Module 3

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Module 3

Tender Submission and


Evaluation
Table of Contents

Introduction................................................................................................................ 2

Learning Outcomes ....................................................................................................... 2

Module Topics ............................................................................................................. 2

Submit a Tender .................................................................................................... 2

Tender review ...................................................................................................... 11

Self-check questions .................................................................................................... 14

Suggested Reading ....................................................................................................... 14

Summary .................................................................................................................. 15

References ................................................................................................................ 15

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Introduction
Hello and welcome to Module 3 of Project Procurement Management.

In this module you will look at tender selection. There are several activities throughout the notes and
you are recommended to undertake these sequentially.

Learning Outcomes
In this module you will learn how to:

Become familiar with the overall process of tender selection.

Module Topics
This module is broken into the following topics:

Submit a Tender
Tender review

Lets look at each one in more detail.

Submit a Tender
This section builds on the previous area of preparing an estimate and discusses how to ensure you
provide a submission that covers all areas and meets all requirements.

At the end of this section you will be able to:


Prepare a tender in accordance with organisational policy and procedures.
Ensure your tender addresses required details and meets client requirements.
Comply with required timeframe.
Ensure your organisational record keeping requirements for tenders are met.

Activity 3.1

List some of the best desirable qualities that a tender submission should
display.

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Review your organisational procedures regarding tender preparation and
list any specific requirements that could be amended in the light of your
study.

Desirable qualities of a tender submission


The quality of a tender submission can be judged in term of:

Validity - A tender can only be considered valid if the basis for preparing it is also valid. For example,
if a previous similar task is used to estimate a proposed project, all differences between the two must
be properly taken into account. A valid tender must reflect the scope and its basis must be
documented in order to be judged valid.

Reliability - A tender is reliable if identifying, evaluating, using and recording all relevant information
available has followed a methodical process. Therefore, to judge the reliability of the tender, it is
good practice to document specifics, such as data used and their sources.

Accuracy - Accuracy means freedom from error. Inaccuracies can be caused by rounding or simple
mistakes. Accuracy should not be confused with reliability. A tender can be error-free yet the figures
may be unreliable because of uncertainties.

Precision - This means how many significant digits are used in calculations. A quotation produced by
precise figure can still be inaccurate if an error is made.

Complying and Non-Complying Tenders


Generally tenders will require a tenderer to identify whether the tender is:
Complying in that it provides a solution that complies with the requirements of the tender, or
Non-Complying in that it provides a solution different from the requirements of the tender. In
addition, a tender may comply overall but there may be certain aspects of the tender that do
not comply.

The estimator compiling the tender may identify alternative tenders. Alternatives take more time to
prepare and increase the cost. James (1995) indicates that alternatives should be only considered if
they provide an advantage over competition and will be considered by the client.

There are some interesting contradictions when reviewing the literature concerning alternative
tenders. Two follow:
If one contractor submits an alternative then all contractors should be afforded with an equal
opportunity (anon).
Tenderers may be encouraged to offer alternative, better value for money proposals. Clients
should specify the conditions under which alternative proposals are to be submitted.

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Otherwise alternative proposals should only be considered when submitted with a conforming
tender. When a tenderer offers an alternative, a comparable price for the alternative should
not be obtained from other tenderers nor should the detailed alternative be used as the basis
for the recall of tenders (NSW Department Of Public Works And Services 1996).

Document assembly
The tender must be accurate, allow for all contingencies, risks, and contract conditions. Often profit
margins will be adjusted in an effort to secure the work in a competitive market (James 1995). In
addition to the price the tender may include, details of previous history, personnel resumes, and
financial reports. This additional information should comply with the tender requirements. Roberts
(1997) indicates amongst other things that the following basic information should be included in every
tender document:
Organisation details (address, ABN, company name, etc.)
Scope of your businesses operations (previous similar tasks, etc.)
Details of how you will achieve the required outcome
Details of cost and timing
How you intend to manage the task

Covering letter

The purpose of the covering letter is to introduce the tender (Roberts 1997). It may be used to identify
added value and detail your willingness to provide additional information should you be asked to
attend an interview. Roberts (1997) indicates that if you use a covering letter to express a qualification
or variation to the tender, make sure that the expression becomes a part of the contract.
A covering letter should contain the following (Roberts 1997):
Details of the tenderer
Details of the tender caller
Tender identification (number, reference or title)
Date lodged
Contents list of documents

