UNIVERSITY OF GONDAR

INSTITUTE OF TECHNOLOGY
DEPARTEMENT CONSTRUCTION
TECHNOLOGY AND MANAGEMENT

Contract,Specification and Quantity Surveying

(CEng 5225)

CHAPTER- I
CONSTRUCTION PROCUREMENT AND CONTRACT
October 2018
11/27/2021 1
(Matebu A. , Desalegn W.& Solomon Ch.)
 CHAPETR I
CONSTRUCTION PROCUREMENT AND
CONTRACT

Chapter Outline
1.1. General Introduction
1.2. Stages in Construction
1.3. Introduction to Procurement
1.4. Types of procurement
1.5. Procurement and Contract
Management
1.6. Procurement and Contract
Delivery Methods/Systems
1.7. Procurement Management
11/27/2021 2
 1.1. General Introduction
 Construction Industry is an industry which is
involved in the planning, execution and evaluation
of all types of civil works.

 CI Categories:
 Transport and Communication (Road, Railway,
Airway, and Telecommunication

Water and Energy Works; and

Buildings and Other Physical Infrastructures

 CI is among the leading industry in producing

employment and contribute to the overall national
development. 11/27/2021 3
1.1. General Introduction

11/27/2021 4
1.1. General Introduction

The main players in the construction

industry are:
The Client:
 The Consultant:
The Contractor:
Insurance
Companies:
Banks:
Suppliers:
Permitting Agencies:
Public:

11/27/2021 5
Discussion
 What is the role of each parties in construction industry?

 What are the duties and rights of client , consultant and

contractor?

11/27/2021 6
 Cont..
 The Client: The client is the initiator and owner of the project

 The Consultant: The consultant transfers the wish of the owner into
realizable form and makes the study, design and possibly the
supervision.

 The Contractor: The contractor is the one who performs the work.

11/27/2021 7
Cont........
 Insurance Companies: provide bid bonds, performance and payment
bonds, and they also service the liability and property insurance needs of
contractors.

Banks : provide the working capital contractors need to build the project.
Banks also provide bonds for bid and performance.

Suppliers : the quantity of construction project is very dependent on the

quality of the suppliers used by individual contractors.

Permitting Agencies : represent the interests of public safety. They

administer publicity funded construction projects and they insure private
construction projects comply with zoning laws and building codes.

 Public : is impacted by every construction activity. Impacts are both

good and bad.

11/27/2021 8
11/27/2021 9
 Ethiopian Construction –Recent Trends
 Road Projects ( 43 Billion Birr in 5 yrs)
 Many road projects under the federal & regional state Road authorities
Hydropower projects
 Tekeze
 Gilgel Gibe I. II, and III
Buildings projects
Housing projects at federal & regional state level ( 400,000 houses ( 16 B Birr)
The 13 universities
Many health centers
Water Supply and Irrigation projects ( 10.63 B Birr)
Kessem
Tendaho
Railway
Addis Ababa city rail ways ( under way)
In the Private Sector
Residential Building
Commercial Buildings

11/27/2021 10
1.1. General Introduction

Resources for the Construction Industry

Human Resources / Labor or Workmen

 Financial Resources / Fund
Information Resources
Physical Resources such as Materials, Equipment and Other
Assets
Services and Management.

11/27/2021 11
 Physical Resources:
 MATERIALS: The very large portion of a project cost is gone to
material cost. Such as cement, aggregate, reinforcing bars etc

 EQUIPMENT: These days various plants, equipment, tools etc.,

are used very often in construction activities.

Example: batching plant, mixers, trucks, tractors, excavators,

dampers, cranes, vibrators, pumps etc.

11/27/2021 12
 Services and Management:
 SERVICES: Services such as:

 Aacquisition of land,
 Provisions of water supply,
 Eelectric power,
 Ccommunication systems, etc.,

are very much necessary in the construction industry.

11/27/2021 13
1.2. Stages in Construction

 The following are the common formal stages for a construction

project:
i. Inception and feasibility
 At this stage the owner puts his visions and wishes and with this
as the starting point, the various groups (professionals) try to
conceptualize the project and prepare a conceptual design.
 At this stage the owner will heirs a consultant to formally design
and develop the concept into a practicable project.
ii. Planning and Design stage
 Planning is a function of devising the cause for future with a
vision, formulated for the future state of the organization or project.
 At this stage the consultant plans and designs the project based on
the owner’s requirement and the possible constraints.

11/27/2021 14
1.2. Stages in Construction Cont.…
iii. Tendering Stage
 At this stage contractors are invited to offer their best technical and
financial offers as per the conditions and specifications depicted in
the contract documents.

iv. Bid Evaluation / Evaluation of Tenders

 The bids are evaluated based on:

 Compliance with the contractual terms and conditions,

 Correction of bid prices,
 Detailed analysis.

11/27/2021 15
1.2. Stages in Construction Cont.…
v. Award of Contract
 After the negotiations have been successful, the contract will be
awarded to the successful contractor.

 The formal Steps might include:

 Write a letter of acceptance

 Write the letter to proceed with the works
 Performance bond: 10% a guarantee that he will do the job as per
agreed

 There are different methods & types of construction contracts. The

owner generally makes the selection.

