Procurement and Contracting

Practices in Construction
 Procurement and contracting in
Construction
• Procurement and contracting are the usual way
that business is conducted in construction
• Why procure?
In house
Way of doing things
Procure
 One party has something that the other doesn’t
 One party can do something better than the other
 Procurement and contracting in
Construction
• Why contract?
Avoid risk of non performance or defaulting by
one party
Especially in construction ‘change clauses’
expose parties to more risks
Need to clearly stipulate the terms of agreement and
allocate risks to the party that manages them best
 Procurement and contracting in
Construction
 The contraction industry is inundated with series
of standardized contracting documents prepared
by various professional and statutory bodies.
• These bodies try to clearly format and stipulate the
documents that can be used to efficiently execute
construction projects
– FIDIC (usually for international projects), EEC (for
works financed by EDF), NEC (UK, SA),
– The PPA has prepared Standard Bidding Documents
(SBD)
 Procurement and contracting in
Construction
• Documents should be drafted to:
 Pre-qualify tenderers so that they may be invited to
tender;
 Solicit tender offers; and
 Establish the terms and conditions of the contract.
– Require tenderers to submit particulars sufficient for the
employer to evaluate submissions and to shortlist tenders, or to
award a contract in a fair, equitable, transparent and competitive
manner
– Set out in a clear and unambiguous manner criteria by which
submissions are to be evaluated
– Define the liabilities, rights and obligations of the parties to the
contract
– Define the nature, quality and quantity of supplies, services or
works to be provided in the performance of the contract;
– Contain provisions that do not unreasonably prejudice the
interests of either party; and
– Use clear and unambiguous language.
 Procurement and contracting in
Construction
• Common documents covered in SBD
– Bidding Procedures
– Instructions to Bidders
– Bid Data Sheet
– Evaluation and Qualification Criteria
– Bidding Forms
– Eligible Countries
– Schedule of Requirements
– Scope of Works
– Technical Specifications
– Drawings
– Bills of Quantities (or Activities Schedule)
– Contract
– General Conditions of Contract
– Special Conditions of Contract
– Contract Forms
 Procurement and contracting in
Construction
• Major forms of procurements

Bid Qualification Procedure

Competitive Bid Negotiated Bid

(Direct)

Financial Proposal
Short-Listed Bid Open Bid
(Restricted)

Financial Pr.
One-Stage Procedure Two-Stage Procedure

Technical Proposal
Financial Proposal
Financial Proposal
Procurement and contracting in
Construction
Preferred/required procurement technique (for
procurement of works)-One stage open bedding
Restricted bidding
• If procured item can only be available from limited
suppliers
• Time and cost to evaluate bid is un proportional to
value of bid
 Procurement and contracting in
Construction
• Two-stage bidding
 When not possible to formulate detailed specifications/
characteristics of item to be procured
• Proposals of various natures are needed to be explored
• Technical works needed to be negotiated upon
 Research and development (R &D) works, when goods
are not to be produced for commercial viability or
recover cost
 When all bids were rejected or bid offer couldn’t attract
potential bidder and entity believes that such would be
the case again
Procurement and contracting in
Construction
 Direct procurement (negotiated)
• Item can only be supplied by one supplier
• Additional delivery to original items on the reason of compatibility
• Uncovering of additional works not included in initial contract and
separation of the additional work is difficult
• For new works where job basically comforts with original work
awarded on the basis of open/restrictive bid
• For continuation of consultancy where original service was
satisfactory and continuing is of economic advantage
• On the case of ‘sales’, not by regular suppliers
• Case of pressing emergency and hence delay would create serious
damage
• In most of the above cases, a limit is put to the extent of the contract
(on the procurement directive by MFED)
 Procurement and contracting in
Construction
• Request for proposal
 For consultancy services where cost of consultancy
exceeds 50%of total contract
 The request shall be to not less than 3 nor more than 7
prospective suppliers
 Request shall contain
• Name & address of procuring entity
• Description of service required
• Reminder not to bid if it creates conflict of interest
• Criteria in proposal evaluation
• Place and deadline for submission
• Can negotiate with 1st ranked bidder and ask for clarification
 Procurement and contracting in
Construction
• Request for quotation
 For readily available goods and for works &services of
established market but less than a certain value (the
MFED to determine the threshold)
 Shall solicit quotation from as many but at least 3
suppliers
 Clear statement of what is required
 Only from equal opportunity suppliers
 Only one price quotation (UNCTIRAL)
Procurement and contracting in
Construction
– Scope of documents
• Value and complexity of contract
– Example PPA’s national SBDs not suitable for
» Works over US$10 million
» Complex works under US$10 million, such as large
water treatment plants
» Works designed by the Contractor (DB, Turnkey,
PPP)
» The WB documents give provisions for Turnkeys,
DBs and CMs on special cases
» FIDIC has documents for same
 Procurement and contracting in
Construction
» Common forms of project delivery in CI