Tender submission
Generally the lodgement details of tenders are well defined, but in preparing the tender you should
ensure that your document is reader-friendly (James 1995). A tender should include the following
documents (James 1995; Roberts 1997):
Complete tender form documents
A covering letter detailing compliance with the request for tender, any non-
compliances and the price(s)
A contents page listing schedules, annexure and appendices
Any relevant promotional material
Business details company name, contact address and phone numbers, organisational
chart and a financial report

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Scope of current operations locations, capabilities, financial profile, years of
operation
Tender project plan how you will achieve the required outcome, associated costing
budget and schedules, monitoring, review and evaluation procedures

You should ask yourself the following questions before signing off on the tender (Roberts 1997):
Does your tender address the selection criteria?
Have you used the tender briefings and available documents to the best of your
ability?
Are you aware of any open or hidden agendas from the client source?
Are you familiar with any time constraints, can you meet the time requirements?
Have you completed the summary and application forms correctly?
Are you confident that the language that you are using in the tender submission is
compatible with the language in the tender request?
Are your information and facts correct?
Have you made your intentions clear?
Have you included trade, professional, or personal references that will impress the
tender caller?

Meeting Tender Timeframes

Preparing a tender submission is often a small (or not so small) project in its own right, requiring you
to systematically address all of the information required in a specific timeframe. The timing issues are
particularly relevant where you require information from other people within your department or from
contractors. To ensure that you meet the timeframe of the tender, any outside requests for historical
information or analysis or calculation need to be addressed early in the project and these parties
should be appraised of the timeframe and the importance of meeting the timeframe.

The quotation brief will identify where the quotation should be lodged, the time and specific date of
lodgement (Roberts 1997). Particular requirements may include (Roberts 1997):
A sequence of information in the tender.
Separation of the project plan from financial details.
Advice concerning facsimile or e-mailed submissions.
Number of copies to be lodged and how the originals should be identified.
How the information should be presented.
Identification details required.

Record keeping requirements for tenders

Acceptance of a tender may mean that the tender itself is the basis for delivery, more usually the
client may progress to creating a contract or purchase order. Contract formation can be as simple as a
letter or an oral statement to the bidder that the offer has been accepted. However, most contracts
are based on a written contract signed by the buyer and seller.

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A written contract provides the document by which risks, obligations, and relationships of all parties
are clearly established, and ensures the performance of these elements in a disciplined manner.

What information should you file?

Information on suppliers
o Updated reference sheets
o Supplier brochures
o Supplier performance reviews
Reviews conducted on jobs performed to compare actual costs and income against estimate
Reviews conducted on jobs for which the estimate was unsuccessful

Tender Selection
Frame (1994) notes that the principal objective of source selection is to identify who will carry out
the contracted work. So source selection involves the receipt of bids or proposals and the
application of the evaluation criteria to select a provider (PMI 1996). The selection of a contractor
is a most critical part of the contract process ... it is essential that evaluators ... remain objective
and select the quotation that offers the best value to the organisations (James 1995). Tender
evaluation must be seen to be competent, fair and unbiased; buyers must maintain confidentiality
and probity throughout the evaluation process (DAS 1997).

Belev (1993) observes that while source selection - resulting in the most technically qualified vendor
proposal - seems a straightforward activity. It is subject to many potential problems. For example,
subjectivity must be minimised, evaluation criteria must not change once the vendors have been
informed of them, and evaluation must be only against the declared criteria. The evaluation process
should follow the procurement management plan, which should set out how the evaluation will be
performed, the timing, and who is responsible for evaluating particular aspects of the offers (DAS
(Department of Administrative Services) 1997). For complex procurements, a cross-functional team
will usually be required, containing technical, legal and financial specialists. Finally, all reasons for the
final selection should be documented.

Activity 3.2

List some of the outputs from a tender selection process. Identify how your
organisation would expect you to manage these outputs.

Find out your organisational policy for recording the tender / contract or
purchase order.

