Property Development – how do I select a tender strategy?
Last week we introduced the statutory consents that may be required when embarking on residential property development. This week we discuss procurement strategies – competitive or negotiated tender.
It is an Architect’s professional responsibility to advise their Client on procurement and which tender strategy is best suited to the nature of the project and scope of works. The most important considerations for any Client are cost, time and quality.
Under a traditional procurement route there is reasonable cost certainty with a lump sum known following tender and agreed prior to the commencement of the construction works. From an early stage, it is important that the Architect discusses the available procurement strategies:
- Single stage – invitation of tenders from a number of Contractors who are issued with identical documents.
- Two stage – early Contractor involvement allows an overlap between design and tender and supports construction management, management contracting, and design & build procurement. The first stage concludes with the appointment of a Contractor and the second stage involves the negotiation of the contract sum.
- Negotiated tender – one Contractor will be approached to discuss the terms of the contract and negotiate a contract sum.
When compiling the tender list, an Architect must exercise due diligence by taking the necessary steps to assess the eligibility of prospective Contractors. Before inviting Contractors to tender it is good practice for the Architect to make preliminary enquiries to request information about the company, obtain references, check current availability, anticipated workload and Contractor’s willingness to tender.
A common procurement strategy for residential property development is single-stage selective tendering which involves the invitation of tenders from a number of Contractors. It is an opportunity to consider a series of lump sums based on the employer’s requirements and is an effective method for achieving best value. Competitive pressure means that Contractors are encouraged to take risks to return the lowest price.
A comprehensive set of documents based on a fully resolved design are required to seek competitive tenders. Contractors are issued with the same information so that a comparison can be drawn on a like-for-like basis which leads to greater cost certainty.
The Architect will conduct a fair assessment of tender, checking for arithmetical errors, omissions, exclusions, qualifications and inconsistencies between the returned tenders. There is considerable time required to execute a competitive tender and this must be accounted for within the project programme. The main lapse of time is due to the tender period which is essential to allow Contractors to prepare a reliable tender. Following analysis of the tenders an Architect will compile a formal tender report including a recommendation enabling the Client to make an informed decision.
A negotiated tender is a suitable procurement strategy for residential property development. The early integration between the Contractor and design team can be invaluable as this collaboration can optimise the design and delivery process to facilitate a quicker start on site. The Contractor’s expertise can also be used to assist with the mitigation of potential risks during the design development. When the tender is not driven by competition it is not so easy to demonstrate that the price is competitive, but once a Contractor has been identified they can provide advice and recommendations for cost saving opportunities before design decisions are fixed.
It is frequently thought that best value can only be obtained from competitive tenders. However, it can be questioned whether the careful selection of Contractor and their early engagement can be more effective in comparison to competitive tender.
Once a Contractor has been employed the realisation of the design can begin – next week we discuss: The Construction Phase
Kristi Greer, Architect