Tenderers bidding for construction project make their offers via a tender document. The Employer assesses those offers and subsequently accepts the best offer. A tender document is therefore a medium through which an offeror makes its offer to an offeree. Once an offer is accepted by the Employer, the construction contract is formed between the selected Contractor and the Employer. 

Under the tender process, tender documents are firstly issued to tenderers, followed by bid assessments and negotiations resulting in the Employer’s acceptance. The tender document ensures that the tenderer’s proposal is presented as an offer to the Employer. The right to accept such offer remains with the Employer. 

So why is the tender process not designed in the reverse where the Employer makes an offer to compliant contractors for an acceptance? The general reason is because the Employer typically enjoys a bigger bargaining power thus seeks to position itself as the party with the ‘final say’. Having the final say in a tender process meant that it decides whether or not to enter into an agreement, if so with whom and at the time of its choosing. The Employer desires to be the party making the acceptance to enjoy the greatest commercial latitude and flexibility. If the tender process is executed in the reverse manner, the Contractor becomes the offeree depriving the Employer from having the final say. The agreement is formed once an offer is accepted. This principle is crucial in understanding the purpose and nature of a tender document. This also explains the sections or components within a typical tender document.

What are the sections typically included in a tender document?

The tender document comprises various sections. Each section serves a significant and unique purpose. The subsequent parts of article will explore the significance of every section in greater detail. Collectively, these sections shape the format in which the offers from the tenderers are presented. Whilst the tender document conveys to the tenderers the nature of the proposed scope of works, it also defines the manner in which the risks are allocated between the parties. In this regard, the tender document fulfils dual functions. The tenderer therefore will make commercial assessment on the risks that it shoulders and also the scope of works that it is required to carry out.

In general a typical tender document for building, construction or infrastructure works consists of the following sections:

1) Form of Tender
2) Conditions of Tendering / Instructions to Tenderers
3) General Conditions of Standard Form of Contract including any Particular Conditions and Appendices
4) Tender Evaluation Criteria
5) Pricing Schedule/ Bills of Quantities
6) Schedule of Rates including any Preambles
7) Technical Specifications
8) Appendices/ Specimens
9) List of Tender Drawings
10) List of Submission Requirements by Tenderers for Method Statement, Construction Programme, Organisational Chart, Environment Safety and Health Plan etc

Whilst the ten sections listed above are generic, these are nevertheless fairly representative of a typical tender document. From the tenderers’ perspective, its primary objective is to calculate its bid price based on the collective information presented via these sections. As one can imagine, it’s usually easier to calculate the cost for any given scope of works than to calculate the cost of assuming certain risk. Risk is inherently a concept of uncertainty, thus making risk pricing an art rather than science. 

Section 1 – Form of Tender

A ‘Form of Tender’ is a document that frames the bid submitted by the tenderer as an ‘offer’ to the Employer. Form of Tender reinforces the intention for the Employer to be the party with the right to ‘accept’ such an offer. It also highlights the fact that an agreement will only be formed once the offer is accepted by the Employer. It follows that the invitation to tender issued to the tenderer is merely an ‘invitation to treat’ rather than an offer. An invitation to treat is a solicitation of an offer.

The Employer through the Form of Tender directly shapes the conditions of offer. Such conditions of offer include, amongst others validity period of the offer, an exclusion of being bound to accept the lowest price offer, or to accept any offer at all. Under ordinary circumstances, the offeror defines the conditions of its offer. However the Form of Tender reverses this practice by allowing the offeree shaping the conditions of offer. The party preparing the tender document, namely the Employer tend to draft the document in favour of its own position. 

A typical construction project involves various types of building materials, equipment and labour where its costs could fluctuate over a period of time based on market condition. A common condition included in the Form of Tender stipulates that the bid price shall remain valid and open for acceptance for a period of time, usually 90 to 120 days. This is not an insignificant risk. The Form of Tender effectively allocates the risk of any price increase to the tenderers. Tenderers are expected to assume such risk in exchange for the mere prospect of being awarded with the construction project. As alluded to earlier Form of Tender usually stipulates that the Employer is not bound to award the tender to the lowest price bidder or to any bidder at all. This protects the Employer from any legal liability even it is subsequently established that the tender was not carried out with a genuine intention of awarding the project to any contractor but a mere “market testing exercise”. Considering that the tenderers are likely to incur costs for its participation in a tender, caution is therefore warranted.