Major forms of contract

DBB DB CM PPP

• SBD documents suitable for only for ‘price

only’ tendering
Procurement and contracting in
Construction
–For fixed price contracts:
•Admeasurements (unit price rate) for roads, buildings and other
forms of construction where work may not be well defined
•Lump sum (with activity schedule) contracts for buildings and
works where design is finished and work is well defined
Forms of contract

Fixed price Cost Plus

Lump Sum Unit Price Cost+ % cost Cost+Fixed fee Cost+ Fixed fee with GMP
 Procurement and contracting in
Construction
• Processes in tendering
• Invitation to bid;
• Preparation and Issue of Bidding Documents;
• Bidding Period and Bid Receipt;
• Bid Opening;
• Bid Evaluation &Selection of Bidders;
• Negotiation, Bid Acceptance, Contract Award and
placement; and
• Contract Administration
 Invitation to bid
Should be designed to provide information that
enables potential bidders to decide whether to
participate in a bidding process or not
– Should include
• Date and tender reference number
• Name and address of the procuring entity
• Type of tender (open, short listed)
• Bid evaluation criteria and qualification requirement
• Brief description of work with intended completion period
• Place where to get tender documents and cost of purchase
• Tender requirements (eg bid bond)
• Date and place of submission of tender
• Place and time of opening of tender
Preparation and Issue of Bidding
Documents
– The PE should prepare the bid documents in
accordance to the appropriate requirements
– Bids according to SBD should be satisfy the
following:
• Language: (English)
• Currencies of transactions: (Birr)
• Documents needed to be submitted:
» Filled bid submission form
» Priced quantities ( Bill of quantities or schedule rates)
» Bid security form (bank guarantee or bid bonds)
» Qualification information form
A. Bid Submission Form,
 Should be on a header paper and needs to be signed by the
authorized person
 It demands summary of the major requirements of the bid
documents like:
 Bid price and validity period (usually from 60-120 days
depending on complexity of process)
 Declaration of eligibility of contractor and proposed
subcontractors and suppliers (legal, interest conflict etc)
 Amount of advanced payment (up to 20% for buildings and
30% for roads)
 Declaration of full consent with the terms of the documents
and acceptance of PE’s right not to accept lowest bidder
 B. Bid security
– Purpose: the ensure that bidder accepts the bid if
selected winner and can be fortified if:
– Bidder withdraws the Bid after Bid opening during the
period of Bid validity;
– Bidder does not accept the ‘arithmetic’ correction of the
Bid price,
– In the case of a successful Bidder, if the Bidder fails
within the specified time limit to:
– Sign the contract; or
– Furnish the required Contract Security.
 B. Bid security
• Bid security in the amount (Birr) and form (certified cheque
or payable order, bank draft, letter of credit, or an
unconditional bank guarantee) as specified by PE
• Recommended amount: B. Security Estimated cont value
5,000 30,000-500,000
10,000 500,001-1,000,000

