolution mechanisms

Precedence
If the contractor finds a conflict, error, or discrepancy in the contract documents,
In resolving such conflicts the documents give preference in the following order:
1. Agreement
2. Specifications
3. Drawings

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 Contract administration &Settlement of
claims or dispute resolution mechanisms
Precedence
Agreement governs over specifications

Specifications govern over drawings

Detail specifications govern over general specifications

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 Contract administration &Settlement of
claims or dispute resolution mechanisms
Precedence
Within the specifications, the order of precedence:
1. Addenda.
2. Supplementary Conditions (Special Conditions)
3. Instruction to Bidders.
4. General Conditions.
5. Technical Provisions.
6. Standard Specifications.

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 Contract administration &Settlement of
claims or dispute resolution mechanisms
Precedence
Within Drawings:
1. Figures govern over scaled dimensions
2. Detail dwgs govern over general drawings
3. Change order dwgs govern over contract drawings
4. Contract dwgs govern over standard dwgs
5. Contract dwgs govern over shop drawings
6. Shop dwgs that deviate substantially from the requirement of the contract
documents must be accompanied by a written change order.

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 Contract administration &Settlement of
claims or dispute resolution mechanisms
(Assignment II)
Handling the formal governance of the Claim and dispute to the contract
documentation
 Negotiation
 Mediation
 Conciliation
 Adjudication
 Arbitration
 & Others
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 Bidding theory, Preparation of tender,
Tender appraisal

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Project Life Cycle

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2.5. Procurement Management (PM)
Definition: -Procurement is a process used to select the lowest competitive and qualified
bidder for procuring services, works or goods from potential competitors based on
reasonable & relevant criteria.

PM is a process of selecting individuals or organizations to carry out the intended

services and/or works.

PM is carried out based on the provisions made during the contract planning phase of the
Procurement and Contract Process.

PM involves the preparation of procurement documents, their invitation and submission

of tender proposals, and Opening and Evaluation of tenders.

On the bases of tender evaluations, the procurement team will recommend the lowest
responsive bidder for CM Phase.
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 Types of Procurement

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 A. Things to be Procured: Goods, Services, or Works
A-1.Procurement of Goods: Physical resources like Materials and Equipments
are made available using Procurement of Goods.

A-2.Procurement of Services: In the construction Industry procurement of

services are often termed as consultancy services procurement.

These include services like Pre-feasibility, Design and Contract Administration

of projects, Construction Management Consultancy Services, Research or
Study based Consultancy Services, etc.

A –3. Procurement of Works: Procurement of works mean the procurement of

contractors to carryout the actual physical infrastructures.

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B. Bidders' Coverage:
Purpose of tendering procedure is to select a suitable contractor at time
appropriate to circumstance
B-1: Competitive Tendering

 Open Tendering
 Selective Tendering
B-2: Negotiated Tendering

 Direct order
 Serial Tendering
.

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 B –1.Competitive Tendering:
Open Tendering
 Contractors are invited through an announcement in public media.
 Open to specified category and above ...of contractors
 Large number of contractors responded.
 Bid evaluation may take long time
 No prior screening of competent contractors
 The lowest bid is awarded the job
 Price cutting and the risk of missing out on competent contractors
 Sometimes lowest bid contractor may fail to complete the project
 If contractor bankrupt during construction of work and another contractor
finish the work results extra cost and delay
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 B –1.Competitive Tendering
Selective Tendering
 Only qualified contractors are allowed to bid.
 The owner prepares a short list of prequalified contractors.
 Limited number of contractors bid in the project compared to open tendering.
 The quality of work is guaranteed through prequalification.
 Applicable when the project is urgent or unique
Pre Qualification

 Prior screening on technical capability

 Financial strength
 Previous work experience
 Equipment and other resources....
A questionnaire is sent out....Requesting information
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 B–2. Negotiated Tendering
In this method, the client and advisers consider which contractors are best suited to
the type of work.

 Trusted contractors are invited to bid in the project by mail or direct contact.
 A selection is then interviewed to determine their willingness
 Usually the quantity surveyor sets out to agree a framework with the chosen
contractor, for the costing of labor, materials and profit

 If negotiations over prices break down at this early stage, another contractor is
selected.

 The quantity surveyor will work with the contractor to update the cost plan or
budget and report to the team.

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 B–2. Negotiated Tendering
 Negotiated tendering is used for maintenance project or projects with incomplete
design.

 Project price is relatively high.

 Project quality is guaranteed through contractor reputation
i.e. rapid start, continuation project, contractor financed projects, specialty in
expertise or plant availability, business relationship.

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B–2. Negotiated Tendering
Direct Order
 Direct appointment of an eligible firm.
 A trusted contractor are awarded the project.
 Owner negotiates the price with the contractor.
 Project price is relatively high.
 when the contractor has a new technology.
i.e. special expertise or plant availability.

