FACULTY OF ENGINEERING DEPARTMENT OF CIVIL ENGINEERING FALL SEMESTER ASSOC.PROF.DR. İBRAHİM YİTMEN CIVL 493 CONSTRUCTION MANAGEMENT

COST ESTIMATING AND TENDERING

 Awarding contracts rely on competitive tendering  Estimating department of contractors is important to provide commercial success: i) in getting the job ii) in completing the work with estimated costs 3 CIVL 493 CONSTRUCTION MANAGEMENT

Parties Involved in Estimating and Tendering a) Client's staff or their professional representative Contract documents are prepared including drawings, bill of quantities, specifications etc. b) Contractor's Personnel i) Senior Management:  make decisions to tender  make decisions what tender to submit  consider the estimate of estimator ii) Estimators: produce estimates iii) Planners: produces plans or programs  pretender plans are prepared  not detailed activities  duration & sequence of key activities  approximate resources 4

iv) Buyers: responsible for purchasing  responsible for placing orders  Finding Subcontractors  provide quotations for materials, plant, etc. v) Plant manager:  responsible for company's plant departments  supply estimators with hire rates and availability of company owned plant. vi) Temporary works designers:  responsible for designs of major temporary works for bridge, false-work, scaffolding, etc. vii) Site management:  responsible for execution of works on site  agents, managers, engineers, surveyors  Provide advice to estimators on methods of construction 5 CIVL 493 CONSTRUCTION MANAGEMENT

Parties Involved in Estimating and Tendering c) External Organizations  material suppliers  plant hire companies respond quotations  subcontractors 6 CIVL 493 CONSTRUCTION MANAGEMENT

COST ESTIMATING PROCESSES Basic steps of estimating are: a) Decision to tender b) Programming the estimate c) Collection and calculation of cost information. d) Project study e) Preparing the estimate f) Site overheads g) Estimator's report 7 CIVL 493 CONSTRUCTION MANAGEMENT

a) Decision to tender (Given by Senior Management) Decision to tender is based on such factors i.the company's current workload, turnover and recovery of overhead. ii.company's financial resources iii.availability of resources to undertake the work iv.type of work v.location of contract vi.identity of client and his representative vii.detailed examination of contract documents 8 CIVL 493 CONSTRUCTION MANAGEMENT

b)Programming the Estimate: (two stages) i.collections and calculations of cost information ii.study of the project to gain the required appreciation. c)Collection of Cost Information: Cost information for labour, plant, material subcontractors etc. d)Project Study: To gain an appreciation on the project by the estimator the following tasks are undertaken.  study of drawings  site visits, meeting with client's representative  preparation of a method statement to construct. 9 CIVL 493 CONSTRUCTION MANAGEMENT

e) Preparing the Estimates Estimator establishes the direct cost rates for  labour,  plant,  material,  subcontractor exclusive of addition for  site overhead,  head office overhead,  profit,  risk. These will be assessed and added later. 10 CIVL 493 CONSTRUCTION MANAGEMENT

f) Site Overheads Site overheads are based on requirements such as, site staff clearing site site transport facilities mechanical plant not previously included in the item rates scaffolding site accommodations small plant temporary services welfare, first aid, safety provisions final clearance and handover defects liability transport of men to site abnormal overtime risk CIVL 493 CONSTRUCTION MANAGEMENT

g)Estimator's Reports Estimators submit estimates to the senior management with a report including;  brief description of the project  description of the method of construction  notes of any unusual risk not covered in bill of quantities  any contractual problems  possible financial consequences  notes on major assumptions made in preparation estimates  assessment of the profitability of the project  any information concerning market & industrial conditions. 12 CIVL 493 CONSTRUCTION MANAGEMENT

TENDER ADJUSTMENTS Tendering adjustment is performed by a panel formed by the staff involved in estimating and representatives of senior management. The panel satisfying themselves that the estimate is adequate. Addition of a "mark up" includes the allowances for: i) risk or loss, ii) total overhead to cover company central head office costs and site overhead costs, iii) profit in existing market conditions. 13 CIVL 493 CONSTRUCTION MANAGEMENT

CALLING FOR TENDER There are three commonly practiced tendering procedures : –Open tendering (advertising to anyone interested ) –Selecting tendering (Pre-qualified Tendering) (approaching several potential contractors) –Negotiating tendering (approaching the preferred contractor). a) Open tendering: –Open tendering allows practically any contractor to submit a tender for a work. –The procedure usually involves a client (or their advisors) placing a public advertisement in natural and for technical press, giving a brief description of the work. Advantages: likely to attract the maximum number of tenders and hence to the most competitive Disadvantages: tenders may be received from contractors who are ill- equipped to carry out the work either financially or technically. 14 CIVL 493 CONSTRUCTION MANAGEMENT

CALLING FOR OPEN TENDERING  Publicly advertised (by press) to receive tenders  Brief and adequate description of the proposed work and its location is given.  Client does not bind himself to accept the lowest or any tender.  Contractor pays deposit before getting tender file.  Sometimes, selected tenders are asked (pre- qualification).  In this case, experiences, present labour forces, plant, and equipment capacity of contractors are asked. 15 CIVL 493 CONSTRUCTION MANAGEMENT

CALLING FOR TENDER (CONTINUED) b) Selective tendering (Prequalified Tendering) The disadvantages of open tendering can be overcome by selective tendering. Selective tendering consists of drawing up a short list of contractors that are known to have the appropriate qualification to carry out the work. Such a list is drawn up either from the experience of the client that their advisors or from adverting for contractor who wish to have their names including on the list. Those contractors who seek to be listed are then asked for further details concerning the technical competence, their functional standing, and the resources that they have at their disposal and their experience. 16 CIVL 493 CONSTRUCTION MANAGEMENT

