Updated Lecture # 2 Procurement & Tendering.pdf

ABASYN UNIVERSITY PESHAWAR
TOPIC: PROCUREMENT & TENDERING
Instructor: Lecturer Engr Ateeq Khalid Khan
Department of Civil Engineering Technology
Lecture Contents:
 What is Supply Chain Management
 Concept of vendor & supplier
 What is Procurement
 2 Major Steps of Procurement
 What is Tendering in Construction
 3 forms of invitations in tendering
 Advantages of tendering in Construction
 Tendering Process in Construction
 Types of Tendering in Construction
 Tender documents
ABASYN UNIVERSITY PESHAWAR

SUPPLY CHAIN MANAGEMENT
Supply chain management
is the process of delivering a
product from raw material to
the consumer.
 Raw Materials
 Supplier
 Manufacturer
 Distributer
 Retailer
 Consumer
PROCUREMENT & TENDERING,ABASYN UNIVERSITY PESHAWAR

CONCEPT OF VENDOR & SUPPLIER
Vendor
A Vendor is an
individual/entity who
purchases products from
manufacturers or
distributors and sells them
directly to the customer.
As the last person involved
in SCM So, they have
frequent interaction with
their clients and can
maintain a good relationship
with them.
Supplier
A supplier is a person or
business that provides raw
materials, parts, and
machines to the
manufacturing units.

CONCEPT OF VENDOR & SUPPLIER
Vendor
A vendor is an
individual/entity that
purchases products from
manufacturers or distributors
and sells them directly to the
customer.
As it is the last person involved
in SCM So, they have frequent
interaction with their clients
and can maintain a good
relationship with them.
Supplier
A supplier is a person or
business that provides raw
materials, parts, and
machines to the
manufacturing units.

What is PROCUREMENT?
Procurement is the act of
acquiring goods, supplies,
and/or services from an
external source.
Goods & services should be
appropriate & procured at
best possible costs to meet
the need of the purchaser in
terms of
 Quality,
 Quantity,
 time & location.
Steps in the Procurement
Process:
1. Needs Recognition
2. Purchase requisition
3. Requisition review
4. Sourcing
5. Purchase order
6. Receipt of goods or
services
7. Receipt of invoice
8. Pay invoice

2 MAJOR STEPS OF PROCUREMENT
Sourcing:
Sourcing, as the name
implies, is finding a
source from where the
goods and services can be
procured.
It helps in finding a least
expensive supplier for
purchasing those goods.
Purchasing
Purchasing is only
restricted to receiving
and making payments.
It is best known as the
transaction-oriented
function of Procurement.

2 MAJOR STEPS OF PROCUREMENT

What is TENDERING IN CONSTRUCTION?
It is an invitation from the owner to the contractor to execute some
work at a specified cost & specified time. It is published in the form
of tender notices in newspapers, notice boards, etc. according to
the cost of work…………OR
Process of acquiring goods & services through a competitive
bidding process, it is usually practiced by government institutions.
OBJECTIVE:
The main objective of the Tendering Process in Construction is
to eliminate favoritism and corruption & to select the cheapest and
most quality bidder for work to construction companies.

3 FORMS OF INVITATIONS IN TENDERING
REQUESTS/INVITATIONS:
Depending on the contract, the buyer can ask for information
by publishing various different requests/Invitations. For
example, buyers can publish:
• RFQ (request for quote)
• RFP (request for proposal)
• RFI (request for information) and more besides.

REQUEST FOR QUOTATION/PRICE BID/CALL FOR BID
When a company request a quote/rates from suppliers against items for the purchase of
products.
INVITATATION TO BID (When Price is a major factor)
When a company seeking bids having detailed understanding of the work & steps
necessary to complete it & leaving price as a major determining factor in choosing among
service provider then invitation to bid would be most effective option.
Every bidder can produce the same product, only cost is the difference.
REQUEST FOR PROPOSAL (When Price & technical expertise are major factors)
When a company seeking bids do not have detailed understanding of the work & steps
necessary to complete it & require experience & expertise in addition to the price in
order to achieve superior final product then, RFP is most effective option.
PROCUREMENT & CONTRACT,ABASYN UNIVERSITY PESHAWAR

REQUEST FOR QUOTATION/PRICE BID/CALL FOR BID

INVITATATION TO BID (When Price is a major factor)

ADVANTAGES OF TENDERING IN CONSTRUCTION
Following are the advantages of tendering In Construction
1. Avoid Nepotism(favoritism)
2. Value for money
3. Encourages competition
4. Easy entry for new firms

1.Avoid Nepotism (aqerba
pervari/apno ko nawazna)
Tenders are evaluated on
predetermined criteria, such
as price, quality, and value for
money.
In other words,
the agency which offers the
best quality product or service
at the lowest price would win
the contract or tender.
2.Value for Money
The client
can choose potential contractors
to select the ones that
can produce the highest
quality product or service at
the lowest price.
This allows the government or
company to save money without
having to compromise on quality.