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 B–2. Negotiated Tendering
Serial Tendering
 Used for very large engineering projects.
 The project is divided into several stages.
 First project stage is awarded to a contractor using competitive or
negotiated tendering.

 Next stages are awarded to the same contractor if succeeded in

achieving owner requirement in earlier stages.

 Owner benefits form repetition of the work to achieve better quality

with minimal cost.

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 Basis for price negotiation
 Relationship to a competitive price for similar work under similar
conditions

 Agreed assessment of estimated cost to which will be added an agreed

percentage for overhead and profit

 Agreed method of calculation cost (e.g. National agreed wage rate X

actual hours +agreed percentage for overhead and profit )

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Advantages of Negotiated Tendering
 The contractor works as part of the team and may provide practical assistance
and construction knowledge that can influence detailed design. So that it suits his
equipment, method of working etc.

 Less claim due to contractor involvement in design.

 The contractor may also introduce specialist subcontractors to the table, each of
whom may have a particular contribution.

 Specialists as lift engineers, kitchen specialists, door and window fabricators,

ironworkers, landscape gardeners and so on can all help with ideas and advice to
help produce a good result.

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 Disadvantages of Negotiated Tendering
 Very difficult to asses and select single contractor in the first instance. Tends to
be subjective.

 Once contractor selected it is difficult to envisage any other contractor actually

carrying out the work and the contractor knows it. Hence no really much
competition once initial selection made

 No incentive for contractor to keep costs down since he knows the situation in
detail.

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 C. Geographical Coverage:
International Vs. Regional Vs. National Vs. Local Tendering
 Such types of procurements are generally caused by three major factors.

 Local Capacity –lack of local capacity,

 Financial Sources –depending on financial source and,

 Globalization –free tread policy

In Practice -Preference Margins –Up to 10% margins might be used to encourage

local firms.

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 D Procurement Steps:
 Single Vs. Two Staged; and

 Pré -Vs Post -Qualification tendering

Single or Two Staged Tendering:

Single: Bidders submit single proposal and the evaluation is carried out on the
same.

Two Staged: When the bidders submit separate proposals and the evaluation
will be carried out separately, usually financial then technical.

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Pre or Post Qualification Tendering:
Pre-qualification:
An internationally accepted practice & common in civil works -nature &cost is
large & complex.
Pre –qualification: Technical evaluation carried out first then financial.

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 Pre or Post Qualification Tendering:
Post –qualification : is a tendering type where Financial Evaluation is carried
out first and rank bidders on the basis of their offer for tender price. Then
Technical Evaluation follows.

Advantage: The lowest bidder will not loose and allows to save time during
technical evaluations.

Disadvantage: However, Post qualification approaches often cause to fix

evaluators on financial results and be locked and biased for successive
technical evaluations.

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Procurement Management Process
Procurement Management process can be idealized into three major processes

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A. Procurement Preparation phase: includes
A.1.Formation of a Procurement Team

 Minimum of five members shall be established

 Necessary Experts shall be included
A.2.Preparation of Tender Documents: are prepared to:

 Instruct bidders on the procedures for the preparation and submissions of bids,
 Inform prospective bidders about the nature of things to be procured,
 Inform bidders about the criteria for evaluation and selection of the successful
bidder, and

 Lay down the Contract conditions, Delivery system, Procurement Methods and
Contract types of the project.

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A. Procurement Preparation phase: includes
Preparation of tender documents include:

 Form of Invitation to Tender or Request for Proposals

 Instruction to Tenderers (Standard and / or Particular information) or Terms
of References;

 Prequalification Documents if necessary;

 Forms of Tender -Refer Contract Documents;
 Forms of Contract Agreement
 General and Particular Conditions of Contract
 Bill of Quantities and Drawings
 Technical Specifications & Methods of Measurement
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A. Procurement Preparation phase: includes
A.3.Approval of Tender Documents: includes the checking and approval of tender
documents.

 Check list s usually used for Tender Documents approval.

 Prepare Checklist for:
1.Request For Proposal including Proposed Program and Terms of References

2.Architectural, Structural, Electrical and Sanitary Preliminary and Final Designs

3.Feasibility Studies for Big Projects

4.Road and Bridge Designs

5.Water Works Designs

6.Contract Documents
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B. Tendering Phase
It includes Invitation, Clarification, Submission and Opening of tenders.
 Normally open tenders are floated for a period between 30 to 45 days.

 Limited (selective) and Negotiated tenders can be invited between 7 to15 days.