 The type selected depends on the kind of work being performed and
the conditions under which it is being performed.
11/27/2021 16
1.2. Stages in Construction Cont.…
vi. Construction Stage
 Here is where the actual execution of the works takes place as per
scheduled.

vii. Commissioning and Acceptance

 Commissioning is a process where by the contractor makes sure that
all installed mechanical or electrical parts are operational.

 Acceptance has two stages:

 Provisional acceptance: the client accepts the completed works on

provisional basis for a period one year. During this period all
payments except the retention money are paid.

 Final acceptance: At this stage the owner completely accepts the

works executed and the retention money is released to the contractor.

11/27/2021 17
1.2. Stages in Construction Cont.…

11/27/2021 18
1.3. Introduction to Procurement
 Construction Industry involves procurement and contract
management systems in order to ensure fair competition and
distributions of obligations and rights among stakeholders.

 Competition helps:

 The Project Owners’ -acquire the five rights (Counterpart,

Cost, Time, Quality and Quantity)

The Project Financiers’ & Regulators’ - value market

principles and effective utilization of finance, and

 The Project Providers’ - get impartial & neutral Opportunity

for business.

 Procurement is a process used to select the lowest competitive

and qualified bidder for procuring services, works or goods from
potential competitors based on reasonable & relevant criteria.
11/27/2021 19
1.3. Introduction to Procurement Cont…
 Procurement can also be expressed as a method used to employ or
buy services or works or goods for the value (in the form of money)
which includes reasonable profit.

 An effective and efficient procurement method ensures the following

rights called the "Five Rights".
 The Right Quality,
 The Right Quantity,
 The Right Cost / Price /,
 The Right Counterpart and
 The Right Time

[Link] Quality

 Right Quality is always based on two major factors. These are the
technical expectation and the economic consideration, i.e.; Price &
Availability.

11/27/2021 20
1.3. Introduction to Procurement Cont…
[Link] Right Quantity

 The quantity should be computed carefully and included in the BOQ

correctly.
 If the quantity is found mistakenly small :

 Project Budgeting will be affected due to less quantities

 Construction planning will be affected and cause under stocking
 Tenderers can manipulate their offer due to it
 Overzealous contract administration is caused, and
 Contractor cash flow will be affected.

 On the other hand if the quantity is mistakenly more, it will cause

high stocking, more storing places and risk of spoilage; unhealthy
practices due to over budget provisions; and manipulation in
tendering.

11/27/2021 21
1.3. Introduction to Procurement Cont.
[Link] Right Cost/ Price
 Tendering together with negotiation and market intelligence
techniques is the only way that ensures the right cost and
accomplishing the task successfully.
 Competition is the bases for determining the Right Cost or Price.

[Link] Right Counter Parts

 This is to guarantee that the parties agreeing to accomplish the task
shall be fit to the job.

[Link] Right time

 The right time for the provision of resources and accomplishment
of obligations of each party shall be set and agreed.

11/27/2021 22
[Link] of Procurement
 Procurement types can be classified based on the things to be
procured and the way how they are procured.

 There are six bases for classifying procurement methods. These are:

11/27/2021 23
[Link] of Procurement Cont…
A. Things to be Procured: Goods, Services, or Works
 A-1. Procurement of Goods: Physical resources like Materials and
Equipments are made available using Procurement of Goods.

 A-2. Procurement of Services: In the construction Industry

procurement of services are often termed as consultancy services
procurement.

 These include services like Pre-feasibility and Feasibility

studies, Design and Contract Administration of projects,
Construction Management Consultancy Services, Research or
Study based Consultancy Services, etc.

 A-3. Procurement of Works: In the CI procurement of works mean
the procurement of contractors to carryout the actual physical
infrastructures.

11/27/2021 24
[Link] of Procurement Cont…
B. Bidders’ Coverage: Competitive Vs. Negotiated
Tendering
 B – [Link] Tendering:

 Used for the selection of better and capable winning bidder among
the various eligible firms.
 Competitive bidding can either be Open or Limited Competitive
Bidding in the form for their invitations.
 B – 1.1 - Open Tendering – all eligible bidders are allowed.

 Consumes time for tendering and bid –evaluation

 Might result in incompetent bidder
 Results in better cost

11/27/2021 25
[Link] of Procurement Cont…
B. Bidders’ Coverage: Competitive Vs. Negotiated Tendering

 Advantages of Open Tendering

 It allows all interested contractors to compete on equal grounds

and potentially strong new contractors may appear in the
competition.

 It gives the opportunity for local authorities to demonstrate the

best bargain possible for public and government money and
assures fairness in selecting contractors.

 It helps to prevent contractors from forming rings i.e. agreeing on

offers to be submitted to the owner due to the long list of
contractors and may not know each other.

 The owner may obtain the least possible construction cost

estimates due to the tight price competition among long list of
contractors.

11/27/2021 26
[Link] of Procurement Cont…
B. Bidders’ Coverage: Competitive Vs. Negotiated Tendering
 Disadvantages of Open Tendering

 Due to the long list of contractors, tender evaluation will take

longer time incurring additional overhead costs to the owner.

 Public accountability may be questioned, if the lowest offer is not

accepted during the financial evaluation of tenders.

 Contractors with ill-equipped management may submit the lowest

offer and inevitably the contract can drag out causing delay and
incurring additional cost to the owner.