Section 2 – Conditions of Tendering/ Instructions to Tenderers

This section of the the tender document contains a set of rules governing the conduct of the parties throughout the tender process. The said parties include the tenderers, the Employer’s representatives and the project consultants issuing various tender drawings and documents. The tenderers are deemed to have agreed to these set of rules by its participation in the procurement process. There are few principles underpinning these rules. 

Firstly, this section provides certain structure and framework in the procurement process to instil confidence amongst the tenderers they will be treated fairly and be given equal access to tender information. No contractors are likely to spend time, effort and money to participate in a bidding process if there is a perception that it lacks reasonable prospect in securing the project due to unequal access to tender information. From the perspective of the Employer in particular those from the public sector utilising public funds, the element of transparency and accountability are of paramount importance. Any suspicion that one tenderer is favoured over others could compromise the principle of fairness. In this regard, it is common for public sector driven tenders to stipulate more stringent conditions of tendering. 

Secondly, the conditions of tendering demonstrates the nature of the transaction between the tenderers and the Employer. The transaction here refers to what the tenderers will get in return for the time, costs and effort that they will be expending for the purposes of the tender process. Indeed, there is a transaction between the tenderers and the Employer even prior to any formation of construction contract. Typically, the tenderers are required to pay a tender deposit prior to receipt of tender documents, and such amount may be thousands of dollars depending on the scale of the proposed project. The tenderers will also need to dedicate resources to review the tender document, examine various drawings and specifications before calculating its bid price. The tender duration may be weeks if not months. Typically, the conditions of tendering may qualify that despite the certainty of the costs to be incurred by the tenderers, the Employer is not bound to award the project at all. Even if the Employer does proceed to award, it may not necessarily do so in whole. The Employer may decide to award the project only in part or parts of the original scope. If this happens and to the extent it affects the originally anticipated economies of scale, the conditions of tendering should provide some arithmetical clarity of any possible price or rate adjustments.

Section 3 – General Conditions/ Particular Conditions/ Appendices of Standard Forms of Contract

This section sets out rights and obligations of both the Employer and appointed Contractor which are only in force after the Employer accepts the Contractor’s offer. It is common for the parties to rely on a certain standard form of contract widely used in the industry as opposed to a bespoke contract negotiated from scratch. The reliance on a familiar set of industry standard conditions would presumably reduce duration required for the tender process. In fact, the presumption of familiarity is so entrenched that it is quite common for the standard form of contract not physically attached to the tender document but merely included by reference. Such standard form of contract document are only physically inserted in the formal contract document at the stage of contract formalisation some weeks or even months after the contract was awarded to the Contractor. Whether parties are actually familiar with the actual terms and conditions in the standard form of contract remains debatable, but in any case are deemed to have agreed and acknowledge those very terms. 

Although general conditions included in standard form of contract are considered widely accepted and adopted by the industry, it is oddly common for amendments to be made to these general conditions by way of special conditions or particular conditions. Under commonly found rules of interpretation included in general conditions, it is stipulated that particular conditions shall take precedence over general conditions. In this regard, particular conditions are usually physically included in the tender document unlike the general conditions. Obviously from the tenderers’ perspective it would be advisable to review these particular conditions in conjunction with the general condition for a more comprehensive appreciation of the purpose of those particular conditions. So why are particular conditions commonly introduced when there is already a set of industry standard conditions? The reason is because different consultant quantity surveying firms engaged by the Employer tend to recommend certain set of particular conditions which are believed to be more protective of the Employer’s rights.

As regards the Appendices to the standard conditions, these are pro-forma document which provides details of project related information. These information include time for completion or duration of the project, whether the works are divided into phases with different completion dates, the duration allowed for defects liability period, percentages of retention sums etc.  As these information are typically considered more commercial driven than legal issues, it gets more attention from the tenderers and becomes the subject of subsequent negotiations. 