B.1. Invitation: the invitation to tender shall clearly state:

 The owner and his desirous service or works

 Eligibility requirements,

 Place to get further information,

 Where to purchase & submit tender documents,

 How long the tender will be floated,

 How should the tender offer be packed, and

 When and where submission and opening of tender will take place
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B. Tendering Phase
B.2.Clarifications: -can either be requested by interested bidder or carried out
using a pre -tender clarification meeting.

 Issues clarified shall be sent (written) to all bidders participating for the
intended services or works.

 The bidders shall submit their offer on or before the submission date and time
including the issues clarified.

 Late bids are automatically rejected.

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 B. Tendering Phase
B.3. Tender Opening: Bids shall be opened in public on the date, at the time and
place mentioned in the invitation to tender and stipulated in the tender
documents.

 Ethiopian practice (public):Two representatives from Ethiopian Ministry of

Works and Urban Development (MWUD), Project Owner, Consultant (if
available), and Contractors (Who wish to attend) by themselves or by their
representatives shall attend during the tender opening ceremony.

 The following will be carried out during tender opening:-

1.Tender Attendee members shall take their place and be registered,

2.Tender box opened and checked for faulty things,

3.Bids will be opened one after the other,

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B. Tendering Phase
B.3. Tender Opening Count..

4.All necessary data which deem useful such as Project Name, Name of bidder,
Bid Bond Amount, Tender Price, etc. will be read aloud and recorded at the
opening of bids.

5.Bidders representative shall sign a register to attest their presence during

opening, and

6.Tender committee members shall sign on the Tender

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B. Tendering Phase

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C. Tender Evaluation Phase
Tender Evaluation Phase: meant to determine the winner based on:

 Technical qualification,

 Completion time,

 Commercial terms of the offer, etc.

Note: -Least bidder may not necessarily be the winner.

C.1. Preliminary Evaluations: includes Eligibility and Arithmetic Review

requirements.

Eligibility Requirements: Tenders are subjected to eligibility qualifications

before they enter to bid and their respective evaluations.

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C. Tender Evaluation Phase
C.1. Preliminary Evaluations

Eligibility Requirements:-

Most often sited issues considered in eligibility requirements are:

 Valid & Up to date Trade and Professional License,

 Valid & Up to date Membership to Financier Organizations,

 Valid provision of Bid Security or Bond,

 Completeness and submittals of all required documents,

 Turnover requirements fulfilled

 Power of Attorney, Signature & Sealing Requirements, and

 Appropriate Packaging and Submission Requirements.

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C. Tender Evaluation Phase
C.1. Preliminary Evaluations cont.…
 Responsive to Tender is based on the deviation from the bid conditions. The
more major deviations are witnessed the bid will be rejected based on non –
responsiveness to bid conditions.

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C. Tender Evaluation Phase
C.1. Preliminary Evaluations cont.…
Arithmetic Review

 Most tenders are often submitted hastily and it is common to have arithmetic
error.

 Evaluation without arithmetic check will ultimately result in despites.

 Therefore, it is a formal evaluation process to review arithmetic before

carrying out detail evaluations.

Note: -Arithmetic review can be done if and only when financial proposals are
opened.

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C. Tender Evaluation Phase
C. 2. Detail Evaluations:

Include Technical, Commercial and Financial Qualification requirements.

 Critical evaluation of Technical and Commercial offers will be carried out.

 Finally, the Financial offer will be updated using Absolute Results from
Commercial comparisons.

 Technical Requirements: Will be carried out according to the criteria set.

E.g. Pre –Qualification Criteria.

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C. Tender Evaluation Phase
C. 2. Detail Evaluations cont.….

Commercial Evaluation: This includes :

 Benefit Forgone due to Completion Time;

 Additional Costs due: to differences in Foreign Currency Exchange and

Advance Payment requirements; and

 Provisions of Domestic or Regional Preference Margins.

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C. Tender Evaluation Phase
Generally Steps tender appraisal and selection

1. Check arithmetical accuracies- correct as necessary and-advice contractor

2. Scrutinize for obvious mistake and exceptional prices – high or low.

3. Compare individual prices between tenders

4. Time to complete work if varying between tenders should taken to account

5. Carefully examine effects of any qualifying statement or reservation in tender

or covering letter

6. Carefully consider suitability and effects of any alternative offered

7. Carefully consider lowest 2 or 3;

8. Discus and clarify any outstanding points with contractors.

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C. Tender Evaluation Phase
C. 3. Award and reconditions :

Acceptance of a tender

The employee sends a letter of acceptance to the successful tenderer.

The letter is usually prepared by engineer, but it is signed by the employee

If the letter is from the engineer , then it can only say that the employee is willing
to accept tender-but this does not constitute a contract

An employee letter of acceptance ( in accordance with tender documents)

constitutes a binding contract between the employee and the tenderer

The letter of acceptance often makes arrangement for meeting for signing of the
form of agreement.