Inputs and Outputs

Inputs and Outputs of the tender selection process are (PMI 1996; DAS 1997):

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Inputs Outputs
Bidders proposals Ranked offers & Recommendation

Evaluation Criteria Record of evaluation process

Organisational policies Negotiation & Signed Contract

Evaluation team

Evaluation Criteria
The contractors tenders should conform to the specifications, tendering arrangements and terms and
conditions of the contract and non-compliance should lead to rejection. Beyond this, final selection of
a contractor will be based on some pre-determined criteria. For example:

Price only

Price may be the final basis for source selection when used in conjunction with pre-qualification. i.e. a
short list of contractors is formulated based on a set of pre-qualification criteria. This pre-qualification
process permits tenders to be obtained from contractors of a predetermined minimum capacity
(Kennedy 1991). Consequently, tenders are received from the selected tenderers and final contractor
selection is based on price. This selection method would be appropriate when the procurement item is
well defined, such as a request for tender, and the pre-qualification process is robust and the criteria
appropriate. Then the final selection, assuming the tender conforms in all other respects, can be
confidently based on price and the buyer can safely award the contract to the lowest tenderer.

The buyer should prepare an independent cost estimates for the project as a check on the contractors
tenders to determine that prices are fair and reasonable. This may involve comparison of a suppliers
bid with reasonable price benchmarks such as other competitive bids, historical prices, catalogue or
market prices, pricing data for similar items or an independent cost assessment (DAS 1997). Any
significant differences suggest that the tender documents have poorly represented the work entailed or
the contractor, for whatever reason, has formulated a high tender.

Multi-criteria

Value for Money Quality & Price

Traditionally price has been the sole or substantial selection criterion, particularly for simple and/or
low cost goods and services. However, John Ruskin as long ago as 1860 advised against making
selections based solely on the lowest price (CIC [Construction Industry Council] 1994):

Its unwise to pay too much, but its worse to pay too little. When you pay too much, you lose a
little money that is all. When you pay too little, you sometimes lose everything, because the thing
you bought was incapable of doing the thing it was bought for. The common law of business prohibits
paying a little and getting a lot it cant be done. If you deal with the lowest bidder, it is well to add
something for the risk you run. And if you do that, you will have enough to pay for something better.

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Nowadays there is a growing realisation in modern procurement that a broad range of criteria need to
be considered in order to arrive at a selected contractor who provides the best value-for-money
(H.M. Treasury 1997). Value for money (VFM) may be defined as the optimum combination of whole
life cost and quality to meet the customers requirement (H.M. Treasury 1997). Quality means all
factors that influence the selection and award processes excluding price and whole life costs (H.M.
Treasury 1997). In fact a government sponsored publication states that price is not the overriding
criterion. Hence price becomes just one of a set of selection criteria. Even though the bidders may
have been through a pre-qualification process, buyers may still need a final assessment to ensure
that the suppliers capability is adequate to deliver the particular at a particular time (DAS 1997).

Activity 3.3

If multi-criteria are used to select a contractors tender in the case study


what criteria might be used?

What benefit might be gained by using a weighted scoring method?

Value for Money - Criteria

Typical criteria to evaluate bids include similar ones used for pre-qualification such as:
technical competence and capacity
management competence and capacity
financial standing,
quality certification.

If there are many tenders then short listing of high-ranking bids may be desirable early in the process
to reduce the bids under consideration to a manageable number of competitors (DAS 1997). All
tenderers should be made aware of the buyers selection criteria, ideally by incorporation within the
procurement documents. DAS (1997) suggest that to expedite the evaluation it may be appropriate to
separate the technical and commercial aspects until the final selection stage. In particular, it is
recommended that the evaluators should be unaware of price submitted by tenderers when evaluating
their submissions against the non-price criteria. The use of multi-criteria is particularly useful when
the contractors are presenting requests for proposals. In this situation a holistic selection process,
considering more than just price, is necessary and will require consideration of such other factors as:
contractors proposed technical approach (e.g. methodology, delivery period) and its understanding of
the project. This information may be apparent from the contractors proposals otherwise a post-tender
clarification meeting may be held between the buyer and individual contractors.

Value for Money Evaluation

Where selection is based on multi-criteria, a weighted scoring method can be used in evaluating
qualitative criteria used for source selection. This process should help to minimise the subjectivity

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typically inherent within the selection process (PMI, 1996). This subjectivity can be further diluted by
use of a source selection panel, rather than placing responsibility for selection upon one individual.

