CONTRACTING PROCESS

PRMG 155 – Procurement Management

Contracting Process
• This Topic examines the activities done in the contracting
process; receiving the tenders and opening envelopes, issuing
clarification, evaluating tenders, negotiating with the shortlist of
tenderers, or the winning tenderer, seeking required approvals,
preparing the Contract Documents and awarding the contract.
The last two activities are examined in the following topic.

3
 The Project Procurement
Management Life Cycle

Bidding Tendering Contracting

Closing Administering
Procurement Procurement

5
Contracting Process
• Receiving tenders and opening envelopes
• Issue clarification, where necessary
• Evaluate tenders and select the winning tenderer
• Negotiate with the shortlist of tenderers, or the
winning tenderer
• Seeking required approvals
• Prepare the Contract Documents
• Award the contract
6
Receiving Tenders & Opening
Envelopes
• The procurement team has provided a due date for
submission of tenders in the bidding documents.
• Only those tenders received at the determined place and
by the due date and time should be opened.
• If a tender is received after the due date/time, it should
not be accepted and should not be opened.
• Tenders should be received in sealed packages.

7
Receiving Tenders & Opening
Envelopes
• Tenders should be opened soon after they are
received, ideally on the same day.
• Where the technical proposals are evaluated first, the
financial offer is not read out until the results of the
technical evaluation are known. Sometimes, the
respective tenderers are invited to attend the public
opening of their financial offers.

8
 Tender Opening Form - Sample
Tender Opening Form

Project: Date: Time: Place:

Participants:
1 Signature

2 Signature

3 Signature

Technical Tender Financial Tender

received received
Tenderers Invited Tender Opening Price Remarks

Yes No Yes No

Tender Security submitted but with only 1 month

1 P P EGP 9,470,596.84
validity

2 P P EGP 10,259,468.34 No Tender Security Submitted

No Technical Proposal. Only Company Profile
3 P P EGP 12,935,874.00 Submitted.
No Tender Security Submitted
4 P P EGP 11,800,000.00

5 P P
9
Contracting Process
• Receive tenders and open envelopes
• Issue clarification, where necessary
• Evaluate tenders and select the winning tenderer
• Negotiate with the shortlist of tenderers, or the
winning tenderer
• Seeking required approvals
• Prepare the Contract Documents
• Award the contract
10
Issue clarification, where
necessary
• Where there is an unclear element in the tender, you
need to seek clarification from the tenderer.
• It is also necessary to deal with any arithmetical
errors.

11
Arithmetical Errors
• In case an arithmetical error is discovered in a
tender, the procedure as required in the bidding
documents should be followed. The tenderer
must be notified.

12
How to deal with Arithmetical
Errors?
• The Tenderer may be given the choice of:
• standing by his original tender
• amending his tender, or
• withdrawing his tender

13
Contracting Process
• Receive tenders and open envelopes
• Issue clarification, where necessary
• Evaluate tenders and select the winning tenderer
• Negotiate with the shortlist of tenderers, or the
winning tenderer
• Seeking required approvals
• Prepare the Contract Documents
• Award the contract
18
Evaluation and Selection
• There are two methods of evaluating
tenders:
• Lower Price

• System of points (weighting system)

19
Lower Price
• This is a two-stage process:
• Stage 1: All the technical proposals are evaluated and either
classified as accepted or rejected. A short list is produced.
• Stage 2: Financial proposals of tenderers with accepted
technical proposals are opened and ranked. The tenderer
offering an acceptable technical proposal against the lowest
cost is awarded the contract.

20
Lower Price
• Example
Tenderer 1 Tenderer 2 Tenderer 3 Tenderer 4
Technically qualified?? P X P P
Financial Offer 5,600,000 5,250,000 6,300,000 5,350,000

RANK 2 3 1

• The selected tenderer is Tenderer 4.

21
Lower Price
• Where the tender is based on a unit price contract, every
item in the BOQ must be tabulated for each tenderer in
preparation for a detailed analysis and comparison of
tenders. These items should be compared to the client’s
estimate.

22
Lower Price
• It possible to breakdown the evaluation process in stages. Two-step is
mentioned above.
• Three-step approach:
• During the first step: all the technical proposals are evaluated and
receive a mark. The proposals with marks above the cut-off mark are
accepted and the others rejected.
• The financial proposals of the bidders with acceptable technical
proposals are compared with the budget (client estimate). The financial
proposals exceeding the budget are rejected.
• The bidder with the best (acceptable) technical proposal within the
budget is awarded the contract.

23
System of Points (Weighting System)
• There are several methods to evaluate the tender using the
system of points or the weighting system. A simple one is covered
here and a more detailed one is covered in the exercise.