 If the submitted tender price is too low and the contractor is losing
money, then the contractor may try to reduce the quality of works.

 It is also very normal that qualified and experienced contractors

may not participate in the tender knowing that the competition will
be very tight.

11/27/2021 27
[Link] of Procurement Cont…
B. Bidders’ Coverage: Competitive Vs. Negotiated Tendering

B–1.2 - Limited Tendering / Selective Tendering

 Only those passing a certain qualification criteria are allowed.

 Applicable when the project is urgent or unique.

 Avoids the rejection of Bids which are non – responsive for technical
evaluations.
 The short list of contractors is usually prepared based on different
criteria such as:

 Contractor’s previous reputation in business,

 Financial standing,
 Available resources especially of machineries and manpower,
 Normal conduct of business i.e. the specialization of the contractor,
 Attitude on contractual claims, and others.

11/27/2021 28
[Link] of Procurement Cont…
B. Bidders’ Coverage: Competitive Vs. Negotiated Tendering

B–1.2 - Limited Tendering / Selective Tendering

 The selective tendering has the following advantages to the project
owner:

 Competent contractors are participating in the tender and it is fair

to select the contractor with the lowest offer.

 It reduces the time and overhead cost of tender evaluation and

facilitate the early commencement and completion of the project.

 It results in less abortive tenders and, hence, a reduction of

tendering cost and waste in the construction industry.

 Enable competing contractors to include an adequate level of

profit which helps to give stability to the construction industry

 Reduces the risk of failure.

11/27/2021 29
[Link] of Procurement Cont…
B–1.2 - Limited Tendering / Selective Tendering

 The selective tendering has also the following disadvantages to the

owner

 Tender prices are inevitably higher than would have been under
open tendering due to the limited number of competing contractors.

 Contractors who are not interested in the tender may submit high
prices rather than withdrawing from the tender not to remove their
names in the subsequent tender lists.

 There is a great chance of forming rings among contractors unless

the composition of the list of contractors is variable for each tender.

 Care shall be taken to ensure no favoritism in inclusion and

exclusion of contractors from the short list especially in public and
governmental projects.

11/27/2021 30
[Link] of Procurement Cont…
B. Bidders’ Coverage: Competitive Vs. Negotiated Tendering

B–2. Negotiated Tendering

 Negotiated contracts are made particularly when the contactor has

special skills to undertake particular work which require a high
degree of technical competence or is capable of completing the works
within a required time period.

 Direct appointment of an eligible firm

 Exceptionally exercised
 Applicable when the project requires special skill and is very
urgent
 The offer might be higher than the norm

11/27/2021 31
[Link] of Procurement Cont…
B. Bidders’ Coverage: Competitive Vs. Negotiated Tendering

B–2. Negotiated Tendering

 The advantages of negotiation tendering are:

 The contractor can participate starting from design stage

contributing his experience for a better quality and performance of
works.
 It allows early commencement and completion of projects with a
better understanding of the contracting parties.

 Client’s tendering costs are substantially reduced owing to the

production of minimal tendering information.

 All the important points of the construction project (e.g.

construction programme, method and procedure) are discussed
during the negotiation and this effects the rational price.

11/27/2021 32
[Link] of Procurement Cont…
B. Bidders’ Coverage: Competitive Vs. Negotiated Tendering

B–2. Negotiated Tendering

 The disadvantages of negotiation tendering are:

 Contractors will offer higher tender prices.

 Client obtains an offer which is not truly competitive and does

not reflect what the construction market can bear.

 There may exist legal implications of joint design when the

negotiation results in design and production overlap.

 Contactor experiences difficulty in estimating on outline

information.

 It may not satisfy the requirements of public accountability in

construction projects for public sector clients.
11/27/2021 33
[Link] of Procurement Cont…
C. Geographical Coverage: International Vs Regional Vs National Vs
Local Tendering

 Based on geographical coverage: i.e. International, Regional,

National and Local Tendering.

 Such types of procurements are generally caused by three major

factors.
 Local Capacity – lack of local capacity,
 Financial Sources – depending on financial source and,
 Globalization – free tread policy (WTO)
 In Practice - Preference Margins – Up to 10% margins might be
used to encourage local firms.

11/27/2021 34
[Link] of Procurement Cont…
D. Procurement Awareness: General and Specific Tendering

 To enhance proof of competition and increase accessibility, projects

are recommended to create awareness starting from its initiation.

 This approach is very helpful for:

I. The Project Owners to:

• identify interested bidders to issue Invitations by letters and
save time;
• identify bidders relevant for the procurement required; and
• protect loss of cost in preparing lots of tender documents.

II. The Bidders to:

 give sufficient time to assess the cost of the project;
 protect loss of cost only to participate; and
 encourage competent bidders who wary about law-balling to
participate.

11/27/2021 35
[Link] of Procurement Cont…
D. Procurement Awareness: General and Specific Tendering

 General Procurement Notice (GPN) is of two types. These two types

are based on their purpose, why and when they are notified.

11/27/2021 36
[Link] of Procurement Cont…
D. Procurement Awareness: General and Specific Tendering

 Specific Procurement Notice (SPN) is an Invitation for Tender or a

Request for Proposal when the project is ready for implementation.