Most weighted scoring methods entail:


i. Assigning a numerical weight (i.e. priority) to each selection criteria. The weight will
depend on the client, type of project and the criterions influence on the projects
successful completion. Suggested weightings are (CIC, 1994):

Suggested
Description Key areas weighting
range
Financial status, quality assurance, commitment &
enthusiasm, workload and availably resources,
Organisation 20-30%
information technology, reputation and experience,
references
Project Organisation of project team, authority levels, planning
15-25%
Organisation and programming expertise
Qualifications, experience, understanding of project &
Key personnel clients objectives, flair & commitment, communication 30-40%
skills, references
Program, method & approach; management & control
Project Execution procedures; resources; environment, health & safety 20-30%
matters
TOTAL 100%
(CIC 1994)

Then, for each contractors submission:


ii. against each criterion, a score is allocated that reflects the level to which the contractors
proposal meets the criterion. The assessor will need to determine minimum requirements
acceptability
iii. multiplying the weighting by the score for each criterion
iv. totalling the score.

The scores can then be used to select a single contractor, or rank all proposals to establish a
negotiating sequence (Project Management Institute 1996). It may also be appropriate to invite a
shortlist of preferred tenders to make a presentation to the tender board or to attend an interview,
so that the board can go more deeply into their approach and suitability before completing the
assessment (CIC, 1994).

Value for Money Example

A UK government publication (H.M. Treasury, 1997a) shows how VFM can be applied in the selection
process by means of a Quality/Price ratio (quality refers to all selection criteria expect price). For

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example, Contractors A, B and C tenders have been evaluated using the VFM approach (i.e.
Quality/Price ratio):

Quality weighting: 60% Price weighting 40%


Total weighted score
Price Overall Overall Overall
Firm Quality criteria Price $ Rank
Score* Quality Price Score
(max 100)

A 55 1,800,000 65 55 x 60% = 33 65 x 40% = 26 59 2


B 58 2,400,000 35 58 x 60% = 34 35 x 40% = 14 48 3
C 73 2,100,000 51 73 x 60% = 44 51 x 40% = 20 64 1
(H. M. Treasury, 1997a)

*Price Score - Arrived as follows:


1. The mean price of lowest 3 tenders whose quality bid lies above the minimum threshold (50)
say $2,110,000.
2. 1 point deducted from score for each percentage point above mean
3. 1 point added to score for each percentage point below mean (H.M. Treasury, 1997a)

Interestingly, this UK publication also offers indicative quality/price ratios that suggest quality has
greater important for selecting professional consultancy work compared to contractors:

Indicative quality/price Indicative quality/price


Type of project ratio ratio
Consultants Contractors
Feasibility studies 80/20 to 90/10 Not applicable
Innovative 70/30 to 85/15 20/80 to 40/60
Complex 60/40 to 80/20 15/85 to 35/85
Straightforward 30/70 to 60/40 10/90 to 25/75
Repeat 10/90 to 30/70 5/95 to 10/90
(H. M. Treasury, 1997a)

Value for Money Two Envelope Approach

An alternative approach when selecting a contractor based on multi-criteria is the two-envelope


tendering method. The first envelope contains the contractors proposals, excluding price. The second
envelope contains the contractors price. The buyer selects the proposal that best meets the selection
criteria, based on information contained within the first envelope i.e. excluding price. This allows the
quality element of a bid to be evaluated without influence by the price (H.M. Treasury, 1997a). Then
the second envelope of the selected contractor is opened to disclose the price.

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Tender review
There are two aspects of follow-up when a tender is submitted. One aspect is directly related to the
tenderer process and is the aspect covered in this section. The other major aspect is the delivery
according to the tender terms. This is a separate unit. In this final section we will also discuss how you
can undertake negotiation prior to signing a tender contract. A list of contract conditions is provided
and some comment is made concerning a suggested debriefing process to close out the tender whether
you are successful or not.
At the end of this section you will be able to:
1. Negotiate changes and variations to the tender to meet the needs of the client and the
organisation in accordance with contractual arrangements, organisational policy,
procedures and delegated authority.
2. Evaluate the tender, outcome and preparation process using feedback from a range of
stakeholders and the results are used to improve subsequent quotations

Activity 3.4

Source selection invariably requires negotiations before a contract is


entered into.

