Estimating and Tendering Lecture 7 CIE 531 PDF

CIE 531 ESTIMATING AND TENDERING Lecture 7 1 Introduction Clients or promoters of the construction/projects rely on competitive tendering to justify the Awarding of contracts. Most projects contracts are awarded after a number of contractors have submitt...

CIE 531 ESTIMATING AND TENDERING Lecture 7 1 Introduction Clients or promoters of the construction/projects rely on competitive tendering to justify the Awarding of contracts. Most projects contracts are awarded after a number of contractors have submitted a tender. Contractors base these tenders on an estimate of the cost to the contractor, of executing the work described in the contract documents. The estimating department is therefore of central importance to the commercial success of the contracting organization. 2 Parties Involved in Estimating and Tendering The parties involved in estimating and tendering can be divided into three classes: a. The client's staff or their professional representative b.The contractor's personnel including senior management, estimators, planners, buyers, plant managers, temporary works designers and site management staff. c. The external organizations such as material suppliers, plant hire companies and sub-contractors 3 The Client's Staff or Professional Representative  The contract documents prepared by the professional representatives of clients include drawings, bill of quantities, specifications and other documents.  These are the main sources of information to the estimators who prepare the cost estimates and tenders. 4  The Constructions Contractor's Personnel I. Senior Management is usually involved in the decision whether or not to tender for a particular contract and in the decision on what tender to submit. Here he considers the estimate of cost and resources involved as produced by estimators. II. Estimators are employed in the estimating department. He is responsible of producing estimates. III. Planners are employed to produce construction plans or programmes. The estimators are usually concerned, with a pre-tender plan which may not be as detailed as one produced for site use. However it will provide the overall -duration of the project, the duration and sequence of the key activities, and approximate resource total's for labor and plant. 5 The Constructions Contractor's Personnel IV.Buyers are usually responsible for purchasing materials and placing orders with plant hire companies and sub-contractors. They provide quotations for materials, plant hire and sub-contractors. V. Plant Managers are responsible for the company's plant department and supply estimators with current internal hire rates and advice availability of company owned-plant. VI.Temporary works designers are responsible for designs of major temporary works such as bridge, false work etc. Estimators would take advice on the nature of the temporary works. VII.Site Management is the personnel who are employed to take responsibility for the execution of projects on site. This expression covers agents works managers, engineers and surveyors. The contribution of site management to estimating is to provide advice to the estimators on methods of construction. 6 External Organizations Material suppliers, plant hire companies and sub-contractors all get involved in the estimating process. They receive and respond to enquiries for quotations from contractors. 7 The Estimating Process The basic steps of estimates are: a) Decision to tender b) Programming the estimate c) Collection and calculation of cost information d) Project study e) Preparing the estimate f) Site overheads g) Estimator's reports 8 Decision to Tender: The decision to tender for a particular contract is mainly the responsibility of senior-management. The decision to tender is based on such factors as: i) the company's current workload, turnover and recovery of overheads ii) the company's financial resources iii) the availability of resources to undertake the work iv) the type of work v) the location of the contract vi) the identity of the client or promoters and his representatives vii) a detailed examination of the contract documents 9 Programming the Estimate The two tasks that can take place in th is stage are: i) collection and calculation of the cost information ii) a study of the project to gain the required appreciation Collection of Cost Information The cost information required by the estimator for, labor, plant, materials and subcontractor. 10 Project Study To gain an appreciation of the project the estimator will undertake the following tasks: i) a study of the drawings ii) a site visits and meeting with the clients or promoter's representative. iii) the preparation of a method statement determining how the project will be constructed. 11 Preparing the Estimate:  The estimator is required to establish the direct cost rates for each item in the bill of quantities.  A direct cost rate is a rate for the labor, plant, materials and sub-contractors but exclusive of additions for site overhead, head office overhead and profit. This will be assessed and included later. 