Topic 7
Tendering System
Lesson Outcomes (LO)
At the end of this module, students should be able to:
Explain Open, Closed and Negotiated Tender.
Compare the three types of tender.
Understand Earnest Money / Tender Deposit.
Introduction
Tendering is the separate commercially based function that uses
estimation of cost as a basis upon which the final price is determined and
submitted to the client for approval.
An OFFER incorporates with sum of money, time and other conditions
required to carry out the contract obligations in order to complete a
project or part of it which consists of specified works.
Tender Notice is a formal written offer to offer a job or request services in
return for a stated amount of money and by a stated date. It is an
advertisement displayed publicly by the organization to inform and
request interested contractors, suppliers or firms to carry out a project, or
to cater equipment or services for the organization. Generally the tender
notice in Malaysia is publicized in local mass media, both Malay and
English newspaper in the advertisement columns and also the electronic
media such as the internet or e-commerce/e-business.
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Purposes of Tender Notice
The purposes of Tender Notice includes:
To inform interested parties that there is a job tender to be offered.
Invite qualified parties to take up the offer and provide services.
To sell the Tender Document.
Inform the Client’s specification for the job.
Tender Document will inform part of the information in Contract
Document at the later stage.
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Contents in Tender Notice
The name of the customer’s organization and its logo in the Tender
Notice.
The word “Tender Notice or Invitation of Tender”, and its tender number
and references.
Tender qualification or pre‒qualifications:
‒ Eligibility criteria on whom should participate in the tender.
‒ Contractors are registered with bodies such as Pusat Khidmat
Kontraktor (PKK), Ministry of Finance (MoF) and government agencies
such as Public Works Department (PWD) or Jabatan Kerja Raya (JKR),
MARA, Tenaga Nasional or SIRIM.
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Contents in Tender Notice
Tender Description is the scope of the project and the outline of the
tasks or scope of work the customer wants the contractor to perform or
deliver.
Tender document fees (Purchased by the Contractor)
Modes of payment (cash, bank draft, banker’s cheque, money order,
bank guarantee)
Date and time details availability of Tender Document
Request for site visit (compulsory before the purchase a Tender
Document).
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Contents in Tender Notice
Submission of tenders and address ‒ specify the closing dates and time
for tender and the address to submit the Tender Document.
Clause of indemnity ‒ the Client is not bound to accept the lowest bidder
or quotations nor to assign any reason for the rejection of any tender nor
it will be responsible for any costs incurred by the tenderers.
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Earnest Money (Tender Deposit)
Amount that accompanies the tender form while submitting the tender, in
which usually based on the sum of total estimated work (Construction
Cost)
Tender Document without Earnest Money shall not be scrutinized (only
parties who shows that they are really interested will pass the first stage)
Deposit is refunded to unsuccessful tenders.
Three reasons why Earnest money is required are to restrict unnecessary
competition and to act as a punishment and compensation.
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Punishment
In case the contractor who is awarded with the project has no intention of
proceeding the work, the Earnest Money shall be forfeited by the
Owner/Client as a punishment to the contractor.
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Unnecessary
Competition
If no Earnest Money collected, unnecessary competition may be started.
Those contractors who do not have any solid financial position to
complete the work will submit their tenders at low rates, which will
caused great difficulties in the completion of works.
Thus the provision of Earnest Money will restrict the unnecessary
competition so that only the financial sound and genuine contractors
are capable of submitting their bids.
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Compensation
In case the contractor is awarded with the work refuses to proceed, the
work can be allocated to other contractor.
The Earnest Money shall compensate the owner to a certain extend.
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Scheme of Work-Tender
Only for teaching
reference only,
TABLE TAKEN FROM
PREVIOUS PROJECT
HANDLED BY
CONTENT
DEVELOPERS.
Note:
Most of the Open and Closed Tenders are subjected to tenderers interview.