What tender selection situations might require negotiations?

What preplanning would the negotiation entail?

Pre-award negotiation
The tendering process will not necessarily lead to the right result at the right price, time, and place.
Negotiation is a legitimate and powerful tool in both competitive and non-competitive situations in
relation to all issues affecting value for money, including price. The tender selection process invariably
requires some final negotiations between the buyer and prospective contractor before a contract is
entered into. Negotiations generally occur after the receipt of offers, and must be conducted before
selection or the formulation of a contract. In particular, a pre-award meeting with the successful
bidder may be necessary to clarify any issues still outstanding.

The negotiations must be conducted through a structured and ethical process as successful
procurement relies heavily on fair and ethical dealing. A problem-solving approach to negotiation that
recognises the interests of both parties will almost always be the most appropriate.

Buyers should consider negotiation in situations where (DAS, 1997):


there are reasonable prospects of an improved value for money outcome
potential suppliers raise reasonable objections to conditions initially notified by the
buyer

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alternative proposals are made within the parameters of the tender process that will
benefit the buyer
offer prices are unfair and unreasonable in the circumstance
unusual or complex requirements or circumstances exist
there are substantial risks for either party warranting clarification

Activity 3.5

Identify some ethical dilemmas associated with pre-award negotiation.

Suggest ways and policies that may be put in place to overcome the
problems highlighted.

The Negotiation Process

Negotiation must be properly planned and include:


Definition of aims, objectives and constraints of the negotiation.
Establishment of a negotiating team whose members have defined roles.
Opportunity for senior management to set negotiation policy objectives, and means
of communication of progress or changes are available.
Research into the objectives and likely approaches of the prospective suppliers.
Accurate analysis of price trends and costing.
Definition and commitment of resources available with which to conduct the
negotiations.
Determine that all parties have the necessary legal authority to act within the scope
of their instructions.

A key element is to ensure that the negotiating parties have the appropriate authority to change the
terms and conditions of the quotation. All changes should be noted in writing to both parties.
Additionally, where a contract has been written, that the new terms and conditions are included in the
contract and the amended contract is duly signed and re-issued.

Another key element is timeliness, to ensure that changes and variations to the quotation are advised
as soon as practical, and certainly before completion of the required activities, as this leaves the
provider in a weaker position if the activities have been completed.

Contract conditions

There may also be some negotiations required about the contract conditions. Contract conditions
usually deal with matters including (Tender Support Services 1997):
The work to be performed.
The term of the contract.
Payment provisions.

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Assignment of the works.
Sub-contractors and employees.
Variations or changes to the works.
Insurance of the work and people employed in the task.
Confidentiality.
Extensions of the contract terms and options to renew.
Indemnity.
Definitions, interpretations and construction of terms.

Evaluate the proposal, outcome and preparation process


At the completion of the tender submission process, your organization should have processes to
evaluate the process of preparing the tender estimate, the tender document and the outcome of the
tender submission. If there are no formal organisational debriefing processes, the three-part process
described below can be used.

1. Conduct brief interviews with all stakeholders in the process (individually or as a group)
asking them:
How satisfied they were with the process (using a scale of 0 100% satisfied)?
How satisfied they were with the outcome (using a scale of 0 100% satisfied)?
What actions worked well?
What they would do differently next time?
What was their greatest learning from the process?
2. Document the results of the interviews and send to all stakeholders.
3. Document and Implement changes to the process.

Debriefing

Once the contract has been formed with the successful contractor, the unsuccessful bidders should be
notified and it is recommended that all suppliers who made an offer be entitled to a debriefing.
Debriefing enables unsuccessful tenderers to understand what they did well, what they did not do well,
and how to make their future bids more competitive. The buyer should follow the evaluation criteria
and indicate where and why the bid was deficient or not preferred. Debriefing is also useful to the
successful bidder to help them continue to enhance their performance. The buyer should record all
debriefings. It should be noted in Government buying that as part of the accountability and
transparency process unsuccessful bidders should be offered a written or oral debriefing as to why they
were not successful (Commonwealth of Australia 2002).

Even if the buyer doesnt offer a debriefing, your organization should have processes to evaluate your
process as per the steps above.