50,000 1,000,001-5,000,000
100,000 >5,000,000
• Should be in the name of all ‘JV’ bidders
• Shall be valid for at least for 28 days after validity of bid or
as extended by bidder
• To be released within one week after conclusion of contract
with successful bidder
C. Priced BoQ or AS Signed by a
person authorized
Schedule of Requirements
•Specifications,
• Drawings and
• Bill of quantities form part of the contract document while
the employer also need to provide
•Scope of work to potential bidders
 C. Priced BoQ or AS Signed by a
person authorized
Scope of work: is a brief description of the work to be performed.
Needs to include:
 Adequate description of the work
 Site location
 Climate and weather information
 Site investigation studies and reports
 Topographical data
 Access details
 Details of other ongoing or future works to be carried out by
other contractors during the Contract period
 Information regarding disposal, borrow and quarry areas
including royalty payments as applicable
 Any other pertinent information regarding the site and the works
 etc
 C. Priced BoQ or AS Signed by a
person authorized
• Specification: States the required standards of
workmanship, materials, and performance of the related
goods and services to be procured
– Should be clear and able to give enough information for the
purpose of a fair procurement
– Preferable to use performance rather than descriptive
characteristics
– If possible based on national standards, if not on international ones
– As much as possible should not refer to a specific trademark, if has
to, should specify ‘or equivalent’
– Must not create obstacle in participation
• Usually specifies that all the goods and materials to be incorporated in
the works be new, and of the latest model;
• Materials & workmanships to be of the first quality
• Usually based on standards and codes and need to be non restrictive
• Drawings: Depict the schematic layout of the work to be
done.
• Can be supplied in a separate document if larger paper sizes used
 C. Priced BoQ or AS Signed by a
person authorized
• Bill of Quantities or Activity Schedule
–Lump Sum Contract: Activity Schedule
–Admeasurement Contract: Bill of Quantities
–Is comprised of:
» Preamble: States inclusiveness of unit prices and
method of measurement used
» Work item: provides clusters of the items in the BoQ
in terms of nature, location etc
» The detailed BOQ
» Days work schedule
» Summary of BoQ
 C. Priced BoQ or AS Signed by a
person authorized

• Priced BoQ (Activity Schedule)