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Tender Notice Example
Contents in Tender
Document
Tenderer/Company Profile
Tender Form
Working Standard Specification
BQ (Bill of Quantities)
Project Drawings
Schedule of Rates
Letter of Acceptance
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TENDERER/COMPANY PROFILE
Form specification for tenderers to give out particulars about
their registration as a contractor to PKK/UPK, or CIDB,
company organization, details of completed, any on-going
project and etc.
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Tender Form
Contract terms, is the tenderer's written offer to construct,
complete and maintain work in accordance with other details in
the Contract Form.
It is usually included in the Tender Form given and incorporates the
contract period, tender sum, insurance, Liquidated and Ascertained
Damages (LAD), period of maintenance @ Defect Liability Period (DLP)
and etc.
Bidding price included is only early estimation, not fixed. It also does
not have signature from Client, yet.
PWD 203 is the contract term used in Malaysia.
Contract based on BQ – PWD Form 203A. (DETAIL IN TOPIC 10)
Contract based on Drawings and Specification – Lump Sum Contract –
PWD Form 203.
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Working Standard
Specification
Amplifies the information given in the contract
drawings and BQ.
Describes the detail of proposed work to be
executed under contract, nature and quality of
material to be used etc.
It helps to determine scope of work and allows
contractor to decide on the methods.
Standard specification for general scope of work
(ex. soil works, concrete work, pipes, drainage
etc.)
Extra specification for specific work (ex. land
reclamation, dredging)
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Bill of Quantities (BQ)
Gives detailed information of required works to
be done and quantity of materials to be used.
Consists of schedule with brief descriptions of
work to be carried out, with quantities entered
for each item.
Contractors only need to quote the unit rate
and required to name the price without
calculating the exact quantity from Drawings and
Specification.
Offers a mean by comparing all previous
tenders submission received.
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Bill of Quantities (BQ)
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Contract/Engineering
Drawing
Drawings are needed by tenderer to get
overview of type and scope of work to estimate
fees and material cost for progress claim and
plan the work to be done.
They should be prepared sufficiently in detail
to enable tenderers satisfactorily understand the
requirement of the project.
For contract based on drawing and
specification, complete plan is required to be
given to tenderer.
Drawings should be complete, anything that is
not explained should be written in the plan.
Complete drawings incur additional payment
cost for the contractor.
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Schedule of Rates
Contain rate for work executed by
contractor (for contract based on drawings and
specification).
Schedule of Rates for appointed tenderer will be
adjusted and negotiated upon before the
schedule is included as a part of contract
document.
A specific Schedule of Rates is upon request.
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Labour Rates and
Construction
Materials Price
All rates for construction
work contained in this
schedule are based on labor
cost and materials price as
follows:
(Price or price rate is not
inclusive of overhead cost
and contractor's turnover)
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Tender Acceptance Form
To inform contractor that the Client has received
the submitted tender.
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‘Ganging-up’ of Contractor/
Cost Syndicate
“Gang-up” - a group of contractors who know that they are the only
tenderers invited to tender for the project.
The idea is to raise the tendered prices above the normal price of that
specific project so that the additional profit will be shared among all
tenderers.
To avoid ganging-up of contractors, the consultant:
‒ Should not disclose the detail of tenderers.
‒ Prepare their own estimation on tender sum/price.
‒ Retender should they feel necessary.
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Examples:
Assume that 5 contractors united for a Closed Tender and agreed among
themselves that contractor B should be awarded the project, which is estimated
to be RM 10 million inclusive of profit. They will quote the following pricing:
Obviously contractor B will be awarded the project at RM12.5 million which is
RM 2.5 million above the normal price of RM 10 million. Then the money will be
divided equally of RM 0.5 million among the 5 contractors.
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Types of Tender/
Tendering Method
i. Open Tender
ii. Closed Tender
iii. Negotiated Tender
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Open Tender
Owner of a project invites all qualified
contractors to tender for the project.
Through advertisements in newspapers or
journals.
If the project are big enough, there will be no
restriction on who can participate the tender
as long as they are qualified.
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Advantages of Open
Tender
Lesser possibility of contractors ‘ganging-up’ to
quote higher tender sum/price for the project.
Give a chance to new and inexperienced
contractors to bid for the project.