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C. Tender Evaluation Phase
C. 3. Award and reconditions :

Acceptance of a tender

At this meeting other items may be discussed such as:-

 Starting date  Statuary undertakes

 Site staff- contractors/ engineers  Sub- contractors and suppliers

 Site offices- location, completion,  Measurement and certificates

temporary arrangements, phones etc.  Progress meeting

 Programme of works  Document queries

 Land availability
Further copies of drawings, specifications, and unpriced BOQ may be given to the
contractor for his use
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C. Tender Evaluation Phase
Rejection of All Tenders:
 Though is solely the power of the employer to decide, for the sake of fairness it is
recommended that such rights shall be exercised in the following cases:

 All Tenders are found non –responsive during the Preliminary evaluations

 Evidences of lack of competitions such as collusion among bidders, monopoly,

etc.

 Lowest responsive offer is found unreasonably high.

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 Important points in tender preparation by contractor
In preparation of tender, contractors are expected to satisfy some requirements in
order to increase their competitiveness.

a) Sell your company

 Ensure you meet the client prime requirement
 Make clear that yours is efficient company with experience in that type of work
 Emphasize any aspect of your offer that prime importance to the client
 Provide alternative, which might be attractive to the client and give you edge on
the competition.

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 Tender preparation by contractor
b)Protect your company
If there are terms and conditions, which you feel, are unreasonable and could
involve your company in heavy expense then in your covering letter you
should:

i) State the conditions, which you would be prepared to accept

ii)Propose alternative for unreasonable terms and conditions

iii) Make it clear that you have certain objections to the terms proposed and that
you would wish to discus these if your offer is otherwise interest

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 Tender preparation by contractor
b)Protect your company
 Ensure that your total tender price makes sufficient allowance for everything
with in the tender, including profit.

 Ensure that all terms and conditions are reasonable ( even if you fail to win the
contract make sure that the client is to left with a favorable impression of your
company)

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 Tender appraisal and selection
Qualifying statement or reservation

Any qualifying statement or reservation contained in tender offer will become

part of contract unless it is withdrawn prior to acceptance

Alternative design

This is not surprising, since there are an infinite number options, from which the
client designer has selected and developed one only into the official design

The tender has particular expertise, equipment, finances, resources etc. which
enable him to offer an alternative, which the tender considers, will be
attractive to client.

If the tenderer thinks that the official design does not meet the clients

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Questions?

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 Attachments

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Financial Offer Comparison:
After all commercial comparisons are considered on the same bases; the Tender
offer will be adjusted based on the Cost -Benefit principle which involves adding
costs and benefits foregone. That is:

TO evaluated = (TO + BFCT + ACAP + ACFE + ACPM)

 Besides, Financial offers per groups of trades of works are compared in order to
evaluate whether tenders are front loaded or not.

 Front loading often cause disruption of projects or overzealous contractual

negotiations.

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 1. Benefit Forgone due to Completion Time (BFCT)

 The Benefit Forgone (BF) due to additional completion time can be

computed using the following expressions:

BF = (FV –TO) / (1 + I)n; FV = TO (1 + I)n

TO = Tender Offer after Arithmetic Check;

n = Completion time in days

I = Discount Rate = 0.05 % per day, I = 1.5 % per month;

FV = Future Value

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2. Additional cost due to:

2.1. Foreign Currency Exchange requirements

 Used when the tenders have provisions to quote different currencies

 Comparison will be made based on the effects due to the additional cost incurred from
variations in currency exchange requirements.

 Then every currency is converted to a Common Currency.

 For currency conversion, selling rates of Bank published by an official source and
applicable for transactions shall be used.

 Additional cost due to Foreign Currency Exchange requirements can then be determined
using selling rates at:

 15 days prior to tender submission date

 Tender Opening Date

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2.2. Additional Cost due to Advance Payment (APAC)
 Occurs when different amounts of advance payment are requested as part of the tender offer.

 The Additional Cost due to differences in mobilization advance requirements can be computed from
the following expressions:

APAC= {(AP x TO) / 100} –PV;

PV = A x PWF;

A = {(AL%) x TO} / n;

PWF = {(1 + i)n–1} / {i(1 + n)n}

AP = Advance Payment Requirement in %;

TO = Tender Offer after Arithmetic Check;

I = Discount Rate = 0.04 % per day;

n = Completion time in days

PWF = Present Worth Factor;

PV = Present Value
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3. Domestic and / or Regional Preference
 Domestic or regional preference margin(PM) is a provision to give preference
to local companies even if their bid offer is not over by a percentage often
equals 7.5 -10 % for construction works.

 Eligibility criteria's are usually set.

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Eligibility Requirement

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