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Tendering Components and Process
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Tender Components and Tendering Process
Introduction
This report provides a comprehensive overview of the key components
involved in the tendering process, outlining essential documents, roles, pricing
strategies, contract types, and critical considerations for successful tender
submission and evaluation.
Tender Components
A robust tender package relies on the clarity and accuracy of its core
documentation:
• Bill of Quantities (BOQ): This is a detailed list of all materials, labour, and
services required for a project, broken down into measurable items. It forms
the basis for pricing and quantity estimation, allowing for standardized
comparisons between bids.
• Design Drawings: Architectural, structural, and MEP drawings provide the
visual representation of the project, detailing layouts, dimensions,
specifications, and connections. They are crucial for understanding the
scope of work and informing the technical proposal.
• Technical Specifications: These documents define the quality,
performance, and material standards for all components and workmanship.
They detail requirements for equipment, installation methods, testing
procedures, and compliance with relevant codes and regulations.
Key Roles in Tendering
Successful tendering is a collaborative effort involving various specialized roles:
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• Technical Office: This team is responsible for developing cost breakdowns,
soliciting supplier quotes for materials and equipment, and preparing
detailed shop drawings based on the design specifications. They bridge the
gap between design and practical execution.
• Site Engineers: Possessing invaluable on-the-ground experience, site
engineers provide crucial feedback on real-world productivity rates, logistical
challenges, and potential site-specific constraints that can impact project
cost and schedule.
• Accounts & Procurement: This department handles the financial aspects
of tendering, including tax implications, conducting market price checks for
materials and services, and performing detailed cash flow analyses to
ensure project viability and profitability.
Pricing Breakdown
A meticulous pricing breakdown is essential for a competitive and profitable
bid:
• Materials: Direct costs of all raw materials, components, and manufactured
goods.
• Accessories: Costs of ancillary items, fasteners, consumables, and minor
fittings required for installation.
• Labor Costs: Wages, benefits, and associated costs for all personnel
involved in the project, including direct labour, supervision, and project
management.
• Equipment Rental: Costs associated with renting specialized machinery,
tools, and heavy equipment required for construction and installation.
• Transport & Handling: Logistics costs for moving materials and equipment
to and around the site, including loading, unloading, and internal distribution.
• Overheads: Indirect project-specific costs such as site electricity, water,
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temporary office facilities, security guards, and other site infrastructure.
• Administrative & Engineering Costs: Expenses related to office support,
tender preparation, engineering design review, coordination meetings, and
other general administrative functions.
• Profit Margin: The desired financial return on the project, typically ranging
between 15% and 25%, depending on market conditions, risk, and project
complexity.
• Taxes: Applicable taxes such as Value Added Tax (VAT), currently at 14%,
and social insurance contributions, typically around 5% of labour costs.
Strategy Models
The chosen tendering strategy significantly influences the bid's
competitiveness and long-term objectives:
• Cost-Based: This model prices the tender based on the actual calculated
project cost plus a predefined profit margin. It is a straightforward approach
best suited for projects where costs can be accurately estimated.
• Market-Based: Pricing is determined in response to competitor behaviour
and prevailing market rates. This strategy requires thorough market
research and competitor analysis to remain competitive.
• Value-Based: Primarily used for niche systems or specialized projects like
Building Management Systems (BMS) or medical gas installations. Pricing
reflects the unique value, expertise, and long-term benefits offered by the
solution rather than just the cost of components.
• Market Share: Involves bidding with lower profit margins, or even at break-
even, to gain market presence, establish a reputation, or secure long-term
relationships with clients.
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Balanced vs. Unbalanced Tendering
The distribution of profit margins across tender items can impact cash flow
and risk:
• Balanced: Achieves an even profit margin across all BOQ items. This
approach is transparent and generally preferred by clients.
• Unbalanced: Involves assigning higher profit margins to early-stage works
or major-scope items. This can improve early cash flow but carries the risk
of client scrutiny and potential issues if quantities change significantly.
• Cash Flow-Oriented: A strategic distribution of profit to optimize cash flow
throughout the project lifecycle, ensuring sufficient funding for ongoing
operations and reducing reliance on external financing.