12 Site Overheads The estimator assesses the site overheads based on requirements such as: i) Site staff ii) Clearing site iii) Site transport facilities iv) mechanical plant not previously included in the item rates v) scaffolding and gantries vi) site accommodation vii) small plant viii) temporary services ix) welfare, first aid and safety provisions x) final clearance -and handover xi) defects liability xii) transport of men to site xiii) abnormal overtime xiv) risk 13 Estimator's Reports On completion of the estimate the estimators prepare a set of reports for consideration by the senior management. These reports contain, i) a brief description of the project ii) a description of the method of construction iii) notes of any unusual risks which are not covered by the condition of contract or bills of quantities. iv) any unresolved or contractual problem v) an assessment of the state of the design proves and the possible financial consequences thereof vi) notes of any major assumptions made in the preparation of the estimate vii) assessment of the profitability of the project viii) any pertinent information concerning market and industrial conditions 14 Tendering Adjustments  A tender adjudicating panel is formed by the staff involved in estimating and representatives of senior management. It is the responsibility of this panel to satisfy themselves that the estimate-is adequate. Additions for “mark-up” includes the allowances for: i) "risk" if the chance or profitability of making a loss is assessed ii) "Company overheads" to cover the central head office costs which are involved in administrating at the contract. iii) the "profit" considered to be possible in the existing market conditions. 15  Calling for Tenders: A client may publicly advertise (by press) that he is open to receive tenders. It is usual for the engineer(consultant) to draft this notice so that it contains a brief but adequate description of the proposed works and their location, so that contractor can judge whether they are interested in tendering.  It is also usual to state that no expenses incurred in tendering will be reimbursed and that the employer does not bind himself to accept the lowest, or any tender. Contractors are normally required to pay a deposit, before they get a set of tender file. 16 Calling for Tenders: An alternative procedure to public advertisement of tender is to invite certain contractors only to submit tenders. Probably the best way to do this is to advertise that contractors may if they send in their qualifications and experience, apply to be placed on a list of "selected tenders". This is called pre-qualification, and it saves time for both contractors and the engineer and employer.  Applications would be asked to provide details of their past experience, present labor force, plant, and equipment, and to give the names of previous employers they have-worked for. 17 Calling for Tenders: Another way is selected tenders in consultation with the employer, without resorting a public advertisement. But this may not be fair to certain contractors. 18 Those who can take part in Bidding Committee 1. Client representative preferably an Engineer 2. Employees (client) linked to the bidding (procurement officer) (secretary) 3. Representation from the GRZ procurement officer 4. Representation from the private companies  This committee makes recommendation to the senior management committee 19 Documents that a bidder should submit 1.Registration 2.Bonds 3.Contractor ship license 4.Permission to take part in biddings 5.Documents show that the company is active 6.List of signatures 20 Bonds  for defaults or damages of contractor as security of owner a) Bid bond b) Performance bond 21 Bid Bond Amount of bid bond is normally about 5% of the tender. At the end of the bidding if a company doesn't win, the bid bond is paid back to him.  But if a company wins the bidding and then gives up, the bid bond is not given back to him. These are accepted as Bid Bonds: 1- Money 2- Bank guarantee letter /insurance 3- National bonds 4- Shares of companies 5- First rate of mortgage 22  Bid Bond  A bid bond serves as a guarantee that the contractor who wins the bid will honor the terms of the bid after the contract is signed.  If the contractor fails to honor the terms of the bid—for example, he raises his price for the job after the contract is signed—the contract may and the owner will have to find another contractor for the project, presumably the next-lowest bidder. 23 Bid Bond  A bid bond compensates the owner for the cost difference between the initial contractor's bid and the next-lowest bid.  Sometimes, the surety agency sues the contractor to recover these costs, depending on the terms of the bond. 24 Performance Bonds  The amount of performance bond is normally about 10% of estimate cost.  But when a company signs a contract, the bid bond is transferred as performance bond, which is 5% of tender where it is half of the performance bond 25 Performance Bonds  A performance bond is something that a contractor purchases to act as a surety that the construction company will finish the project under the stipulations of the contract.  If something causes the contractor to not be able to finish the project -- for instance, if the contractor goes out of business -- the surety agrees to pay for the completion of the contract.  It may do this directly or through the client.  Performance bonds can also be used to protect the interests of subcontractors who have agreements with the primary contractor. 26 Types of Bidding a. Closed bidding b.Open bidding c. Limited bidding d.Bargaining. 27 Closed Bidding There are two envelopes one inside the other one. First envelope (outer one) contains, name, address of company, and other documents of bidding methodology of carrying out the works (Technical proposal). Second envelope is opened and the signed tender is read (Financial proposal). This bidding is used specially for large jobs. 28 Open Bidding There is only one envelope, and every documents and signed tender are in that envelope. It is used for small jobs. 29 Limited Bidding  If the job requires a certain quality, the tender of all contractor companies are not accepted and a limitation is required.  It may be open or closed bidding. 30 Bargaining  It is used for; I. Small, urgent job II.Jobs that can be carried out by only one company. III.Under forced conditions (such as earthquake, flood war etc. IV.Jobs not planned but urgent V.Bids with no offer or offers above expected value. 