 SPN can be sent to those interested bidders identified following

GPN directly. Otherwise, it should be advertised on the bases of
enlarging opportunities.

11/27/2021 37
[Link] of Procurement Cont…
E. Procurement Steps:

 They are related with whether tender packaging for submission

separately and their evaluations are staged for a single or two steps
when invitations are made.

E-1 Single or Two Staged Tendering:

 Single: Bidders submit single proposal and the evaluation is carried

out on the same.

 Two Staged: When the bidders submit separate proposals and the
evaluation will be carried out separately, usually financial then
technical.

11/27/2021 38
[Link] of Procurement Cont…
E. Procurement Steps:

E-2 Pre or Post-Qualification Tendering:

Pre-Qualification

 Prequalification is an internationally accepted practice in

procurement management.

 It would normally be required for civil works contract of which its

nature and cost is large and complex.

 It is a procedure in which eligible bidders are invited to provide

evidence of their ability to perform the services required by the
employer.

 Prequalification is desirable because it enables the Employer to

establish the competence of companies subsequently evaluated.
11/27/2021 39
[Link] of Procurement Cont…
E. Procurement Steps:

E-2 Pre or Post-Qualification Tendering:

Pre-Qualification

 Pre - qualification can be of two types:

1. During licensing requirements which entitled them for a single

stage tendering process. Tender evaluation criteria become the low
priced bid.

2. The Second is when two staged tendering is used to pre-qualify

tenderers’ for their technical competency. Then either

 The lowest priced bidder or

 The top evaluated bidder based on the weighted average of the

technical and the lowest bidder for financial scores will be
recommended for award.
11/27/2021 40
[Link] of Procurement Cont…
E. Procurement Steps:

E-2 Pre or Post-Qualification Tendering:

Pre-Qualification

 Pre - qualification should be based entirely on the ability of the

bidder to carry out the required works satisfactory.

 The following criteria are often used in determining this ability of the
bidder;
 Experience and past performance,
 Health, Safety and Environment Records, if any,
 Capability in respect of personnel and equipment,
 Organizational arrangement and facilities,
 Financial Status, and
 Schedule of Commitments.

11/27/2021 41
[Link] of Procurement Cont…
E. Procurement Steps:

 Pre-Qualification

 Advantages of pre-qualification

11/27/2021 42
[Link] of Procurement Cont…
E. Procurement Steps:

Post-Qualification

 Post - qualification is a tendering type where Financial Evaluation is

carried out first and rank bidders on the basis of their offer for tender
price. Then technical evaluation follows.

 Technical Evaluation is performed step by step starting from the

lowest financially evaluated bidder until technically or cumulatively
qualified bidder is determined.

 The advantage of this approach is not to loose the lowest financially

evaluated bidder and to save time during technical evaluations.

 However, Post qualification approaches often cause to fix evaluators

on financial results and be locked and biased for successive
technical evaluations.

11/27/2021 43
[Link] and Contract Management
 Procurement and Contract Management involves three major
processes: Contract Planning, Procurement Management and
Contract Management.

11/27/2021 44
[Link] and Contract Management
Cont…
Contract Planning

 Contract planning includes decisions on proposed Delivery Systems,

Procurement Methods and Contract Types to be followed and used
together with its provisions for alterations.
 This is because such decisions are related to regulatory requirements
such as:
 Ethical (Neutrality, Formality, and Impartiality);
 Economical: (Proof of Competition, Least Qualified and
Evaluated Bidder);
 Accountable: (Obligations and Rights);
 HSE (Health, Safety and Environment); and
 Transparent: (Accessibility and Notice of Advertisement).

11/27/2021 45
[Link] and Contract Management
Cont…
Procurement Management

 Procurement Management is carried out based on the provisions

made during the contract planning phase of the Procurement and
Contract Process.

 It involves the preparation of procurement documents, their

invitation and submission of tender proposals, and Opening and
Evaluation of tenders.

 On the bases of results from tender evaluations, the procurement team

will recommend the lowest responsive bidder for Contract
Management Phase.

11/27/2021 46
[Link] and Contract Management
Cont…
Contract Management

 Contract Management is a process of reaching contractual agreement

for implementation, its administration and finally concluding the
contract.
 Similar to the procurement management process, it shall be based on
the provisions decided during the contract planning phase. It
involves:

 Negotiation based on tender evaluation recommendations,

 Signing of contractual agreement,
 Administration for contractual implementation,
 Progress tracking, and
 Changes, claim and disputes administrations.

11/27/2021 47
[Link] and Contract Management
Cont…
Contract Management

 The following issues are necessary for a successful Contract

Management phase:

 Knowing and ensuring the implementation of contract related

National and International laws, rules and regulations,

 Adherence to the provisions made during the contract planning

phase including their change processes, that is; with respect to
delivery Systems, Procurement Methods and Contract Types,

 Identifying, recognizing and involving all potential or key

stakeholders to form a contract team,

 Understanding, mapping and monitoring all contract conditions

agreed upon, and
 Ability to administer changes, claims and disputes.
11/27/2021 48
[Link] and Contract Delivery system
 Procurement and Contract Delivery system is the way Project Owners
together with Project Regulators and Financiers determine the
assignment of responsibilities to Project Stakeholders along the
Construction Process.
 Procurement and Contract Delivery system is often determined
during the Basic Planning phase of Construction Project.
 Generally, there are six types of Procurement and Contract Delivery
systems. These are:

 Force Account,
 Design Bid Build (DBB),
 Design Build (DB) or Turnkey,
 Finance / Build Operate Transfer System (BOT),
 Construction/Facility Management Consultancy, &
 Alliances and Outsourcing.