Section 4 – Tender Evaluation Criteria

This section of the tender document provides clarity on the method in which bids will be assessed by the Employer and its project consultants. This section is more commonly found in tender document of public sector projects. Admittedly bid assessment is a highly subjective and qualitative process as it predominantly include both quantitive and qualitative considerations. As regards the former, it pertains to tender price whilst in the latter, it involves subjective variabless such as contractor’s competence, qualification, track record and understanding of the proposed project. 

Some have argued that the tender assessment should only focus on the most competitive tender price on the basis that only qualified tenderers are shortlisted to participate in tender. In other words, the qualitative assessment should been completed prior to the issuance of tender document. On the other hand, there are also alternative views that the qualitative consideration should include the bidder’s understanding and risk appreciation of the proposed project in hand, which could not be assessed unless the bidders had a chance to meaningfully examine the tender document. Therefore qualitative consideration remains valid as part of the evaluation criteria.

In any case, specific mechanism that goes into the tender evaluation criteria ought to be agreed upfront amongst the Employer’s tender assessment team in the interest of fairness. Employers operating under a large corporate structure with multiple stakeholders rely on these tender evaluation criteria to arrive at consensus on the choice of selected tenderer. From the tenderers’ perspective, the insight into the tender evaluation criteria provides a guide on how it could put forward the most compelling tender taking into consideration both quantitative and qualitative considerations.

Section 5 – Pricing Schedule/ Bills of Quantities

In this section of the tender document, tenderers provide a breakdown of their tender price according to the list of works itemised in the schedule. From the Employer’s perspective, this section provides certain transparency on the make up of the tender prices received. The Employer compares the costs breakdown between the tenderers upon their submission including a cross reference with the pre-tender cost estimate prepared by the quantity surveying consultant. From the tenderers’ perspective, this section of the tender document allows tenderers to present its offer price based on an itemised schedule. Tenderers should be cautioned that the list of works included in the schedule typically comes with a disclaimer as being a non-exhaustive list. If there are works reflected in other parts of the tender documents or shown on tender drawings that are not included in the list, it is incumbent upon the tenderer to include those costs in the pricing schedule. In other words, the Employer does not usually warrant that the pricing schedule is entirely exhaustive. 

Under a lump sum contract with quantities or re-measurement contract, Bills of Quantities are used as pricing document where quantities are provided in the pricing schedule. These quantities are measured by the consultant quantity surveyor and included in the tender document. The tenderers will derive their tender price based on the given quantities. Under such arrangement, the tender offers received by the Employer are based on the same set of quantities for the proposed works. Therefore, the commercial distinction between different bids received are due to varying unit rates offered by the tenderers.

Subject to any adjustments made during negotiation, the pricing breakdown recorded in the schedule becomes the basis upon which monthly progress payment are made to the selected contractor. A commercially savvy contractor typically provides its breakdown in a manner that addresses its cashflow requirements. Likewise, the Employer are usually concern if the breakdown enables the tenderer to ‘front load’ its costs.

Section 6 – Schedule of Rates including Preambles

This section provides a list of unit rates expressed in accordance with the standard methods of measurement. These unit rates facilitate valuation of variations to the works instructed under the contract. It is extremely rare for construction projects to be carried out without any variations from the original scope of works. Variations under the contract are part and parcel of construction contracts, often times necessary in order to accommodate unforeseen circumstances on site or to cater to changes in design requirements. Such variations are so common that the tenderers are required to submit its unit rates so as to enable a determination on whether any costs associated for future variation works remain commercially competitive. In other words, tenderers are expected to provide its pricing not just for scope of works presented during tender, but also pricing for any potential changes to such scope of works.

Where the contract adopts Bills of Quantities, the tender document would usually include an additional Schedule of Rates as well albeit with some criticisms. Tenderers are expected to quote unit rates for potential works to be undertaken included in the Schedule of Rates without any knowledge of the volume of works concerned. One would imagine that the unit rate of say concrete is quite different for 1,000m³ of concrete works versus 10m³ of concrete works. Economies of scale is a function of price competitiveness. 