31 Types of Specifications There are four methods on how one can specify:  Descriptive  Performance  Reference Standard  Proprietary 32 Descriptive Specifications  Under this method of specifying the exact properties of the materials and methods of installation are described in detail without using proprietary or manufacturer's names.  Descriptive specifications are commonly used for products for which no standards exist, on projects where using proprietary names is restricted, and in situations where the Architect/Engineer want to exercise tight control over the specified work. 33 Descriptive Specifications There are five steps for preparing descriptive specifications: 1. Research available products 2. Research the important features required for the product. 3. Determine which features to describe in the specification and which features to show in the drawings. 4. Describe the important features. 5. Specify quality assurance measures (i.e. submittals, certifications, testing or inspection activities) 34 Descriptive Specifications Advantages to using descriptive specifications  Descriptive specifications specify exactly what the design intends.  They are applicable to all conditions, methods or situations of a project.  They are applicable to all sizes and types of projects.  They permit free competition because they do not restrict the use of specific products or manufacturers. 35 Descriptive Specifications Disadvantages of descriptive specifications They require the specifier to take special care in describing the design intent in order to achieve the desired results. Descriptive specifications tend to take up more space because they require more verbiage than other methods. They may be more time consuming than other methods to create and write. They are being used less often as more complete reference standards are being developed and implemented. 36 Performance Specifications Under this method the required end results are specified along with the criteria by which the performance will be judged and the method by which it can be verified. The contractor is free to choose the materials and methods that comply with the performance specification. They are generally used to encourage the use of new and innovative techniques that may lead to more economical construction. They are also used to supplement other specification methods. 37 Performance Specifications Advantages to using performance specifications: Only the end result or design intent is specified, this gives the Contractor flexibility in selecting and applying products. They permit free competition. They can be applicable in all types and sizes of projects. Performance specifications delegate the technical responsibilities to the construction industry, where the Contractor instead of the Architecture/Engineering firm is responsible for the results. 38 Performance Specifications Disadvantages to using performance specifications: – They can be time consuming to produce and may result in long, detailed specifications. – They are more difficult to enforce than other methods of specifying. – They may be too elaborate for simple or minor projects. – Performance specifications delegate the technical responsibilities to the construction industry, where the Contractor instead of the Architecture/Engineering firm is responsible for the results. (This is both an advantage and disadvantage) 39 Reference Standard Specifications Under this method reference is made to an established standard defined by associations very knowledgeable about a certain part or phase of construction. Reference standard specifications are used for "commodity" products in the marketplace, where brand names are not important 40 Reference Standard Specifications Steps for preparing reference standard specifications are: 1. The standard must be recognized as authoritative by the industry. 2. The standard must be available to all parties involved in the project. 3. The specifier must know the standard. Assure that the standard relates to the current project and does not present duplicate or conflicting information. 4. Establish a date of the standard. 5. Incorporate the standard correctly into the specifications. 6. Enforce the requirements of the standard 41 Reference Standard Specifications Advantages to using reference standard specifications:  The standard is usually widely known and accepted by the industry.  They do not limit competition.  They dramatically shorten the length of specifications. Disadvantages to using reference standard specifications  There may be no appropriate standard to reference, because standards are written for the most commonly used and generally available products. 42 Reference Standard Specifications Disadvantages to using reference standard specifications Standards generally refer to the minimum requirements. The standard may become obsolete or out-of date, because of advances and changes in technology and the creation of new products. They require a lot of research and care in use. They must be incorporated properly, including all supplementary information 43 Proprietary Specifications Under this method the actual brand names, model numbers and other proprietary information is specified.  They are primarily used for private commercial projects where the Owner knows what products they want.  There are two types of proprietary specifications, closed and open. 44 Proprietary Specifications The primary difference between the two types concerns substitutions are, Closed Closed specifications generally prohibit substitutions. One or more products are specified, and no substitutions will be considered. Open Open specifications permit substitutions. One or more products are specified, but other manufacturers will be considered. It is necessary to specify the criteria the alternate manufacturers will be judged by. 45 Proprietary Specifications Advantages to using proprietary specifications:  They allow for close control of product selection.  