It’s just too sad to be single: Single-stage tendering

A recent article in Building by Simon Rawlinson (21 November, page 68) claimed clients were increasingly returning to single-stage tendering. So, does this move make sense?

The trouble with single-stage tendering is that it does not generate reliable outturn costs. In fact, this method of procurement often produces a fragmented project team with the contractor appointed too late to influence the design, programme or risk management strategy, and braced to claim compensation to make up for errors in its estimates. The result is that there is more conflict between clients and contractors, with variations and claims working up the original tender price. Not a good recipe.

Simon says single-stage tendering offers the discipline of completing designs before the contractor is appointed. This ignores evidence, from the Banwell Report in 1964 through to the National Audit Office in 2005, that contractors and subcontractors have more to offer than simply a price for building someone else’s designs. Systems that obtain timely contractor input to buildability and affordability offer real discipline, and a proper two-stage process achieves this.

Simon also says single-stage tendering applies commercial pressure to secure cost reductions. In reality, cost savings can be achieved much more effectively through two-stage tendering. Most single-stage bids rely on estimates from subcontractors and suppliers that are invisible to the client and its consultants. There is no opportunity to drill down into what the subcontractors and suppliers have assumed or discover what they can offer to challenge design or risk assumptions.

Two-stage tendering is progress on the evolutionary scale of procurement, so why should we revert to something more primitive?

Under a two-stage process, subcontractors bid to a pre-appointed main contractor, with better odds of success and, consequently, greater motivation to give it their best shot. While any contractor may adopt a last-minute negotiating stance, a properly structured two-stage appointment can avoid this. For example, the client can agree main contractor profit and overheads from the outset, plus an incentive for the contractor to reduce other costs. This approach, combined with second-tier competitive processes for all subcontractors, minimises the need for any negotiation.

Alarmingly, among the supposed benefits of single-stage tendering is included the suggestion that “keeping the client at arm’s length” while selecting the contractor’s team should help clarify the allocation of risk. Client involvement in finalising specialists is essential to achieving a clear brief and avoiding later changes. The inference that this involvement blurs the risk position is not the way modern two-stage tendering is done. Joint supply chain selection can sit squarely with the contractor’s responsibility to deliver the project using agreed specialists.

Finally, the article suggests single-stage tendering can improve the speed of projects. Yet joint programming under two-stage tendering achieves an integrated approach that should minimise unproductive time on site. As for the preconstruction phase, the 2007 Nichols Report for the Highways Agency found that early contractor involvement could reduce project preparation time by 30-40%.

Clients did not embark on early contractor involvement as a fluffy-edged social experiment during the good times – they did so because single-stage tendering so often gave rise to disputes, delays and cost overruns regardless of raised expectations during the preconstruction phase, before the contractor came on board.

Two-stage tendering is progress on the evolutionary scale of procurement, so why should we revert to something more primitive?

Clients and contractors have seen ample evidence of the benefits of two-stage tendering. Consultants have learned that sharing the design process with contractors reduces risk and raises quality. Two-stage tendering is progress on the evolutionary scale of procurement, so why should we revert to something more primitive?

Ten years ago CIRIA concluded that selecting contractors by value under two-stage tendering results in better teamwork, programming, design and specification, care of the environment, budgeting and management of risk and value. In 2008, all these arguments remain.

Properly structured two-stage tendering, using an early conditional contractor appointment, is the best means for clients to control projects and obtain added value from their contractors. Cost savings, too, can be obtained more scientifically by analysing costs with the main contractor. In contrast, single-stage tendering remains a gamble based on matching client and consultant assumptions to contractor price estimates in a short space of time. It is not a gamble that well-informed clients should wish to take.