11/27/2021 49
[Link] and Contract Delivery system
Cont…
 Such Procurement and Contract delivery systems are developed
overtime and are shown in Fig. below.

11/27/2021 50
[Link] and Contract Delivery system
Cont…
Force Account

 When the Project Owners engage themselves to undertake the

project, it is called a force account delivery system.

 Often such a system is promoted if the Project Owners believe that

there is a comparative advantage in Cost, Time and Quality issues.

 When there is a lack of capacity from the private sector to undertake

very large and technologically new projects, public companies do
undertake such projects using Force account delivery systems.

 When projects are unattractive to bidders.

 These days this type of delivery system is often used when projects
are small and places are remote.

11/27/2021 51
[Link] and Contract Delivery system
Cont…
Design Bid Build (DBB)

 Is the most practiced type of delivery system in the Ethiopian

Construction Industry – Since 1987

 Project owners → Basic Planning → Design – Consultants →

Bid - Contractors→Project Built.

 Client – coordinates the different packages.

 Consultant – Design and may supervise the project - (Provide the

methods not the end result).

 Contractor - construct works with due care and diligence and

complete them in accordance with the contract, but they are not held
responsible for design deficiencies.

11/27/2021 52
[Link] and Contract Delivery system
Cont…
Design Bid Build (DBB)

 This traditional approach becomes less popular due to the following

factors:

 Severe Adversarial relations between the design and contract

administration consultant and the contractor

 Fragmented contract for the project owner

 Project owner responsibility for risks associated with the design

and contract administration

 Non - Impartiality of the Design and Contract Administration

services

 The inability of design and contract administration consultants to

cope up with new construction technologies and constructability
issues of their designs
11/27/2021 53
[Link] and Contract Delivery system
Cont…

Design Build (DB)/ Turnkey

 Is a response to problems associated to the last two types of delivery

systems.
 Design-build contracts are exactly as what the name implies. One
contractor responsible for both the design and construction.

 Reduces fragmentation, adversarial relations and Project Owners’

risk. However, there is loss of control & Higher cost of tender &
risk.
 A design-build contract provides distinct advantages to the owner
who no longer needs to referee disagreements between the designer
and the contractor because they are working together under the same
contract.
 This type of contracting is growing in popularity.

11/27/2021 54
[Link] and Contract Delivery system
Cont…
Design Build (DB)/ Turnkey

 Advantages of DB are as follow:

 Minimizing Project owners’ risk transferable due to Designers’ faults;

 Accountability and entire responsibility for both design and

construction which entitle the employer to receive completed project
is onto a single contractor;

 Employers’ responsibility to co-ordinate interfaces between different

project elements is avoided;

 Single point responsibility minimizes the opportunity to claims by the

contractor due to design related issues;
 Coordination between design and construction processes will also be
enhanced, and
 The client budget or financial requirement is defined early enough in
the development process. 11/27/2021 55
[Link] and Contract Delivery system
Cont…
Design Build (DB)/ Turnkey

 Disadvantages of DB are as follow:

 Since limited supervisory role by the employer representative is

practiced; which is relatively flexible and makes the employer
distanced from the whole process, the employer has little chance to
understand what is developed and entertain variations in
requirements implying loss of control.

 Contractors in order to provide reasonable offer, their tender cost is

higher than in the case for DBB delivery system

 The increase in risk transferred onto the contractor will be

counterbalanced by the increase in contract prices which can be
taken to include these costs of risks.

11/27/2021 56
[Link] and Contract Delivery system
Cont…
Finance /Build Operate Transfer (BOT)

 Design-build-operate contracts are not as common as DB. They may

be used for projects such as athletic arenas, water treatment plants,
water purification facilities, and toll highways.

 The principle is that the contractor will retain some percentage to

ownership in the facility, up to 100%, for a specified period of time,
and operate the facility of a profit during that time to recoup the
capital investment (total cost plus profit).

 The period of ownership by the contractor may vary from few years
to permanent. During the period of ownership, the contractor is
responsible for all costs of ownership, and all profits resulting from
ownership.

 In the case of athletic arenas, there is typically a revenue-or profit

sharing agreement with the term ownership or municipality.
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[Link] and Contract Delivery system
Cont…
Finance Build Operate Transfer (BOT)

 This delivery system is advantageous because of three major factors:

 It minimizes owners’ scarcity of financial resources;

 It devoid of considerable risks from the project owners and lessen

regulatory activities; and

 The facility is well operated and transferred with free of charge

or minimum compensations to project owners.

 The increasing popularity of the BOT project is largely due to a

shortage of public funding and the opinion that the facility will be
more efficiently managed by a private entity.

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[Link] and Contract Delivery system
Cont…
Construction/ Facility Management Consultancy

 Construction Management Consultancy Delivery System is a

response to problems associated with DB and BOT where the
Project Owner was not well represented for its benefit and the
problem of fragmentation between Planning and Implementation.