– Provides the rates at which each activity in the
BoQ (AS) is to be performed
• Price should include all duties, taxes, and other
levies payable by the Contractor under the Contract
• Rates and prices can be adjusted if provided in the
SCC (recommended for projects lasting over one
and half year)
Ln Mn En
pn  A  b  c  d  etc.
Lo Mo Eo
 C. Priced BoQ or AS Signed by a
person authorized
• BoQ includes priced
• days work schedule rate
– Purpose: To provide payment mechanism for unforeseen items
– Comprises a rated list of the various classes of labour, materials,
and constructional plant for which basic day work
– Conditions under which the Contractor will be paid for work
executed on a day work basis needs to be stated
• Provisional sum
– A general provision for physical contingencies to be included in
the Summary Bill of Quantities
– Usually used to facilitate budgetary approval
• Precedence: Specification>Drawings>BoQ
 D. Documents certifying
Eligibility and Qualification
 Eligibility (for all members in case of JV)
• Legal capacity
– Ethiopian contractor: registration certificate from MoWUD, Ministry of
works, etc demonstrating a registered contractor
– Trading licence and suppliers registration certificate
– Issuing attorney general for International bidders
• Insolvency
– Not under legal pursuit for insolvency
• Fulfilled duty to pay tax
– Tax clearance certificate and VAT registration (if needed)
• Others
– Conflict of interest: (bidder, subcontractor or joint venture) never related
consultant (potential) or its affiliates (needs to be declared in bid
submission form)
– Gov’t enterprises can only compete if legally and financially
autonomous and are not dependent agencies of the Employer
– Country eligibility: UN embargo or Unilateral FDRE embargo by the or
Donor specification
– Not debarred of public procurement for ‘corruption’, ‘fraud’ ‘bid
collusion’
 D. Documents certifying
Eligibility and Qualification
 Qualification form (provided in section 4)
Prof, tech, financial, equipment, managerial, reputation,
personnel to execute the work
» Experience in work of similar nature and size in the past
(five years), details of similar work underway (at least 70%
complete), (all as a prime contractor) references (usually
from 1-3 projects is enough)
» Average/total value of work over the past (3-5 years
depending size of contract) should be (usually about 2.5
times estimated annual cash flow of the project
» Major items of Contractor’s Equipment proposed for
carrying out the Works
» Qualifications and experience of key personnel proposed for
administration and execution of the Contract
» Proposed subcontracts and firms involved
» Financial reports for the last five years
 D. Documents certifying
Eligibility and Qualification
– Evidence of access to financial resources to meet the
qualification requirements (at least the estimated payment flow
over approximately 3 months at the average)
– Information on current litigation in which the Bidder is involved
– Proposed Program (work method and schedule).
• In case of JV, beyond all the above
– Power of attorney of the signatory(ies) of the Bid authorizing
signature of the Bid on behalf of the joint venture.
– Agreement among all partners of the joint venture showing
» Joint and several responsibility
» One partner is shown as in charge to incur liability and
receive instruction
» The execution of the work is done with the party in charge
– Annual volume of work and liquidated asset for ‘JVs’ can be
added in evaluation but each at least must satisfy 25% of the
requirements while the partner in charge should at least 40%)
 Bidding Period and Bid Receipt
• During the bidding period, the PE should:
– Hold any pre bid meeting or site visit and issue minutes
promptly;
– Promptly respond to requests for clarifications from
Bidders;
– Issue amendments to the Bidding Documents if
necessary;
– Receive and record sealed bids from Bidders or make a
Bid Box available up to the deadline for bid
submission;
– Close bidding at the precise date and time of the
deadline and ensure that no late bids are received; and
– Keep all bids received secure until the time for bid
opening.
 Bid submissions:
– Three signed and sealed in two envelopes (one original,
two copies and clearly marked so)
– Address of PE, name and reference number of tender
and warning not to be opened before bid opening date
to be printed on both envelopes
– Bidder address on inner envelop
– Shall be delivered by deadline, late bides need to be
returned unopened
– Bidders can withdraw, substitute or modify their bids
by giving notice in writing before the deadline
– Such needs to be marked so
 Bid Opening
• PEs need to ensure that all bids that were received
on time are accounted for, before starting the
Bid Opening
– At the time, place specified and with the presence of
bidders (or legal rep)
– Withdrawals envelopes read first ( not opened)
followed by substitutions (substituted not to be opened)
then modification read out with corresponding bid
– Bidders' names, Bid prices, Discounts, Bid
modifications or withdrawals, Presense or otherwise of
Bid Security etc needs to be announced immediately
– PE needs to prepare a minutes
– No bid to be rejected at opening processes except those
delivered late
 Bid Evaluation
• Bid evaluation process to be strictly confidential
• PEs, at their own description, can ask clarification of bid but
such clarification shouldn’t change the substance of the bid-
except arithmetic error
• Before evaluating a bid: make sure of:
– Satisfaction of eligibility criteria
– Properly signed
– Satisfies required security
– substantially responsive to the requirements:
» Subestantially doesn’t affect the scope, quality, or
performance of the Works
» Substantially doesn’t limit Employer’s rights or the
Bidder’s obligations under the Contract
» Doesn’t unfairly affect the competitive position of other
bidders
 Bid Evaluation
– Error correction:
• Arithmetic
• Subtotals rule over total
• Words rule over figure except for arithmetic discrepancy
– Evaluation:
• To be in accordance to the evaluation and qualification criteria
specified in the Bidding Documents
• Shouldn’t include provisional sum but can include, days work
(if competed up on), discounts, variations or alternative
(including operational costs) offers
• No preference margin allowed
 Selection of Bidders
• Lowest evaluated bidder (eligible and qualified)
– Critics: It can often result in unreasonably low bids
being either accidentally or deliberately submitted
which may cause extensive delays, cost overrun,
serious quality problems, increased number of claims,
disputes, litigation etc.
– Modifications:
• France and Portugal: disqualify abnormally low bids
• Italy and Taiwan use nearest to average bids (Italy, lowest
nearest)
– Other use multiple evaluation criteria (e.g. Japan)
• Winner is the one scored the best on the ranked attribute
 Procedures of procurement
Activity Steps
# Description Inputs Procedural milestone (control point)
1 Establish what is Prepare broad scope of work for procurement
to be
procured Estimate financial value of proposed
procurement
Obtain permission to start with the
procurement process