Tender shall be very competitive, thus it is
possible to get the lowest tender sum/price.
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Disadvantages of Open
Tender
Unknown number of tenderers makes it difficult
to estimate the quantity of Tender Documents
need to be prepared, unused documents will
end up as a wastage.
There is a risk that the contract may be awarded
to an unscrupulous contractor.
Tender valuations consume a lot of time; it may
delay the commencement and also completion
of works.
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Closed Tender
Also known as Selective tender. It is hardly
practiced in public sector, but not in the private
sector.
Normally open to contractors with reliable
reputation and experience or those who had
previously carried out satisfactory works to the
Owner/Client.
Through telephone or any available media,
consultant (engineer) invites some contractors
who are qualified to participate in the tender.
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Advantages of Closed
Tender
Normally up to 10 tenderers (contractors) are
invited; then the exact number of Tender
Document copies will be prepared. Hence, no
wastage of extra copy.
As the contractors performance were based on
their previous record, financial, experienced and
equipment's, thus a good quality of works shall
be produced (expected).
Suitable for a special project which require
efficiencies, experiences and skilled contractor.
Lower possibility of project delay as tender
valuations consume lesser time compared to
Open Tender.
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Disadvantages of
Closed Tender
Officers inviting tenderer can be accused of
being biased.
Tender price may be higher than it should be, as
other qualified tenderers (contractors) are not
invited to participate in the tender.
Possibility of contractors “ganging-up/cost
syndicate” to quote for higher tender price.
No opportunities to the new and inexperienced
contractor to get involved in the job.
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Negotiated Tender
An alternative to Open Tender and Closed
Tender.
Only 1 contractor is invited at a time, followed by
discussion and direct negotiation for the
construction programme, construction method,
form and conditions of contract, contract sum,
and etc.
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Negotiated Tender
It is most applicable for:
Project to be carried out urgently where
Tender/Contract/Construction Drawings are
still in the process.
A highly special circumstance, such as
contractors who:
‒ Has performed successfully for the owner on
previous occasion.
‒ Is specialized in the types of work to be
undertaken (e.g. dam construction).
‒ Has special knowledge and experience of the
site (e.g. contractors for the restricted armed
force area and have carried out the job
satisfactorily).
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Advantages of
Negotiated Tender
Only 1 Tender Document is produced, thus no
wastage.
As the contractor’s performance is based on the
previous record, financial, experienced and
equipment's, there is no possibility of delaying
the project.
Only 1 contractor is invited; which is simplifying
the procedure.
Normally a good quality of works is expected.
Suitable for a special project which require
efficiencies, experiences and skilled contractor.
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Disadvantages of
Negotiated Tender
Officers inviting tender can be accused of being
biased.
Tender price may be higher, as other qualified
tenderers who may be able to quote lower price
are not invited to quote.
No vacancies of work or job opportunities for a
new and inexperienced contractor.
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Summary
TENDERING METHOD depends on suitability of
the project desired.
Open Tender
Close Tender
Negotiate Tender
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Acknowledgements
Janidah Eman (UiTMPP)
Nur Muizzah Nawi (UiTMJ)
Muhammad Isha Ismail (UiTMP)
Noor Raifana Ab Rahim (UiTMJ)
References
Garisan Panduan Penilaian Tender (Edisi Januari 2008). (2008). Bahagian
Perolehan Kerajaan Kementerian Kewangan Malaysia.
Harris, F., McCaffer, R., Edum-Fotwe, F. (2013). Modern Construction Management
(7th ed.). Wiley-Blackwell.
Murdoch, J., Hughes, W. (2008). Construction Contracts Law and Management (4th
ed.). Taylor & Francis.
Ritz, G. J., Levy, S. M. (2013). Total Construction Project Management (2nd ed.).
McGraw-Hill Education.
Additional notes:
Pellicer, E., Yepes, V., Teixeira, J. C., Moura, H. P., Catalá, J. (2013). Construction
Management. Wiley-Blackwell. Chapter 2: Contract Documents.
Successful Tendering Guide The Tender Process
Tender Process
Content Developers