There are also unique circumstances where the Employer would include market rates in the Schedule of Rates so that these becomes part of tender offer. In other words, these Schedule of Rates are already ‘priced in advance’ for the tenderers’ concurrence. These market rates are obtained from publications of construction cost database compiled by various quantity surveying firms. Under such approach, the tenderers are effectively deprived from the opportunity to quote by its own initiative. The use of such published unit rates can be contentious as these are typically calculated based on an average derived from various comparable historical projects. Apart from the fact that these rates could be out dated, it bear limited commercial relevance to the project in hand.

Another important component of Schedule of Rates is the preambles. Preambles set out what the unit rates deemed to have included. By way of example, the unit rate for metal works typically are deemed to have included labour costs associated with production and installation of the works, the metal costs, any equipment costs incurred to hoist the metal components to its intended positions. The preambles are meant to be read in conjunction with standard methods of measurement as well as drawings, specifications and pricing schedules. Once the coverage of each unit rates are defined, these rates can be used during valuation of variation including any adjustments or extrapolation that may be required. 

Tenderers should also be cautioned that variations under the contract could manifest not just in the form of additional works or but also omission of works. An extremely high unit rate serves as a double edged sword. A high unit rate could result in a high deduction of contract sum where it is used for omissions.

The general conditions of standard form of contract referred to in the tender document typically provides for a contractual mechanism governing the methods of valuation of variations. The Schedule of Rates should be reviewed in conjunction with this provision for a complete understanding of how the contractor will be compensated when variation works are instructed. In general, the stipulated mechanism provides that the rates could be extrapolated or adjusted. For these adjustments to be permitted, the circumstances of when the works were instructed must have substantively departed from the contractor’s programme. In other words there is a clear deviation from the original basis of unit rates. In the extreme cases, the contractor could claim for additional payment based on valuation using the first principles where compensation is based on actual cost incurred. Whether the circumstances justify claims based on first principles or permit extrapolation of unit rates is dependent on the facts and contemporaneous records.

Section 7 – Technical Specifications

This section of the tender document defines the material and workmanship standards to be achieved by the contractor for the works. Metaphorically specification is akin to the final destination of a construction journey. In this regard there are two types of specifications. Where the Employer dictates the exact path to be taken to reach the destination, these are ‘prescriptive specifications’. If the Employer does not dictate the specific path other than the location of the destination, these are ‘performance specifications’. Under the latter option, the tenderers are given greater latitude to achieve those performance standards and are therefore deemed to have undertaken greater risks. The offer price is dependent on the types of standards set by the Employer. 

The technical specifications are typically presented in various elements of the building e.g. floor finishes, mechanical and electrical works, external facade etc. Certain building elements such as external facade, or internal wall finishes to main lobby are the core aspects of the aesthetics to the building. The Employer usually has a strong desire to control the exact method of construction and ultimately how the end product looks where the elements relate to building’s aesthetics and consequently its marketability. Therefore prescriptive specifications are adopted in this regard. This can be contrasted with other more functional elements of the building such as ducting of ventilation systems or electrical wiring above the false ceiling which typically remained concealed. These are usually stipulated under performance based specifications.

Whether the specifications are stipulated on a performance basis or prescriptive basis, it will influence the commercial opportunities available to tenderers. Specialist contractors typically have greater domain knowledge of their trades than the Employer as well as the project consultants. Whilst the Employer and its team may have a good idea of the standards and requirements of the end product that they desire, it is the specialist contractors that are in a better position in knowing the construction details including various value engineering options. Therefore, performance specifications can be commercially attractive for contractors with deep expertise as they are able to achieve the requirements economically. These expertise may well translate into more competitive tender price or greater profit margin.

Section 8 – Appendices/ Specimen

This section contain various document templates that the selected contractor are expected to comply with in their submissions to the Employer after the tender is awarded. During tender, tenderers are expected to examine these template documents in detail and make certain that they are in the position to produce post contract submissions based on the exact wordings included in the template. These documents include the unconditional bond, warranties and guarantees of various products, parent company guarantee etc.