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Activity 3.6

Considering one likely contractor in the case study, draft a Table of


Contents of the Award Recommendation report.

Award Recommendation
The procurement process culminates in an award recommendation to the project sponsor. This should
be a formal document that outlines the tender evaluation process and the reasons for the
recommendation. A typical content would be (H.M. Treasury, 1997b):
Recap procurement strategy and circumstances.
Details and Analysis of bids received.
Selected contractor recommendation with reasons.
Impact of contract award on budget and time forecasts.
Principal contract exceptions or changes.
Recommendations for debriefing plans.
Define next steps in the contract award process, give responsibilities for action and
the time schedule.

Self-check questions

1. What information should be included in a tender document?

2. What is the purpose of a covering letter? List the content of a covering letter?

3. What record keeping requirements are necessary for your organisation?

4. When should buyers consider negotiation?

5. What planned activities precede successful negotiation?

6. What is the purpose and list some of the benefits from undertaking a debriefing after the close of
tenders.

Suggested Reading
For this module, it is suggested that you read at least two of the articles from the list below. All
articles are available in E-Reserve:

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Daylrymple, J., ed. 2002. Feasibility Study Linking Best Value Procurement Assessment to
Outcome Performance Indicators. CRC Construction Innovation Building Our Future.

H.M. Treasury. 2007. Transforming Government Procurement. PU147. Norwich. HSMO.

Holt, G.D. 1998. Which Contractor Selection Methodology. International Journal of Project
Management. 16 (3): 153-164.

Palaneeswaran, E. & M.M. Kumaraswamy. 2000. Contractor Selection for Design/Build


Projects. Journal of Construction Engineering and Management. September/October : 331-
339.

Mills, A.J. 2005. Client and Contractor Attitudes to Prequalification. Risk 08. AACE
International Transactions.

Lam, K.C., T.S Hu & S.T. Ng. 2004. Using the Principal Component Analysis Method as a Tool
in Contractor Prequalification. Construction Management Economics. September 2005. 23:
673-684.

Mills, A.J. 2006. Case Studies of the Decision-Making Process of Construction Clients. Risk 04.
AACE International Transactions.

Ward, S. & C. Chapman. 1994. Choosing Payment Contractor Terms. International Journal of
Project Management. 12(4): 216-221.???

Summary
This weeks module focused on a number of key topics in regards to Tender Selection:

Process of tender selection.


Tender review and evaluation.

References
CIC [Construction Industry Council] (1994). The Procurement Of Professional Services, CIC.
Commonwealth of Australia. (2002). "Commonwealth Procurement Guidelines and Best Practice
Guidance." Retrieved 18.06.2002, 2002, from
http://www.dofa.gov.au/ctc/publications/purchasing/cpg/commonwealth_procurement_guide
.html.
DAS (Department of Administrative Services) (1997). Commonwealth Procurement Guidelines.
Canberra, AGPS Press.

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Frame, J. D. (1994). The New Project Management. San Francisco, Jossey-Bass.
H.M. Treasury (1997a). Procurement Guidance No.2: Value For Money In Construction Procurement.
Procurement Group. London, Treasury's Public Enquiry Unit.
H.M. Treasury. (1997). "Procurement Guidance." Retrieved 18.12.2000, 2000, from http: //www.hmt-
treasury.gov.uk.
James, J. (1995). Contract management: formation, administration, control. Pymble, N.S.W., Harper
Educational.
Kennedy, G. D. (1991). Construction Management And Performance: The Responsibility Of The
Engineer. Australia, Civil College Technical Report, Institution Of Engineers.
NSW Department Of Public Works And Services (1996). Code Of Tendering For The Construction
Industry. New South Wales, Australia, New South Wales, Construction Policy Steering
Committee: 16.
PMI (1996). PMBOK guide. A Guide to the Project Management Body of Knowledge. Upper Darby, PA
19082, Project Management Institute.
Project Management Institute (1996). PMBOK guide. A Guide to the Project Management Body of
Knowledge. Upper Darby, PA 19082, Project Management Institute.
Roberts, J. (1997). Competitive tendering : how to write a competitive tender. Toorak, Vic., Roberts
Management Concepts.
Tender Support Services (1997). Competitive tendering in Australia : solving the tendering puzzle.
Abbotsford, Vic., Tender Support Services.

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