Part 2 – managing the pre-construction phase
At its simplest the standard procurement method is for the employer to put out an invitation to bid, various interested parties put forward their proposals, and the employer then enters into contract with the preferred tenderer. The reality is of course more complex, but at its heart there is always a tension that the tendering party has to balance in deciding how much effort to put into their tender (which can be substantial as assumptions are more difficult for a life science project) as this may become an unrecoverable expenditure if they are not awarded the project. Also the more accurate the tender the more risk that the price may be higher than a competitors who has taken a broader approach to pricing.
The client they will be concerned that the tender selected (which may not necessarily be the cheapest) is not reflective of the true build cost as the contractor will, legitimately, use every change in design or other opportunity to seek an increase in the contract price. The final difficulty is that many of the decisions that impact on the final contract price require a contractor’s input into the overall design to advise on the ‘buildability’ of a project.
The first stage is the standard tender as described above. However, before entering into a final building contract, which includes a contract sum, there is a further design stage that enables the employer, design team and selected contractor to work in collaboration on the design, buildability and value engineering aspects of the project in order to achieve a final price for the works. These second stage services are provided by the contractor under a pre-construction services agreement.
The advantage is that both parties have greater certainty of the contract price, which is also less likely to change during the course of the contract. Plus design issues are more likely to be resolved before works commence, rather than mid-works when it is harder to resolve without impact to the overall works. Also, the result of the second stage may conclude that the parties cannot in fact achieve the intended outcome for the client’s budget, thereby saving both parties from undergoing a potentially disastrous process that neither party can extract itself from without loss and likely some litigation. Done correctly under two stage tendering there should be no obligation for the employer to go into contract with the contractor if the final price is not acceptable.
The downsides to two-stage tendering must not be overlooked. The contractor is paid for their services during the second stage and if the contractor is ultimately not awarded the contract these could be viewed by the client as wasted costs. Also once a contractor is engaged in the two-stage tender it is a difficult decision for a client not to award them the final contract. The client will naturally have doubts as to whether an alternative contractor, who has not undergone the same two stage tender, truly could achieve the desired result at a lower cost. While this process can delay the start of works and lead to a more expensive contract price at the outset, it can help ensure quality and value for money.