The choice of words and structure of sentences included these template documents are carefully drafted in ensuring that it carries the desired legal effect. Therefore in including these specimen in the tender document, tenderers are expected to factor in the costs of submission of these exact document in its tender price. By way of example, in the absence of these specimen and template documents, it is quite common for the contractor to submit its unconditional bond that may well appear to be worded in the form of a conditional bond. This may not be acceptable to the Employer as it would compromise the level of security that it expects as regards risks management. The upfront agreement to the template document also avoids the hassle of negotiating the wording in these documents after the tender is awarded. The Employer would then lose its bargaining power to dictate its preferred terms and any protracted negotiation could delay the submissions of these documents. 

The tenderer should not unilaterally review these documents during tender. They should proactively seek concurrence and confirmation from their banks, financiers, insurers etc based on the prescribed templates. After all, the production of these documents would invariably involve third parties other than the selected contractor and the Employer. It is also common for the general conditions of standard form of contract to stipulate certain types of financial penalty in case of delay in the submission of these documents. These penalties could be in the form of withholding of certain percentage of monthly progress payment until such time when the submissions are completed.

Section 9 – List of Tender Drawings

The tender documents are commonly issued to the tenderers with a set of tender drawings. Tender drawings when read in conjunction with the tender document provides a comprehensive view on the scope of works. As picture is worth a thousand words, tender drawings usually provide a more complete illustration of the scope of works. It is therefore important to pay close attention to the list of tender drawings included in the tender document as it also defines the basis of the tenderer’s offer price. In general, any construction details that are not depicted in the drawings nor described in the tender documents are not included in the tender price. Therefore, if any additional works are required subsequently, an instruction for variation works is to be expected which entitles additional payment and/ or additional time. An astute tenderer with an eye for detail typically combs through the list of tender drawings with the view of identifying such commercial opportunities prior to deciding its final tender price. A common strategy for tenderers is to put forward a relatively low tender price to secure the project, with the aim of ‘recovering’ the profit through the instructions for potential additional works. These are identified based on the completeness in depiction of scope of works from the tender drawings. Therefore this list usually attracts considerable attention during the tender process.

The list of tender drawings is usually presented through various building elements such as reflected ceiling plans, floor plans, wall elevations, building elevations etc. A main contractor usually outsourced much of the physical construction works to its subcontractors and therefore distributes these elemental tender drawings to various prospective subcontractors based on their trades or craft of specialisation. Notwithstanding that, it is imperative for the main contractor to maintain a bird’s eye view of the pricing strategy as a whole rather than simply collating and summing the collective quotations received from various subcontractors. The coordination across different trades and the adequacy of tender drawings to reflect those points of interface are usually where the profit opportunities lies.

From the Employer’s point of view, the list of tender drawings is also a good starting point to examine whether the design details are sufficient for tender. Usually these drawings are produced by engineers and architect or interior designers. One should get the consultant quantity surveyor to provide a pricing estimate based on the set of tender drawings and to compare such estimate against the expected cost per square footage. There should not be much deviation between the figures derived from different basis.


Section 10 – Submissions Requirements by Tenderers

The tender offers submitted by the tenderers are subject to various assessments both from qualitative and quantitative perspective. These submissions are stipulated based on tender assessments methodology. These submission documents include construction method statements, construction programmes and timelines, proposed organisation chart, environment health and safety plan etc. Tenderer that demonstrated a higher calibre and competence could be rated more favourably even if it had not submitted the lowest price. Therefore, the submission requirements stipulated in tender document could provide an insight to the best tender strategy.

Apart from being able to put your best foot forward for evaluation purposes, setting out the basis of your tender price through these submissions provides a baseline for any potential claims for additional monies or time. There are provisions under general conditions of contract that allow unit rates to be adjusted if the variation works are carried out under very different circumstances from what was originally planned. To this end, the construction programme and method statement submitted pursuant to this section may be useful. On the other hand, if these submission documents are presented in an overly detail manner, it could also work against the tenderer. This is particularly so if the tenderer is unable to perform in accordance with those expectations due to unforeseen circumstances. Therefore it is important to strike a balance in deciding the level of granularity exhibited in these submission documents.

Conclusion

The tender document allows tenderers to present their offers to the Employer. It simultaneously allow the Employer to shape the manner in which the offer is structured to facilitate evaluation. Apart from using tender document as a means to deciding which tenderer to be selected, this very document usually contains important details that could influence any future claims and disputes.

Koon Tak Hong Consulting Private Limited