 Construction management consultancy firm is used to coordinate all

activities from concept inception through acceptance of the facility.

 Facility management consultancy adds operation of facility during

operation to Construction Management Consultancy.

 Construction Management Consultancy service are particularly

attractive to organizations that involve in construction physical
infrastructures such as MoE, MoH, Real Estate Organizations,
MoWRs, MoT&C, etc.

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[Link] and Contract Delivery system
Cont…
Construction/ Facility Management Consultancy

 Construction Management Consultants then represents Project

Owners to carry out the following services:

 Feasibility studies of Construction related services

 Plan and Monitor the Triple Constraints of Project Performances

 Lead and Organize regulatory systems of the Construction

Industry
 Valuation, Quantity Surveying and Procurement and Contract
Management Services

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[Link] and Contract Delivery system
Cont…
Partnering, Alliances, Outsourcing (Running and Specialized Delivery
System)

 The need for constructing quicker, cheaper and to a higher quality of

physical infrastructure by clients and at the same time with

 Very minimized or no dispute questioned fragmentation of

packaging,
 Costs related to wastes and overheads,
 Single staged procurement systems,
 Involving in less competitive and comparative advantage for
services and works and existing stakeholders relationships.
 As a result,

 Running delivery system using Partnering and Alliances,

 Specialized delivery system using Outsourcing,

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[Link] Management
 Procurement Management process can be idealized into three major
processes. These include Preparation, Tendering, and Evaluation
(including Award Recommendation) Processes.

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[Link] Management Cont….
A. Procurement Preparation

 Procurement Preparation phase is meant for the formation of a

Procurement Team; the preparation of Tender Documents and their
approval for procurement implementations.

A.1. Procurement Team

 Ethiopian Procurement Regulation states that a Procurement team

consisting of a minimum of five members shall be established.

 As Tender Evaluation is a joint technical and commercial exercise,

the project owner shall consider that the necessary experts shall be
composed in the procurement team.

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[Link] Management Cont….
A. Procurement Preparation

A.2. Preparation of tender documents

 Tender Documents are prepared to:

 Instruct bidders on the procedures for the preparation and

submissions of bids,

 Inform prospective bidders about the nature of things to be

procured,

 Inform bidders about the criteria for evaluation and selection of

the successful bidder, and

 lay down the contract conditions, delivery system, procurement

methods and contract types of the project.

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[Link] Management Cont….
A. Procurement Preparation

A.2. Preparation of tender documents

 Tender documents include:

1. Form of Invitation to Tender or Request for Proposals (Box 1.1);

2. Instruction to Tenderers (Standard and / or Particular information

– Box 1.2) or Terms of References;

3. Prequalification Documents if necessary – Refer procurement

methods based on stages (Section 1.3);

4. Forms of Tender - Refer Contract Documents (Chapter 7);

5. Forms of Contract Agreement - Refer Contract Documents

(Chapter 7);

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[Link] Management Cont….
A. Procurement Preparation

A.2. Preparation of tender documents

 Tender documents include:

6. General and Particular Conditions of Contract – Refer Contract

Documents (Chapter 7);

7. Bill of Quantities and Drawings - Refer Contract Documents

(Chapter 3);

8. Technical Specifications & Methods of Measurement – Refer

Contract Document (Chapter 2 & 3); and

9. Other Forms, Formats and Schedules – Refer Contract

Document Parts (Chapter 7).

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A.2. Preparation of tender documents

11/27/2021 67
A.2. Preparation of tender documents

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[Link] Management Cont….
A. Procurement Preparation

A.3. Approval of tender documents

 Includes the checking, renewal and approval of tender documents.

 Check list is usually used for tender document approval.

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[Link] Management Cont….
B. Tendering Phase

 Tendering Phase includes Invitation, Clarification, Submission and

Opening of tenders.

 Normally open tenders are floated for a period between 30 to 45 days.

Limited and Negotiated tenders can be invited between 7 to 15 days.

B.1. Invitation: The invitation to tender shall clearly state:

 The owner and his desirous service or works

 Eligibility requirements,
 Place to get further information,
 Where to purchase & submit tender documents,
 How long the tender will be floated,
 How should the tender offer be packed, and
 When and where submission and opening of tender will take place.

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[Link] Management Cont….
B. Tendering Phase

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[Link] Management Cont….
B. Tendering Phase

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[Link] Management Cont….
B. Tendering Phase

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[Link] Management Cont….
B. Tendering Phase

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[Link] Management Cont….
B. Tendering Phase

B.2. Clarification and addendum

 Clarifications can either be requested by interested bidder or carried

out using a pre - tender clarification meeting.

 In both cases, issues clarified shall be sent (written) to all bidders

participating for the intended services or works.

 The bidders shall submit their offer on or before the submission date
and time.

 Late bids are automatically rejected.

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[Link] Management Cont….
B. Tendering Phase

B.3. Tender opening

 Bids shall be opened in public on the date, at the time and place
mentioned in the invitation to tender and stipulated in the tender
documents.

 Ethiopian practice (public): Two representatives from MoWUD,

Project Owner, Consultant (if available), and Contractors (Who wish
to attend) by themselves or by their representatives shall attend during
the tender opening ceremony.