24
System of Points (Weighting System)
- Simple Method
• Financial offer of Tenderer 1 = LE 100,000
• Technical Evaluation of Tenderer 1 = 80%
• Financial offer of Tenderer 2 = LE 120,000
• Technical Evaluation of Tenderer 2 = 100%
• Equivalent offer of Tenderer 1=100,000/0.80 = LE 125,000
• Equivalent offer of Tenderer 2=120,000/1.00 = LE 120,000
• Selected Tenderer = Tenderer 2 (lowest equivalent offer)
25
Notes Cont.
• It is not advisable to select the tenderer with the
unreasonably low tender price.
• More likely, he will have cash flow problems. The Employer
might end up terminating his contract and going through
the steps of employing another contractor and disputing
his entitlements from the original contractor. This could
end up with additional costs.
• Furthermore, he might be under-pricing his tender with the
hope of recovering the shortfall by making various claims
after the commencement of the works.
27
Notes
• Where the lowest tender is significantly below all the
others, this may be due to the following:
• Arithmetical errors in the calculation of the tender sum.
• The tenderer may have underpriced an item because he
might have misunderstood the respective requirements.
• The tenderer may have deliberately submitted a very low
tender sum, out of desperation to win.

28
Contracting Process
• Receive tenders and open envelopes
• Issue clarification, where necessary
• Evaluate tenders and select the winning tenderer
• Negotiate with the shortlist of tenderers, or the
winning tenderer
• Seeking required approvals
• Prepare the Contract Documents
• Award the contract
29
Negotiations
• You may need to negotiate with a shortlist of
tenderers or the winning tenderer.
• You may also require presentations or
demonstrations to be made, to get a better
understanding of the tenderers’ proposal.

30
Contracting Process
• Receive tenders and open envelopes
• Issue clarification, where necessary
• Evaluate tenders and select the winning tenderer
• Negotiate with the shortlist of tenderers, or the
winning tenderer
• Seeking required approvals
• Prepare the Contract Documents
• Award the contract
31
Seeking Required Approvals
• The selected tenderer is submitted for approval,
according to the Schedule of Authorities (usually
included in the company’s policies)

32
Schedule of Authorities - Sample
Schedule of Authorities
Procurement Activity Limit Approval Authority
Goods up to EGP 15,000 Head of Department
EGP 15,001 to EGP 500,000 Head of Department + CFO
Head of Department + CFO +
> EGP 500,000 CEO
Services up to EGP 500,000 Head of Department
EGP 500,001 to EGP 10,000,000 Head of Department + CFO
Head of Department + CFO +
> EGP 10,000,000 CEO
Works up to EGP 1,000,000 Head of Department
EGP 1,000,001 to EGP
10,000,000 Head of Department + CFO
Head of Department + CFO +
> EGP 10,000,000 CEO 33
Topic Exercises
 Tender Evaluation – Exercise 1
• Your company owns a resort on the Red Sea. They need to design the Detailed Master
Plan of the resort. You are the Head of the Procurement Department. You are required to
evaluate four tenderers for the design of the Detailed Master Plan on the basis of
technical evaluation (35% weighting) and financial evaluation (65% weighting).
• The below selection criteria are to be used in evaluating the technical offers. Your
company has indicated the relative importance given to each selection criteria by the
weightings shown.
• Score each of the tenderers on each criterion, based on the following data. Select the
most suitable tenderer.
• Scores are based on scale of 0-3 as follows:
0 - Poor
1 - Below Average
2 - Satisfactory
3 - Excellent
35
Tender Evaluation – Exercise 1 Cont.
• Experience in similar projects with similar size
Tenderer 1 has completed one similar project with similar
size last year. Tenderer 2 and 3 have each completed a few
similar projects with similar sizes in recent years. Tenderer
4 has successfully completed a number of similar projects
in recent years.
• Similar experience in Egypt
Tenderers 1, 2 and 4 have experience working in Egypt.
Tenderer 3 has never worked in Egypt before.
• Previous positive experience with the company
Tenderer 1 has successfully designed the Conceptual
Master Plan of another resort owned by the company.
36
Tender Evaluation – Exercise 1 Cont.
• Resource capabilities
Tenderers 1 and 2 have well qualified staff with experience.
Tenderers 3 and 4 have very well qualified and experienced
staff.
• History of delays
Tenderer 1 is known to have delayed the completion of some
projects. Tenderers 2 and 4 are known for completing work on
time. Tenderer 3 is known for usually completing work on time.
• Quality
Tenderers 1 and 2 are known for providing services with
minimum errors. Tenderers 3 and 4 are known for providing
services that are error free and with efficient quality systems.
37
Tender Evaluation – Exercise 1 Cont.
• The financial offers of the tenderers are as follows:
Tenderer 1: EGP 5,600,000
Tenderer 2: EGP 5,350,000
Tenderer 3: EGP 6,300,000
Tenderer 4: EGP 5,750,000

38
 Exercise 1 – Technical Evaluation
Technical Evaluation
Project: Happy Resort Ref #: HR-DMP
Scope of Work: Detailed Master Plan

Tenderer 1 Tenderer 2 Tenderer 3 Tenderer 4

ItemSelection Criteria Weighted Weighted Weighted Weighted

Weight Score Score Score Score
Score Score Score Score

Experience in similar projects

1 9
with similar size
2 Similar experience in Egypt 8
Previous positive experience
3 2
with the company
4 Resource capabilities 3
5 History of delays 5
6 Quality 8