CALLING FOR TENDER (CONTINUED) c) Negotiated tendering Without competitive tender, an acceptable tender is arrived at by discussion between a client, consultant and a single contractor, without obtaining competitive tenders from other contractors. The circumstances in which a negotiated tender may be used are: where the magnitude of work is not fully established at the out set where an early start is of great importance (jobs not planned but argued) for work which is externally difficult to undertake Under forces conditions (such as earthquake, flood, war etc.) 17 CIVL 493 CONSTRUCTION MANAGEMENT

COMPARING TENDERS  The engineer recommends, but the employer will decide and act.  Criteria is the sum of the total offered but check if there is mistakes in arithmetic of tender.  The tendering base is the same for all contractors.  Interpretation of the documents is the same.  After comparison, a short list of 3 or 4 are selected and examined in detail.  What activities are asked higher costs (first or last activities, total sum could be the same)  The engineer will not like a contractor making high profit from same part of the work and lose from the other. 18 CIVL 493 CONSTRUCTION MANAGEMENT

CHOOSING A TENDER  Having completed close check and comparison, the engineer invites one or two of the lowest tenderers to his office.  Engineer investigates further about contractors to see the proposed method of construction, proposed program.  Contact with referees of contractors.  The decision is made to recommend a contractor to the client.  Meanwhile, the engineer will not reveal to any contractor the prices of other contractors. 19 CIVL 493 CONSTRUCTION MANAGEMENT

Those who can't Take Part in Bidding 1.Member of bidding commission; 2.Employees linked to the bidding commission; 3.Highest ranking of civil or military officials; 4.Fathers, mothers, brothers, children, wives, husbands, son in-law, father in-law of those given above items 1,2 and 3; 5.Those not allowed to take part in bidding (penalty). 20 CIVL 493 CONSTRUCTION MANAGEMENT

DOCUMENTS THAT A BIDDER SHOULD SUBMIT 1. Registration 2. Bonds 3. Contractorship license 4. Permission to take part in biddings 5. Documents showing that company is active 6. Signature 21 CIVL 493 CONSTRUCTION MANAGEMENT

BONDS There are two types of Bonds: 1)Bid bond 2)Performance bond Bid Bonds: Bid bond is guarantee given by the contractor to the client that if he wins the tender, he will sign the contract with the client and execute the works. Normally, the amount of bid bond is 5 % of tender. If a company doesn't win, its bid bond is returned. However, if the company wins the contract and doesn't want to do the work, he loses this bond. Those accepted as bid bonds: 1) Money 2) Bank guarantee letter 3) National bond 4) Company shares 22 CIVL 493 CONSTRUCTION MANAGEMENT

Performance Bonds Performance bond is a guarantee given by the contractor to the client that, –he will execute the works according to the contract and specifications. –the works he did will not have any defects caused from contractorship for an agreed duration, say one year. Any defects occurred in this fixed duration after completion of the project should be repaired by the contractor without asking any money from the client. Performance bond is the guarantee that one year after, the contractor will do repairing of any defects not caused by normal using of the structure. The amount of performance bond is normally 10% of the contract price. 5% bid bond that is already paid is transferred to performance bond. The rest 5% is either completed as one of the ways of bid bond or deducted from the payment to contractor during executing the work. If second way is selected, 10% of every payment is cut and transferred to performance bond account. 23 CIVL 493 CONSTRUCTION MANAGEMENT

EXAMPLE Offered contract price = 100,000,000 TL Bid bond = 100,000,000x0.05 = 5,000,000 TL Having awarded the project the contractor should give performance bond equal to 10% of his offer. The total of performance bond = 100,000,000x0.10 = 10,000,000 TL The bid bond (5,000,000) is transferred as a part of performance bond. The remaining part of the performance bond (5,000,000) to be deducted from normal payments to the contractor. Assume that, 1.Payment = 15,000,000 TL for Performance Bond = 15,000,000x0.10 = 1,500,000 TL Contractor is paid 15,000,000 – 1,500,000 = 13,500,000 TL 2. Payment = 20,000,000 TL for Performance Bond = 20,000,000x0.10 = 2,000,000 TL Contractor is paid 20,000,000 – 2,000,000 = 18,000,000 TL 3. Payment = 20,000,000 TL –for performance bond the amount to be deducted = (Total money to be deducted for performance bond minus the money deducted until that payment) = 5,000,000 - (1,500,000+2,000,000) = 1,500,000 –Therefore 3. payment = 20,000,000 -1,500,000 = 18,500,000 TL 24 CIVL 493 CONSTRUCTION MANAGEMENT

TYPES OF BIDDING 1. Closed Bidding; Two envelopes one inside the other are used. Outer envelope includes name, address and other documents of company. If there is any missing document the second envelope is not opened. Second envelope contains the offered price. 2. Open Bidding: Only one envelope that includes all the documents and the offered price. It is used in small jobs. 25 CIVL 493 CONSTRUCTION MANAGEMENT

TYPES OF BIDDING (CONTINUED) 3. Limited Bidding: A limitation to the contractor is specified. So those who are qualified can bid. Closed or open bidding method can be used. 4. Bargaining: It is used for : i.small, urgent job ii.jobs that can be executed by only one company iii.under forced condition (such as earthquake, flood, war, etc.) iv.jobs not planned but urgent v.bids with no offer or offer well above of expected value. 26 CIVL 493 CONSTRUCTION MANAGEMENT