3. Encourages Competition:
In tendering several
potential contractors, firms, or
suppliers get a chance to bid
for every project.
This entire process encourages
healthy competition in
the market and prevents
laziness and provides a boost
to innovation and new ideas.
4.Easier Entry for New Firm:
Tendering makes it possible
and simpler for new firms
to enter the market or even
a particular industry.
Thus
significantly lowering the
traditional barriers to entry.

TENDERING PROCESS IN CONSTRUCTION
The tendering process in construction includes the following
stages:
1. Pre-Tender Stage (At this stage, the client and the
consultant will be brainstorming about the project scope,
time, and budget.)
2. Tender Advertisement stage
3. Closing of the tender
4. Tender opening & Evaluation stage
5. Tender award

The tender advertisement is also called tender notice.
The conventional tender notice is advertised in the
local newspaper. In the tender notice, the basic
requirement that should be appearing are:
• Title of the project.
• Scope of work & allocated budget.
• Class of contractor, head, and subhead needed.
• Location, date, and time to obtain the tender document
• Fees for tender documents.
• Location, date, and time for submission of tender doc.

3. Closing of the tender
The tender notice will mention the time and date of the
tender closing.
If the contractors fail to submit their bids within a specific time and
date, it considers the contractors’ refusal to bid for the tender. If
otherwise at that time also the tender validity period is started.
During this time, the contractors can withdraw back their tender
papers if they are no more interested to fight for the tender.

4. Tender opening & Evaluation process:
Quantity surveyors usually will handle the tender opening process.
The evaluation of the tenders shall be prepared the soonest as possible after
the tender opening. Tenders are generally evaluated against a pre-
determined set of criteria. To ensure the integrity of the competitive process,
the evaluation of proposals must be undertaken objectively, consistently &
without bias toward particular suppliers.
A report prepared by the Quantity Surveyor will describe the findings of the
said evaluation and it will be supported by tables and graphs. In the end,
the Quantity Surveyor will recommend which tenderer, in his opinion, is the
most suitable to undertake to execute the project.

5. Tender award
Once the contract has been finalized and work has been awarded,
the tender administrator creates the tender
results notification which is in letter form and then sent to
all participating contractors.
Once the client or government accepts a tender, it is binding on
both parties. This means that the agency or company that won
the tender has to provide the goods or services in the
manner agreed to and at the price offered, and
the client/government must pay the agreed price at the agreed
time. The tendering process in construction is complete with
tender awarding.

TYPES OF TENDERING IN CONSTRUCTION
There are 3 main types of Tendering in Construction
1. Open Tendering/Competitive Bidding
2. Selective Tendering/Restricted Tendering/limited tendering
• Single stage
• Two-stage
3. Negotiated Tendering/single tendering

1. Open Tendering/Competitive Bidding
• In open tendering goods & services are acquired at the
lowest price.
• It is transparent & allows fair play for competing
contractors, suppliers, or vendors.
• Create opportunities for new suppliers to secure work & to
throw their hat in ring.
• More time is required to evaluate the tenders.
• It is employed by both government & private sectors.
• There are 2 types of biddings- open bidding (seals are
open in full view) and closed bidding (seals are open in
view of selective audience).

2. Selective Tendering/Restricted Tendering/limited tender
Selective tendering allows only selected vendors to place bids. In other words,
only prequalified vendors can put their proposals in the bidding process.
Selection criteria for prequalification may be set based on the nature of the
project, vendor’s capabilities and past performances.
Advantages of selective tendering
• Takes less time (short process of tendering)
• Can select a reliable, experienced contractor for a reasonable price
• Easy to evaluate
• Shorter and easy tendering procedure
Disadvantages of selective tendering
• Less competition
• Can be biased
• Can be risky (at the negotiation stage)
• An obstacle to new contracting companies

2. Selective Tendering/Restricted Tendering
Prequalification process of selective tendering
The main purpose is to ensure that suppliers who bid for the contract, have the capability to
deliver the services/goods if successful. So, mainly clients will evaluate both the technical
and financial capabilities of each Contractor separately.
Under technical evaluation, they will consider,
• Nature of the projects carried out
• Size and reputation
• Clients’, and consultant’s appraisals (received after completion of each project)
• Details of current projects handled by the Contractor
• Quality of the completed project
Under Financial evaluation, they will evaluate,
• Financial stability
• Contractor’s cash flow
• Credit rating of the Contractor/creditworthiness of a borrower