The drawings can be more complete and more detailed because they can be prepared based on precise information from the selected manufacturer.  The specification can be shorter.  They simplify the bidding by narrowing competition and eliminating product pricing as a major variable. 46 Proprietary Specifications Disadvantages to using proprietary specifications:  They reduce the competition.  They may specify products the Contractor is not familiar with or has had little experience with.  Care should be taken to assure no error is made when specifying model numbers or product designations. 47 Selecting a Method of Specifying The following questions are helpful to consider when deciding which method of specifying is most appropriate. What does the Owner require? What method best describes the design intent? What method is most appropriate for the project size and complexity? What method will result in the best quality of work? What method will result in the best price for the work? 48 Characteristics of Specification a) Balanced Composition: The specification should contain all the requirements consistent with the result desired. b) Definite requirements: There must be directions, not suggestions that may lead to uncertainty. Do not use indefinite expressions like "Reasonable" or "Best Quality" and define the days as "working days" or "calendar days". Everything has to be specified. 49 Characteristics of Specification c) Accuracy:  Non-accurate and misleading information will not take place in the specifications.  Repetitions in text are sources of error. d) Practicability:  Use standard sizes and patterns as much as possible.  The impracticable requirements let the contractor to add an extra safety factor to protect him. 50 Characteristics of Specification e) Prevention of conflicting requirements: They are sources of error. f) Fairness: Do not impose the contractor harsh and unfair conditions for the contractor. The risks increase the cost of the construction. 51  CIE 531 Contract Administration Lecture 8 52 CONSTRUCTION DOCUMENTS  Bidding requirements  Notice to Bidders  Instruction to Bidders  Proposal Form  Contract Documents  Contract Forms  Conditions of the Contract  Specifications  Drawings  Addenda  Agreement. 53 CONSTRUCTION DOCUMENTS  Construction Documents are defined as the written and graphic documents prepared or assembled by the Engineer 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 54 CONSTRUCTION DOCUMENTS 55 BIDDING REQUIREMENTS  Bidding Requirements  Bidding Requirements are used to attract bidders and explain the procedures to be followed in preparing and submitting bids.  Bidding requirements help bidders follow established procedures and submit bids that will not be disqualified because of technicalities. They do not become part of the contract documents  Bidding documents  All of the construction documents issued to bidders before the signing of an owner-contractor agreement. 56 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  Bid Package is prepared by: 57 INSTRUCTION TO BIDDERS  It describe the scope of the bid, source of fund (if it is financed from other agency), fraudulent and fraud practices, eligible bidders, Eligible Materials, Equipment and Services, Clarification of Bidding Document, Site Visit, Pre- Bid Meeting, Amendment of Bidding Document 58 BID DATA SHEET (BDS)  Definitions, Engineer’s Authority to Issue Variations, Performance Security, Inspection of Site, Program to Be Submitted, Cash Flow Estimate  Bid Security, Minimum Amount of Third Party Insurance  Time for Issue of the Notice to Commence, Time for Completion  Amount of Liquidated Damages, Limit of Liquidated Damages  Amount of Bonus for Early Completion, Limit of Bonus  Defects Liability Period, Amount of Interim Payment Certificates  Percentage of Retention, Limit of Retention Money, Amount of Advance Payment  Start Repayment of Advance Payment, Monthly Recovery of Advance Payment  Number of Copies of Statement of Completion and Final Statement  Procedure for Settlement of Disputes  Notice to Employer and Engineer  Origin of Materials and Plant 59 EVALUATION AND QUALIFICATION  This section contains all the criteria that the Employer shall use to evaluate bids and qualify Bidders if the bidding was not preceded by a prequalification exercise and post qualification is applied.  In accordance with items specified in ITB, no other methods, criteria and factors shall be used. The Bidder shall provide all the information requested in the forms included in (Bidding Forms) section.. 60 EVALUATION AND QUALIFICATION  1- evaluation : describe the Adequacy of Technical Proposal, in case of Multiple Contracts, the conditions governs, Completion Time,  2- Qualification : describe the Eligibility, financial situation, staff, experience , equipment's. 61 BIDDING FORMS  letter of bid (bid form)  Form of bid security  Technical proposal forms (personnel, equipment)  Bidders qualification forms as bidders data, JV information, Historical Contract Non-Performance, Current Contract Commitments , Historical Financial Performance, Average Annual Turnover, General and specific Experience, 62 CONSTRUCTION DOCUMENTS 63 CONSTRUCTION DOCUMENTS  Contract documents (graphic and written) describe the proposed construction (the ‘Work’) that results from performing services, furnishing labor, and supplying and incorporating materials and equipment into the construction A. Contract Forms B. Conditions of the Contract C. Specifications & BOQ D. Drawings E. Addenda F. Change Orders 64 A. CONTRACT FORMS  Contract Forms  Agreement  Performance Bond  Certificates 65 B. CONDITIONS OF CONTRACT  Conditions of Contract  Define basic rights, responsibilities, and relationships of the parties involved in the construction project.  