Tendering means to offer something or present something formally, and it maybe in exchange of something else. The word tender means kind, gentle, loving, etc., but those are not the meaning relevant to this article. Tendering is also interchangeably used with bidding. However, there is a difference, where bidding means offering or quoting cost or price for something, which maybe cost for work, services offered, etc.
Tendering in this article is related to projects and contracts. Elaborating further, tendering is a process, where a company or an organization requests a service or performance of work in lieu of compensation in the form of cost/money. The service or the work performance is requested from those persons/organizations/companies which are into similar business.
In the market, there are many organizations/companies providing similar types of business. Hence, when the work or service is requested through tendering, the companies into a similar business come forward to perform the same albeit with compensation. However, all the companies cannot be entrusted with the task of performance of the work or service. Hence, a selection process is put in the place to shortlist the most suitable one and this is called the process of tendering or simply tendering. The service providers or work executer participating in the tendering to get selected for performing the work are called bidders.
The document which consists of the detail of the work to be performed including terms and conditions for the service providers or work executors to quote the price is called a tender document or simply tender.
The proposals from the service providers/ work executers participating in the tendering process, which include the cost of work or service, agreement to the tender terms and conditions along with other related documents are called bids.
Why is Tendering Required?
Tendering is required to shortlist the most suitable service provider or work executer. The suitable includes technically acceptable, having required experience, financially sound, having all resources to perform the work at a lower price.
Tendering is the process to have a wide range of service providers to select from so that one gets the best one.
Preparation of Tender Document
In oil and gas projects, tendering is done to line up consultant or contractor at various stages of project lifecycle. Most common stages where tendering is done for performance of work are the following:
- Feasibility Stage to perform study.
- Defining Stage to carry out Front End Engineering and Design (FEED).
- Implementation Stage to do detail engineering, procurement, construction, etc.
As we move further into the project lifecycle, tender document becomes more elaborate and complex. However, each company or organization may have some common elements or part in the tender document.
For feasibility study, the tender document is prepared generally prepared in-house. The tender document of FEED is prepared during the later stage of feasibility study.
However, the tender document of the detailed engineering, procurement and construction is prepared during FEED. This or these tender documents forms part of the important FEED deliverables.
There are other tenders also during the project depending upon the execution strategy, complexity and size and it may include Project Management Consultancy Tender, Operation, Production and Training Support Consultancy Tender, etc.
Like any process, tendering process also has a lifecycle. This lifecycle is within the overall project lifecycle. A project may have multiple or more than one tendering cycle for different phases and different services.
Steps, activities, and milestones of the tendering cycle, which are quite typical in nature, are provided and elaborated hereunder:
- Preparation of tender document, which takes considerable time and maybe in couple of months.
- Internal review of tender document, and finalization.
- Obtaining required approvals to issue a tender to bidders and these approvals vary from organization to organization.
- Collection or buying of tender documents by the bidders.
- Duration allowing bidders to read and understand tendering requirements and to prepare questions for seeking clarifications if required.
- Pre-Tender or Pre-Bid meeting to allow bidders to seek clarifications.
- Preparation of bids by bidders.
- Submission of bids by bidders. Bids are to be submitted on or before tender closing date which may be a maximum of a couple of months from issuance to tender.
- Receipt of bid and their evaluation, both technically and commercially.
- Shortlist one bidder which is most suitable, and this is generally those who qualify technically and have quoted the lowest price.
- Prepare contract award recommendation and then seek approval for the same, which depends on organization.
- Award the contract by issuing notification to the shortlisted bidder.
- Sign the contract with the shortlisted bidder, wherein he may submit certain bank bonds, as applicable.
The whole tendering cycle duration depends on type of tender, the service required, etc. However, it may vary from four to eight months in general.
The important milestones of tendering cycle are the following:
- Issue Date of Tender
- Closing Date of Tender
- Date of Contract Award
- Date of Contract Signing
Types of Tendering Process
Tendering process can be broadly categorized as follows:
- Open Tender: Under this process, any bidder can participate in the tendering process.
- Limited or Selective Tender: Under this tendering process, only shortlisted or pre-qualified bidders can participate.
Under the second process stated above, there is a full process before tendering to shortlist or pre-qualify bidders who can then participate.
In many construction contracts of mega-size and complexity, which are unique and not executed frequently, this shortlisting or pre-qualification may be done project-specific. However, in general, all big organization have their panel of shortlisted bidders. They carry out these pre-qualification exercises round the year and keep adding new bidders, if suitable.
Types of Bidding Process
Bidding can also be broadly categorized as follows:
- Single- or One-Part Bidding: Under this bidding process, the bidders submit both technical and price bid in one envelope. Both technical and commercial evaluations are done together.
- Two-Part Bidding: Under this process, the bidders submit technical and price bids in two separate envelopes. To evaluate, the technical envelope is first opened. One technical evaluation is completed, the price bid envelopes of only those bidders are opened, the ones who are technically qualified.
Both types have their own pros and cons. Though the two-part envelope system brings the bidder at one level post technical evaluation in order to evaluate the price, this process is more time consuming and is not always a necessity.
Tender Types with respect to Work
Tender documents vary with respect to the type of work. A tender for manpower or equipment supply would be different from those of construction. Within project, tender for Feasibility Study, FEED and Construction would be quite different. These documents are not only different, but they also address or cater to different types of bidders. For example, a manpower or equipment supplier, in general, do not participate in big construction tendering and vice versa.
Elaborating further, a manpower or equipment supply tender is based on pricing for different types of manpower and equipment. A feasibility and FEED tender pricing are done on estimated manhour to carry out the scope and multiplying it with the manpower unit rate. It is to be noted that manhour rate is not one, but multiple and it is different for different categories. Different categories of manhours are multiplied with their respective rates and subsequently price of manhours of all categories is summed up. Also, the feasibility and FEED price comprises other services, though very less in proportion. Construction tender pricing is done on cost of performing works at site and it may include detailed engineering manhour cost and procurement cost depending on the execution strategy.
Components of Tender Document
Though tender documents composition may vary drastically from organization to organization and on the types of project, nevertheless there are many meeting grounds. Some of the common tender components which one comes across while working on projects are hereunder:
- Form of Agreement
- Invitation to Bid
- General Conditions
- Special or Particular Conditions
- Technical Specifications
- Form of Tender
- Form for Pricing
Risks Associated with Tendering
Like any other activities, risk is also associated with tendering. There are various risks distributed across the table, divided between owner/client/service seeker and bidders. Some of these risks are the following:
- Lack of participation in tendering – (risk for client/owner)
- High value of bids received, which is quite higher than the estimate – (risk for client/owner)
- Ambiguity in tendering conditions – (risk for both)
- Ambiguity in scope – (risk for both)
- Bid price underestimated – (risk for bidder)
- Fail to prepare bid before tender closing – (risk for bidder)
In this article, a good summary of tendering is provided. This activity has been covered from different angles. While it is short, it gives sufficient insight. This article would be useful to the experienced professionals, trainees to this field and also those pursuing their academic specialization in project management.