2.Selective Tendering/Restricted Tendering
Procedures followed in the selective tendering process:
There are two types of procedures followed in the selective
tendering process:
• Single-stage selective tendering
• Two-stage selective tendering

Single-stage selective tendering
The single-stage tendering process is the most traditional way of the
selective tendering process. Only invited contractors will participate in
the bidding process. The overall Process of Single-stage selective
tendering can summaries as follows,
• Request for Expression of interest
• Prequalification & selecting the most suitable (sometimes comes
before EOI)
• Releasing the documents & tendering
• Submitting & Assessment
• Negotiation & finalization

Two-stage selective tendering process
The two-stage selective tendering process is used when the client needs
additional support at the design stage.
In the first stage, selected contractors (prequalified) will be asked to bid
based on approximate quantities and conceptual (preliminary) drawings.
The chosen Contractor will actively participate with client and
consultants to prepare detailed design, project programs, etc. Most
probably, the contractor chosen will work under a consultancy agreement
or service agreement at this stage. After all, planning and design
completion client will request the selected Contractor to submit the final
tender.

3.NegotiatedTendering/single tender
Negotiated tendering encompasses direct negotiation, rather than competitive
bidding. The private sector frequently uses negotiated tendering.
It is used for highly specialized works where there may only be a limited number of
suppliers available or for extending the scope of an existing contract.
Advantages:
• The client has the flexibility to choose their preferred contractor.
• Time & cost is saved as there is no bidding process.
• Early involvement of suppliers is attained.
• Contractor’s cost & pricing is more transparent as they are not seeking to
win the bid purely on the lowest tender.

3.Negotiated Tendering/single tender
Disadvantages:
• There are fewer options for the client so it may be
less innovative.
• The costs may be driven up by the lack of competitive bidding.
• There is a heavy reliance on trust between the parties.
• Unless it is carefully structured and controlled,
the negotiation process can create an adversarial atmosphere,
even before the contract has been awarded.

TENDER DOCUMENT
DEFINITION:
The documents issued to tenderers to review & accordingly quote
for a project. These documents addition to some other
documents become the contract documents after signing the
project contract
Tender documents consist of five volumes
Vol1:Tendering procedures & conditions of contract
Vol2:Specifications
Vol3:Drawings
Vol4:Bill of quantities
Vol5:Soil report

TENDER DOCUMENT
 Instruction to tenderers
 Project descriptions
 Form of contract
 Tender form(if any)
 Duration
 Performance bond
 Terms of payment
 Tender submission
 Delay penalty
 Markup of variations
 Insurance required

TENDER DOCUMENT
Vol1:Tendering procedures &
conditions of contract
 Type of contract(FPC)
Lump sum(contract value is fixed)
Remeasured(rate of items is fixed)
 The contract price
 Insurances (workmanship
compensation insurance &
indemnity)
 Terms of payment(how & when
the money is going to be paid)
 Advance payment security
 Recovery of advance payment
 Performance security
 Duration
 Commencement date(duration of the
project is counted from here)
 Progress payments(weekly, monthly ,
quarterly )
 Retention 10%(amount deducted from
every payment)
 Release of retention (released in two
halves, one after completion & second
after defects liability period /12
months after construction)
 Tax (if any applicable)
 Delay penalty 10%
 Dispute resolution mechanism

TENDER DOCUMENT
WORKING CAPITAL
It is the money which is available to a company
for its day to day operations. Such as
 Cash
 Inventories (track of materials, workforce,
equipment and plant)
 Accounts receivable (loans, settlement
amounts due for non- current asset sales,
rent receivable)
 Accounts Payable (bills, whether they are
for jobs, subcontractors, materials,
equipment, work/service orders, office
supplies or anything else that needs to be
paid)
OVERHEAD COSTS
These are administrative costs or
ongoing expenses which are associated
with the execution of a project & are
not directly attributed to create a
product/service.
 Onsite Facilities
 Vendor Fees
 Travel Expenses
 Office Expenses
 Advertising and Marketing

TENDER DOCUMENT
EARNEST MONEY DEPOSIT (EMD, 1-2% of
the Cost of Contract)
This money is a guarantee against the
refusal of any contractor to take-up the work
after acceptance of his tender.
All the contractors, who quotes the tender
(Participate in bidding) , deposit EMD along
with tender documents to the department.
EMD is refunded to all the contractors
whose tenders are not accepted.
CONTRACTORS TO DEPARTMENT
SECURITY DEPOSIT (SD, 5-10% of the
Cost of Contract)
This money is deposited by the
contractor to the department after the
acceptance of his tender & before the
issuance of his work order. It is
refunded after the completion of the
project with no interest.
This money is forfeited, if the
contractor fails to complete the work in
time with specifications.
CONTRACTOR TO DEPARTMENT