2 types: General Conditions and Supplementary Conditions  General conditions  General clauses that establish how the project is to be administered.  Contain basic expressions of rights, duties, and limitations of the entities involved.  Usually in the form of published standard documents that include principles common to most construction Contracts.  Supplementary Conditions  Modify or supplement general conditions as need to provide for requirements specific to a project. They are not standardized documents and are prepared for specific project needs. 66 AGREEMENT  The written document signed by the owner and the contractor that is the legal instrument binding the parties to the contract.  Defines the relationship and obligations between owner and contractor.  The agreement is quite brief and appears to consist mostly of statements of fact, whereas the general conditions section deals primarily with matters that pertain generally to be construction work and the persons involved.  In other words, the agreement appears to consist of statements and the general conditions appear to be terms, or conditions. 67 AGREEMENT  The agreement should contain:  The names of contracting parties  A brief description of the work  A list of contract documents, including agreement, general conditions, drawings, and specifications.  The contract sum, or amount (lump-sum contract)  The procedures for payment  The contract time, or dates for start and completion  The signatures of contracting parties and witnesses  International construction documents are also often based on industry-prepared standard forms. 68 AGREEMENT FORM  A number of organizations prepare recommended standard general conditions and associated forms. Such as: ◦ ENAA (Engineering Advancement Association of Japan) ◦ FIDIC (International Federation of Consulting Engineers) ◦ ICE (Institute of Civil Engineers, United Kingdom) ◦ JCT (Joint Contracts Tribunal) 69 BONDS / GUARANTEES FORMS 1- Performance Bond / security The Contractor, upon receiving the Letter of Acceptance, shall obtain and provide to the Employer before signing the Contract, the Performance Guarantee in the value of ten percent of the Contract Sum, as a guarantee of the proper execution of the Works in accordance with the Contract. This guarantee shall be issued by a licensed bank or financial institution acceptable to the Employer. The guarantee shall be prepared in the form included in part B of these conditions. The obtaining of such guarantee shall in all respects be at the expense of the Contractor.The Performance Security shall be provided to the Employer no later than the date specified in the Letter of Acceptance and shall be issued in an amount specified in the PCC (particular conditions of contract), by a bank or surety acceptable to the Employer, and denominated in the types and proportions of the currencies in which the Contract Price is payable. 70 Bonds / Guarantees Forms The Performance Security shall be valid until a date 28 days from the date of issue of the Certificate of Completion in the case of a Bank Guarantee, and until one year from the date of issue of the Completion Certificate in the case of a Performance Bond. ◦ In general , it is 10% of contract value ◦ Defect liability  CERTIFICATES  Includes certificates of insurance, certificates of compliance with applicable laws and regulations. 71 ADVANCED PAYMENT BOND  Provide a guarantee that subcontractor, material suppliers, and others providing labor, material goods, and services to the project will be paid.  The Employer shall make advance payment to the Contractor of the amounts stated in the PCC by the date stated in the PCC, against provision by the Contractor of an Unconditional Bank Guarantee in a form and by a bank acceptable to the Employer in amounts and currencies equal to the advance payment.  The Guarantee shall remain effective until the advance payment has been repaid, but the amount of the Guarantee shall be progressively reduced by the amounts repaid by the Contractor. Interest shall not be charged on the advance payment. 72 ADVANCED PAYMENT BOND  The Contractor is to use the advance payment only to pay for Equipment, Plant, Materials, and mobilization expenses required specifically for execution of the Contract. The Contractor shall demonstrate that advance payment has been used in this way by supplying copies of invoices or other documents to the Project Manager.  The advance payment shall be repaid by deducting proportionate amounts from payments otherwise due to the Contractor, following the schedule of completed percentages of the Works on a payment basis. No account shall be taken of the advance payment or its repayment in assessing valuations of work done, Variations, price adjustments, Compensation Events, Bonuses, or Liquidated Damages. 73 INSURANCE CERTIFICATES  Insurance for Works and Contractor’s Equipment,  Insurance against Injury to Persons and Damage to Property  Insurance for Contractor’s Personnel 74 GENERAL CONDITIONS OF CONTRACT  The conditions are intended to govern and regulate the obligation of formal contract. 75 CONTENTS OF GCC  Definitions  Contract documents  Rights and responsibilities of owner  Duties and authorities of engineer  Rights and responsibilities of contractor  Sub-contractor, Separate contractors  Time  Payments and completions  Changes in the work  Protection of persons and property  Insurance and bond  Disputes  Termination of contract  Miscellaneous provisions 76 THANK YOU 77