2 Decide on Establish contract and pricing strategy

procurement
Establish targeting strategy
strategies
Establish procurement procedure
Obtain approval for procurement
strategies that are to be adopted

3 Solicit tender Prepare procurement documents

offers*

Obtain approval for procurement

documents

Confirm that budgets are in place

Invite contractors to submit tender offers or

expressions of interest
Receive tender offers or expressions of
interest
Evaluate expressions of interests
 Section/issue Employer/Engineer Contractors

Place prequalification ads in wide circulation

media indicating:
Employer & Engineer
1Invitation to Outline of project (scope, location, programme, etc)
prequalify Enquiry issue and tender submission dates
Instructions for prequalification applications
Submission date and place of prequalification data

Issue prequalification instructions and Request prequalification document

questionnaires requesting from each
companies/joint ventures:
Experience in intended type of work and country
2Issue and Organization and structure
submission of Resource (Managerial, technical, labor, plant, etc|)
Financial statements Respond d to questionnaire
prequalification
documents
Acknowledge receipt

Analyze prequalification information provided by

firms:
Company/JV structure
Experience
Resource
Financial stability
3Analysis of General suitability
prequalification
information and For short listed
selection & notification only Acknowledge receipt
Elect companies/JVs to be included in list of
of selected tenderers tenderers

Confirm intenton to submit valid tender

Notify all companies/JVs of the list of selected

tenderers
 Section/issue Employer/Engineer Tenderers

List of Prepare enquiry documents

Letter of invitation to tender
tenderers Instructions to tenderness
4Enquiry documents Conditions (general and particular) of contracts
Specifications
Drawings
BOQs
Information data (data sheets)
Form of tender and appendices

Issue enquiry documents Acknowledge receipt

5Issue of enquiry
documents
Commence preparation of tender

5Site visit by tenderers Arrange date and time for site visit (if that is the
case as specified on instructions to tenderers) Apply for a visit to site

Accompany (engineer or employer or

both) tenderes on site visit

7Amendments to
Prepare addenda (if any) to documents
enquiry documents

Acknowledge receipt
Issue addenda to tenderers
 Section/issue Employer/Engineer Tenderers

Raise queries via:

Prepare replied
8Tenderers’ queries
and correspondence a) Correspondence: submit queries in
writing

Issue query replies to all tenderers in writing

Acknowledge receipt

Or
Or (tenderers’ Conference By tenderers’ conference: submit all
queries by given date
Prepare replies
method)
Tenderers’ Conmference
First phase: Inform tenderers presence of queries
and replies
Second phase: Tenderers submit any
supplementary queries in writing
Third phase: Replies to supplementary queries
given orally

Issue texts of queries, supplementary queries and Acknowledge receipt

replies to all tenderers

Advise tenderers whose tender have not been

received by the specified delivery date
Optional
9Submission and
receipt of tender Submit tenders

Record date and time of receipt

Acknowledge receipt
Acknowledge receipt of return enquiry
Or documents
Return unopened any tender received late

Keep date-valid tenders secure until opening time

 Section/issue Employer/Engineer Tenderers

Tender opening: (Public, restricted, private as the

case may be) Attend public/restricted opening
Announce and record names of tendereres
10. Opening of tender disqualified (if any) due to late or non arrival of tender
Announce and record the names of tenderers
including prices for alternative tenders if approved.
(Announce withdrawals, Substitutions, modifications
etc)

Evaluate tender
Technical
Managerial Respond d to questionnaire
Commercial
11. Evaluation of
tenders Raise points requiring clarifications

Complete evaluation

Meeting with selected tenderers individually. As

necessary to discuss any qualification or other
aspects of non conformance to the
requirements of the tender

Decision on contract award

Send acceptance letter and Request performance Acknowledge receipt of letter of

security (if any) and specify approaches to acceptance
12. Award of contract contract sighing
Provide security

Prepare contract documents

Signature of contract

Signature of contract

Advise unsuccessful tenderers Unsuccessful tenderers acknowledge

return of enquiry documents if so
instructed
Return tender bonds (if any)