Contract Types
Understanding contract types is crucial for defining risk allocation and
payment structures:
• Lump Sum: A fixed price for the entire scope of work. This type carries high
risk for the contractor as any cost overruns beyond the agreed-upon price
are their responsibility.
• Unit Price: Payment is based on the actual quantity of work executed for
each item, at pre-agreed unit rates. This provides flexibility for scope
changes but requires accurate measurement of completed work.
• Cost Plus: The contractor is reimbursed for their actual costs plus a fixed
fee or percentage for profit. This shifts much of the cost risk to the client but
requires rigorous cost tracking.
• Target Cost: A negotiated target cost is set, and any savings or overruns
are shared between the client and the contractor based on a predetermined
ratio. This encourages efficiency and collaboration.
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• BOT/PPP (Build–Operate–Transfer / Public–Private Partnership):
Complex agreements where a private entity finances, builds, operates, and
maintains an infrastructure project for a specified period before transferring
it to the public sector. Common in large-scale public works.
Tender Submission Process
A structured submission process ensures completeness and adherence to
requirements:
• Tender Bond: A bank guarantee submitted with the bid to ensure the
bidder's commitment to the proposal and willingness to enter into a contract
if awarded. It protects the client against frivolous bids.
• Clarifications: The process of submitting Requests for Information (RFIs)
early in the tender period to seek clarification on ambiguous specifications,
drawings, or contract clauses. This helps in accurate bidding and avoids
misunderstandings.
• Technical Proposal: A detailed document outlining the proposed
methodology, project execution plan, list of approved vendors for materials
and equipment, and the proposed project team with their qualifications and
experience.
• Financial Proposal: The core of the bid, presenting the detailed BOQ with
unit rates and total prices, clearly stating any exclusions from the scope, and
outlining proposed payment terms and milestones.
• Cash Flow & Schedule: A Gantt chart illustrating the project timeline with
key milestones, coupled with a monthly breakdown of anticipated costs to
demonstrate the project's financial progression.
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Financial Offer Details
The financial offer must be comprehensive and transparent:
• Full System Pricing: Pricing for complete systems (e.g., chillers, HVAC
units) should include supply, installation, testing, and commissioning,
ensuring a holistic cost.
• Accessory Inclusions: Clearly state which accessories, consumables, and
minor components are included in the pricing for each item.
• Installation Scope: Explicitly define what the installation cost covers,
including use of cranes, specialized tools, labour, testing procedures, and
integration with building management systems (BMS).
• Excluded Costs: Clearly list any costs that are not included in the tender
price, such as site utilities (electricity, water), government permits, potential
delays caused by the client, or unforeseen hidden conditions.
• Terms: Specify warranty periods, delivery times for equipment and
materials, and the advance payment terms required.
Equipment Delivery Considerations
Careful planning for equipment delivery is vital for project efficiency:
• Delivery Term: Explicitly state the Incoterms (e.g., Ex-works, CIF, DDP) to
define responsibility for shipping costs, insurance, and risk transfer.
• Customs & Duties: Account for all customs clearance procedures, import
duties, taxes, and associated logistics costs.
• Site Access: Assess site accessibility for heavy equipment, considering
lifting requirements, available parking, and the feasibility of crane setup and
operation.
• Compatibility: Verify compatibility of equipment with existing systems,
especially for BMS integration, refrigerant types, voltage requirements, and
potential fouling factors in water systems.
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• Permit Requirements: Identify and secure all necessary permits for crane
operation, escort vehicles for oversized loads, and environmental approvals
related to equipment installation and operation.
Evaluation and Awarding
The final stages of the tendering process involve thorough assessment and
contract finalization:
• Technical Review: A detailed evaluation of the technical proposal to ensure
compliance with specifications, assessment of proposed methodology,
review of vendor reputation, and verification of the project team's
qualifications.
• Commercial Review: An assessment of the financial proposal for realism,
completeness, cost breakdowns, and the balance of pricing across BOQ
items. This also includes comparing bids against budget and market
benchmarks.
• Clarification Stage: An opportunity for both parties to seek final
clarifications, negotiate terms, and resolve any outstanding issues before
the contract award.
• Final Contract: The culmination of the tendering process, where the
submitted tender documents, including the BOQ, technical proposal, and
financial offer, become the binding language of the contract. Any agreed-
upon changes during the clarification stage must be formally incorporated.
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