TOTAL WEIGHTED SCORE 35 0 0 0 0

RANK

NOTES
Score based on scale of 0-3 as follows:
0 - Poor
1 - Below Average
2 - Satisfactory
3 - Excellent

Weighted Score = Weight * Score / 3 39

 Exercise 1 – Financial Evaluation
Financial Evaluation

Project: Happy Resort Ref #

Scope of Work: Detailed Master Plan

Tenderer 1 Tenderer 2 Tenderer 3 Tenderer 4

Tender Sum

SCORE

RANK

NOTES

Score = Lowest financial Offer * weighting of financial evaluation / Tenderer financial offer 40
 Exercise 1 – Summary Evaluation
FINAL EVALUATION SUMMARY

Project: Happy Resort Ref #

Scope of Work: Detailed Master Plan

Tenderer 1 Tenderer 2 Tenderer 3 Tenderer 4

Technical Score 0 0 0 0
Financial Score 0 0 0 0

SCORE 0 0 0 0

RANK

NOTES

41
Tender Evaluation – Exercise 2
• Your company owns a project on the North Coast. They need to retain the
services for the infrastructure and road networks engineering services. You are
the Head of the Procurement Department. You are required to evaluate four
tenderers for the infrastructure and road networks engineering services on the
basis of technical evaluation (35% weighting) and financial evaluation (65%
weighting).
• The below selection criteria are to be used in evaluating the technical offers.
Your company has indicated the relative importance given to each selection
criteria by the weightings shown.
• Score each of the tenderers on each criterion, based on the following data.
Select the most suitable tenderer.
• Scores are based on scale of 0-3 as follows:
0 - Poor
1 - Below Average
2 - Satisfactory
3 - Excellent
42
Tender Evaluation – Exercise 2 Cont.
• Experience in similar projects with similar size
Tenderers 1 and 2 have completed a number of similar projects with
similar sizes last year. Tenderer 3 has completed a few similar
projects with similar sizes in recent years. Tenderer 4 has completed
one similar project in recent years.
• References
Tenderers 1 and 4 each have provided references from prior
customers verifying their work experience and compliance with
contractual requirements. Tenderer 2 provided 1 reference. Tenderer
3 did not provide any reference.
• Previous positive experience with the company
Tenderer 2 has successfully provided design services to another
project owned by the company.
43
Tender Evaluation – Exercise 2 Cont.
• Resource capabilities
Tenderers 1 and 3 have well qualified staff with experience.
Tenderers 2 and 4 have very well qualified and experienced
staff.
• History of delays
Tenderer 3 is known to have delayed the completion of some
projects. Tenderers 1 and 4 are known for completing work on
time. Tenderer 2 is known for usually completing work on time.
• Quality
Tenderers 1, 3 and 4 are known for providing services with
minimum errors. Tenderer 2 is known for providing services
that are error free and with efficient quality systems.
44
Tender Evaluation – Exercise 2 Cont.
• The financial offers of the tenderers are as follows:
Tenderer 1: EGP 1,150,000
Tenderer 2: EGP 1,100,000
Tenderer 3: EGP 900,000
Tenderer 4: EGP 1,750,000

45
 Exercise 2 – Technical Evaluation
Technical Evaluation
Project: XXXX Ref #: XXXX
Scope of Work: Infrastructure and road networks engineering services

Tenderer 1 Tenderer 2 Tenderer 3 Tenderer 4

Item Selection Criteria Weighted Weighted Weighted Weighte

Weight Score Score Score Score
Score Score Score d Score

Experience in similar projects with

1 9
similar size
2 References 6
Previous positive experience with the
3 2
company
4 Resource capabilities 5
5 History of delays 5
6 Quality 8

TOTAL WEIGHTED SCORE 35 0 0 0 0

RANK

NOTES
Score based on scale of 0-3 as follows:
0 - Poor
1 - Below Average
2 - Satisfactory
3 - Excellent

Weighted Score = Weight * Score / 3 46

 Exercise 2 – Financial Evaluation
Financial Evaluation

Project: Ref #

Scope of Work:

Tenderer 1 Tenderer 2 Tenderer 3 Tenderer 4

Tender Sum

SCORE

RANK

NOTES

Score = Lowest financial Offer * weighting of financial evaluation / Tenderer financial offer 47
 Exercise 2 – Summary Evaluation
FINAL EVALUATION SUMMARY

Project: Ref #

Scope of Work:

Tenderer 1 Tenderer 2 Tenderer 3 Tenderer 4

Technical Score 0 0 0 0
Financial Score 0 0 0 0

SCORE 0 0 0 0

RANK

NOTES

48
References and Further Reading
• Brook, Martin, Estimating and Tendering for Construction
Work, (3rd Edition, Elsevier Ltd., Great Britain, 2004)
• Fisk, Edward, Construction Project Administration, (5th
Edition, Prentice-Hall, United States of America, 1997)
• MacRoberts, Solicitors, MacRoberts on Scottish Building
Contracts, (2nd Edition, Blackwell Publishing Limited, 2008)
• Murdoch John and Hughes Will, Construction Contracts Law
and management, (4th Edition, Taylor & Francis, London and
New York, 2008)

49