TENDER DOCUMENT
MOBILIZATION ADVANCE (15% of the cost of the contract)/Advance payment security
It is a monetary payment made by the client to the contractor to
manage his initial expenditure such as site mobilization, Overheads &
Preliminaries(site establishment, temporary services, security, safety
and environmental protection, common user mechanical plant,
common user temporary works, the maintenance of site records)
Mobilization advance is issued after providing guarantee in the shape of
bank/insurance equal to the amount being issued. This amount is
deducted from contractor’s bills.
After project completion guarantee provided by the contractor is
released.

TENDER DOCUMENT
What is an Indemnity Clause?
An indemnity clause is a promise by one party in the contract to provide
protection and compensation to the other party if the loss, damage or
costs occur.
A well-drafted indemnity clause distributes risk between parties who are willing to bear the risk.
• The most common types of indemnities in contracts cover:
• intellectual property breaches;
• breaches of work, health and safety laws;
• injury or death; and
• property damage.
In a typical construction project, the principal engages a builder and the builder engages
subcontractors to complete some of the work. The builder will usually indemnify the principal in
their contract. The subcontractor will then indemnify the builder in their contract. This approach
is known as “passing through” risk down the contracting chain.

TENDER DOCUMENT
CONTINGENCIES (5-10% of the cost of the Contract)
Amount of money which is set aside to deal with unforeseen circumstances
(Incidental/Miscellaneous).It helps eliminate the panic that happens when the
weather causes delays or there is a personnel shortage or a change in expected
government funding.
• Owner Contingency-Amount of money set aside for scope modification.
• Contractor Contingency-Amount of money set aside for any error that occurs
on behalf of contractor.

TENDER DOCUMENT
NOTICE TO PROCEED
It is a notice from client to the
contractor or from contractor to
the sub-contractor. It indicates the
date of commencement of work
i.e. when the recipient should
start their work.
ESCALATION
It is the process of compensating
the contractor for the increase in
cost of equipment, material &
labor due to price changes
overtime.
LIQUIDATED DAMAGES (Penalty to the
contractor against delays)
It is the compensation that is payable to the
owner by the contractor due to delayed
construction.
Contractor to owner
UNLIQUIDATED DAMAGES (Penalty against
breach of contract)
It is the compensation that is payable to the
owner by the contractor or to the contractor
by the owner when a contract is breached/
broken.
The party who has broken the contract is
entitled to deposit the money to the party
who suffers.Contractor to owner or owner to
contractor

TENDER DOCUMENT
Vol2:Specifications
 Civil specifications
 MEP specifications
Vol3:Drawings
 Structural drawings
 Architectural drawings
 MEP drawings
 Landscaping drawings
 Interior design drawings
Sequence of drawings
• Design drawing
• Tender/contract
drawing
• Issue for construction
drawing
• Shop drawing
• Red line drawing
• As built drawing
WORKING DRAWING/CONSTRUCTION DRAWING/SCALED DRAWING
A complete set of drawings (Architectural-structural-mechanical),
containing all the plans, elevations & sectional details needed by the
contractor along with specifications.
It is created before the start of construction & is given to the contractor.
SHOP DRAWING/MEP(Mechanical, Electrical & Plumbing)
Building components that need fabrication are Pipes, Structural
Columns, joists, Trusses & Handrails, etc. So, detailed information about
their dimensions & material specifications, welding, bolting, and
painting are provided to the fabricator through shop drawings.
AS BUILT DRAWING
Revised drawing which is created & submitted by the contractor after a
construction project is finished. It contains changes made from the
initial drawing during the construction process & provides exact
property as it appears upon completion.

TENDER DOCUMENT
 General requirements
 Site works
 Concrete works
 Masonry
 Metalworks
 Woodworks
 Thermal & moisture protection
 Doors & windows
 Finishes
 Accessories
 Equipment
 Furnishing
 Special constructions

TENDER DOCUMENT

TENDER DOCUMENT
Vol5:Soil report
 Underground layers
 Ground water table
 Foundations levels & excavations
 Dewatering requirements

DEAR STUDENTS

DEAR STUDENTS
PROCUREMENT & TENDERING, ABASYN UNIVERSITY PESHAWAR

Updated Lecture # 2 Procurement & Tendering.pdf

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