 The following will be carried out during tender opening:-

1. Tender Attendee members shall take their place and be registered,

2. Tender box opened and checked for faulty things,
3. Check the tender is the right one,

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[Link] Management Cont….
B. Tendering Phase

B.3. Tender opening

 The following will be carried out during tender opening:-

4. Bids will be opened one after the other,

5. All necessary data which deem useful such as Project Name, Name
of bidder, Bid Bond Amount, Tender Price, etc. will be read aloud
and recorded at the opening of bids.
6. Bidders representative shall sign a register to attest their presence
during opening, and
7. Tender committee members shall sign on the Tender

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[Link] Management Cont….
B. Tendering Phase

B.3. Tender opening

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[Link] Management Cont….
C. Tender Evaluation

 Tender Evaluation Phase: is made to determine and make award

recommendation for the least evaluated bidder using preliminary and
detail evaluations.

 The recommended winner may or may not necessarily be the lowest

bidder.

 The following factors are used in determining the least evaluated

bidder.

 Technical qualification,
 Completion time,
 Commercial terms of the offer, etc

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[Link] Management Cont….
C. Tender Evaluation

C.1. Preliminary Evaluation

 Preliminary Evaluations are made for Eligibility and Arithmetic

Review requirements.

 Before commencing the actual evaluation, it is useful and

recommended to complete a Basic Data Sheet for each tenderers to
record key information and enable coding.

i. Eligibility Requirements

 Eligibility Requirements: Tenders are subjected to eligibility

qualifications before they enter to bid and their respective evaluations.

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[Link] Management Cont….
C. Tender Evaluation

C.1. Preliminary Evaluation

i. Eligibility Requirement

 Most often sited issues considered in eligibility requirements are:

 Valid & Up to date Trade and Professional License,

 Valid & Up to date Membership to Financier Organizations,
 Valid provision of Bid Security or Bond,
 Completeness and submittals of all required documents,
 Turnover requirements fulfilled
 Power of Attorney, Signature & Sealing Requirements, and
 Appropriate Invitation, Packaging and Submission
Requirements.

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[Link] Management Cont….
C. Tender Evaluation

C.1. Preliminary Evaluation

 Responsive to Tender is based on the deviation from the bid

conditions. The more major deviations are witnessed the bid will be
rejected based on non – responsiveness to bid conditions.

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[Link] Management Cont….
C. Tender Evaluation

C.1. Preliminary Evaluation

ii. Arithmetic Review

 Most tenders are often submitted hastily and it is common to have
arithmetic error.

 Evaluation without arithmetic check will ultimately result in disputes.

 Therefore, it is a formal evaluation process to review arithmetic

before carrying out detail evaluations.

 At this stage no adjustment on the unit prices is allowed. If the

contractor has made any arithmetic errors those are corrected.

 If unit prices are left unfilled then it is assumed that the contractor
will have covered the prices in other sections of the submission.
 Note: - Arithmetic review can be done if and only when
financial proposals are opened.
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[Link] Management Cont….
C. Tender Evaluation

C.2. Detail Evaluation

 Detail Evaluations include Technical, Commercial and Financial

Qualification requirements.

 Evaluations at this stage should first and foremost critically see the
technical and commercial offers and establish system that can ensure
common bases for comparison.

 Finally, the Financial offer will be updated using Absolute Results

from Commercial comparisons

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[Link] Management Cont….
C. Tender Evaluation

C.2. Detail Evaluation

Technical Evaluation

 Besides being required to submit a priced bill of quantity a contractor

is required to submit a technical compliance document.

 This technical compliance document will require submission of

required details.

 In the evaluation process, at least the following will need to be

checked.

 Completeness of bid
 General compliance to the tender requirements
 Substantial responsiveness to technical specifications and bidding
documents.
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[Link] Management Cont….
C. Tender Evaluation

Technical Evaluation

 In the evaluation process, at least the following will need to be

checked.

 Alternative proposals if any

 Acceptance for detailed examination
 Review of the proposed organization/staff organization chart
 Schedule of personnel capabilities
 Implementation schedule/ schedule of program of work/ details of
work program
 Availability of equipment/ schedule of plant and equipment
 Working hours
 Labor build up, run down and source

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[Link] Management Cont….
C. Tender Evaluation

Technical Evaluation

 In the evaluation process, at least the following will need to be

checked.

 Interest rates/ Day work rates

 Cash flow/ program of payments
 Schedule of suppliers/ Sub contractors
 Detail regarding site establishment
 Details regarding temporary works
 Details regarding the financial stability
 The original copies to be submitted

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[Link] Management Cont….
C. Tender Evaluation

Commercial Evaluation

 This includes Benefit Forgone due to Completion Time; Additional

Costs due to differences in Foreign Currency Exchange and
Advance Payment requirements; and Provisions of Domestic or
Regional Preference Margins.

1. Benefit forgone due to completion time

 The Benefit Forgone (BF) due to additional completion time can be

computed using the following expressions:

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[Link] Management Cont….
C. Tender Evaluation

Commercial Evaluation

2. Additional cost due to Foreign Currency Exchange requirements

 Used when the tenders have provisions to quote different currencies.

 For currency conversion, selling rates of Bank published by an

official source and applicable for transactions shall be used.

 Additional cost due to Foreign Currency Exchange requirements can

then be determined using selling rates at:

 15 days prior to tender submission date

 Tender Opening Date
 Decision for Award or Expiry of Tender Validity date

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[Link] Management Cont….
C. Tender Evaluation

Commercial Evaluation

2.2. Additional Cost due to Advance Payment

 Occurs when different amounts of advance payment are requested as

part of the tender offer.

 The Additional Cost due to differences in mobilization advance

requirements can be computed from the following expressions:

APAC = {(AP x TO) / 100} – PV;

PV = A x PWF; A = {(AP%) x TO} / n; PWF = {(1 + i)n – 1} / {i(1 + n)n}

Where: AP = Advance Payment Requirement in %;

TO = Tender Offer after Arithmetic Check;
i = Discount Rate = 0.04 % per day;
n = Completion time in days
PWF = Present Worth Factor; PV = Present Value
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[Link] Management Cont….
C. Tender Evaluation

Commercial Evaluation

3. Domestic or regional factor

 Domestic or regional preference margin is a provision to give

preference to local companies even if their bid offer is not over by a
percentage often equals 7.5 - 10 % for construction works.

 This implies that domestic or regional companies can be awarded the

tender even if they are not lowest in tender price of the evaluated
bidders using all the other criteria.

 A contractor can be eligible for such preference margin if and only if;
 Its legal constitution is in accordance with the Employers’ Country /
Region

 It is registered according to rules and regulations of the Employers’

Country / Region
84 11/27/2021 91
[Link] Management Cont….
C. Tender Evaluation

Commercial Evaluation

3. Domestic or regional factor

 It has proof that its majority of works are undertaken in the
Employers’ Country / Region

 Its majority of capital shares are held by the Employers’ Country /

Region nationals

 Its majority of the board of directors members are the Employers’

Country / Region nationals

 Its 50 % key personnel are nationals of the Employers’ Country /

Region

 Its arrangement to execute the work should not involve major part of
its work or net profit other than the Employers’ Country / Region
Nationals or Co - Companies
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[Link] Management Cont….
C. Tender Evaluation

Financial offer comparison

 After all commercial comparisons are considered on the same bases;

the Tender offer will be adjusted based on the Cost - Benefit principle
which involves adding costs and benefits foregone. That is:

TOevaluated = (TO + BFCT + ACAP + ACFE + ACPM)

Where TOevaluated = Tender offer evaluated

TO = Tender offer after arithmetic check
BFCT = Benefit forgone due to completion time
ACAP = Additional cost due to advance payment
ACFE = Additional Cost due to foreign exchange
ACPM = Additional cost due to preference margin

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[Link] Management Cont….
C. Tender Evaluation

Financial offer comparison

 Besides, Financial offers per groups of trades of works are compared in

order to evaluate whether tenders are front loaded or not.

 Front loading often cause disruption of projects or overzealous

contractual negotiations.
Rejection of All Tenders:

 Though is solely the power of the employer to decide, for the sake of
fairness it is recommended that such rights shall be exercised in the
following cases:
 All Tenders are found non – responsive during the Preliminary
evaluations
 Evidences of lack of competitions such as collusion among bidders,
monopoly, etc.
 Lowest responsive offer is found unreasonably high.
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Procurement Procedure Flowchart

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Procurement Procedure Flowchart

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1.7 Procurement Management Cont.…
Tender Evaluation Report

 Tender Evaluation Report may be written using the following Outlines:

 Executive Summary
 Introduction
 Evaluation Results
 Preliminary Evaluations Responsiveness
 Detail Evaluations Results
 Award Recommendations

1. Introduction
1.1. Background
1.2. Basic Data
1.2.1. Tender Opening Records
1.2.2. Engineers’ Estimate

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1.7 Procurement Management Cont.…
Tender Evaluation Report

2. Preliminary Evaluation Responsiveness

2.1. Instruction to Bidders Responsiveness

2.1.1. Eligibility
2.1.2. Tender Security
2.2 Form of Tender and Appendices Responsiveness
2.2.1. Form of Tender
2.2.2. Priced Bill of Quantities
2.2.3. Schedules
2.3. Contract Document Responsiveness

3. Detail Evaluation Results

3.1. Basic Data for Comparison

3.1.1. Assignment of Codes and Arithmetic Review
3.1.2. Adjusted and Average Tender Offers

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1.7 Procurement Management Cont.…
Tender Evaluation Report

3.2. Commercial Offer Comparisons

3.2.1. Benefit Forgone due to Completion Time Variations
3.2.2. Additional Cost due to Advance Payment Requirements
3.2.3. Additional Cost due to Foreign Currency Requirements
3.2.4. Additional Cost due to Local / Domestic / Regional
Preference Margins
3.3. Financial Offer Comparisons
3.3.1. Front Loading Assessment
3.3.2. Ranking of Tenders
3.4. Award Recommendations
3.4.1. Recommended Tender Offer
3.4.2. Negotiation Issues

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1.7 Procurement Management Cont.…
Tender Evaluation Report

 Annexes
 Annex – A: Basic Data on Tender Offer
 A.1: Pre - Bid Basic Data
 A.2: Tender Opening Records
 A.3: Assignment of Codes and Bidders Particulars
 Annex – B: Preliminary Evaluation Responsiveness
 Annex – C: Detail Evaluation Results

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