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    Disadvantages of Open Tender

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    ngatodiana
    The document discusses and compares different tendering methods used in construction projects, including their advantages and disadvantages. It describes open tendering, selective tendering, and negotiation tendering. Open tendering risks hiring inexperienced contractors but has more competition, while selective tendering allows choosing competent contractors but has less competition. Negotiation tendering ensures contractor quality but has higher costs than other methods. The document also outlines the typical tendering process and alternative procurement methods used in the construction industry.

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    Disadvantages of Open Tender

    Uploaded by

    ngatodiana
    11 views7 pages
    The document discusses and compares different tendering methods used in construction projects, including their advantages and disadvantages. It describes open tendering, selective tendering, and negotiation tendering. Open tendering risks hiring inexperienced contractors but has more competition, while selective tendering allows choosing competent contractors but has less competition. Negotiation tendering ensures contractor quality but has higher costs than other methods. The document also outlines the typical tendering process and alternative procurement methods used in the construction industry.

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    Disadvantages of open tender

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    The document discusses and compares different tendering methods used in construction projects, including their advantages and disadvantages. It describes open tendering, selective tendering, and negotiation tendering. Open tendering risks hiring inexperienced contractors but has more competition, while selective tendering allows choosing competent contractors but has less competition. Negotiation tendering ensures contractor quality but has higher costs than other methods. The document also outlines the typical tendering process and alternative procurement methods used in the construction industry.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    11 views7 pages

    Disadvantages of Open Tender

    Uploaded by

    ngatodiana
    The document discusses and compares different tendering methods used in construction projects, including their advantages and disadvantages. It describes open tendering, selective tendering, and negotiation tendering. Open tendering risks hiring inexperienced contractors but has more competition, while selective tendering allows choosing competent contractors but has less competition. Negotiation tendering ensures contractor quality but has higher costs than other methods. The document also outlines the typical tendering process and alternative procurement methods used in the construction industry.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
    of 7

    Disadvantages of open tender

    1. Novice contractors- There is the probability of hiring a contractor with no experience as


    this method of tendering attracts bidders.
    2. The time taken for the tendering process is quite long- since several bidders bid, the
    tenders submitted are quite many making it quite time consuming to go through all.
    3. There is unreliable competition since open tendering is the most used tendering method
    making the tendering cost generally high.
    4. Risk of underpricing the tenders due to competition which might result to tenders of low
    quality works with poor quality materials.

    b) Selective tendering
    Selective tendering is an option that has been created to address the limitations of the open tender
    system. This tender seeks to improve the quality of proposals received by ensuring that
    contractors with the necessary experience can submit bids.
    There are two types; -
     single stage selective tendering
    Initially, a limited number of contractors will be selected by the owner. If the employer
    builds regularly, he will also have a short and approved list of contractors unless he can use
    ad hoc lists where the names of the contractors who have proved their abilities and
    competency are mentioned.
     two stage selective tendering
    This is also known as, ‘negotiated tendering’. In this procedure, the employer takes the
    contractor’s service as advice instead of giving him the responsibility for the design. Two-
    stage selective tendering consists of two stages.
    The first stage: This step includes the process of selecting a suitable contractor and
    establishing the price levels using the collected information. Those details should be strong
    enough to make such decisions.
    The second stage: The selected contractors start the production drawings. As a result of this
    stage, they complete the documentation of the contract after making bills to include in it.

    Advantages of selective tendering


    1. The time taken for the tendering procedure is little. Less contractors involved mean less
    time spent on evaluating tender documents and better management of the tendering
    process.
    2. This tendering methods allows for choice of a dependable and competent contractor.
    3. The cost of tendering is lower in this type of tendering. -Less tender documents are
    required to accommodate the participating contractors which lowers the expense fee. This
    method also allows for the consultants to know the exact amount of copies of tender
    documents to print which isn’t the case for open tendering.
    4. Resource utilization is cost effective. - Less contractors involved means less time spent
    on evaluating tender documents and better management of the tendering process.
    5. The tender processing process is simplified and better. -The contractors participating are
    all reputable contractors hence quality of materials and workmanship is standard.

    Disadvantages of selective tendering


    1. There is risk of bias due to less competition. - There is the likely hood of collusion and
    favoritism from the contractors.
    2. The amount of work available to other contractors, particularly new contractors is
    reduced.
    3. Compared to open tendering, the cost of tendering is almost always greater here. The
    price of the project is bound to rise because it is not as competitive as there are lesser
    contractors tendering for the job.

    c) Negotiation tender
    This type of tendering is common in the engineering and construction industry where pre-
    contract and post-contract negotiations take place.
    Negotiation tenders starts with the employer selecting only one contractor due to his reputation
    and ability to perform. The contractor shall then proceed to directly price the Bill of Quantities.
    Upon completing the pricing of the materials, the contractor will enter a negotiation stage with
    the quantity surveyor for the best value for money possible. After the negotiation process,
    consultants will prepare the contract documents and send it to all the parties involved in the
    project. At this point construction can commence.

    Advantages of negotiation tenders


    1. There is quality assurance in this tendering method since a reputable contractor is
    engaged.
    2. The success rate is higher compared to open tenders. - The chance of the contractor
    successfully completing the project is high as the contractor has the experience and
    resources to do so. This cannot be said for open tendering.
    3. Suitable for emergencies as its quick to prepare. - In case of an emergency, engaging a
    contractor is crucial and cannot rely on the long process of an open tendering method
    Disadvantages of negotiation tenders
    1. The cost of the work is likely to be higher - This method prioritizes construction quality
    and time but not cost. It is a method with the highest cost when compared to open
    tendering and selective tendering.
    2. Work for other contractors is reduced, specifically the inexperienced ones.
    3. Negotiation period can take longer than anticipated when the parties don’t settle for a
    price.

    TENDERING PROCESS
    A typical tender process on Kenya involves:
    1. Project definition and scoping
    2. Selection of the method of tendering to be used
    3. Tender documentation
    4. Development of a criteria for selection
    5. Call for tender
    6. Tender briefing meeting
    7. Amendments to the tender document
    8. Submission and closing of tender
    9. Tender analysis
    10. Tender clarification
    11. Tender selection and award

    ALTERNATIVE METHODS OF PROCUREMENT


    Generally, five functions are undertaken in a project; design, building, management, finance and
    operation.
    A procurement system defines scope and the responsibilities of each party: Client, Consultant
    and Contractor.
    Although different procurement methods exist in construction industry, the following factors
    should be considered for the suitable selection of a procurement method for a project:
    - Complexity nature of project
    - Time management
    - Quality Assurance

    The alternative methods of procurement are:


    1. Traditional Method
    Responsibility of a contractor is limited only to build.
    All design works and management of contract are carried out by consultant or engineer.
    Finance and operation on project shall be controlled by the client.
    This method of procurement is recommended for complex and comparatively huge projects.
    2. Design & Build
    As name suggests, the design and build responsibilities are covered by the contractor.
    The consultant’s scope is only limited to management of contract.
    The client is responsible for finance and operation.
    3. Management Contracting
    This method of procurement system is completely different from traditional method and
    design & builds method.
    In addition to the client, consultant and contractor, specialized contractors become
    participants.
    The contractor acts as a manager for the project whereas specialized contractors undertake
    the build aspect on their specialized field.
    Finance and operation is carried out by the client.
    This method will be chosen if there are possibilities to identify projects in packages.
    4. Joint Venture/Partnering
    Many of the problems that existed in construction are attributed to barriers that found
    between parties of contract.
    In other words, to overcome barriers, different parties establishing a working environment
    based on mutual objectives, teamwork, trust and sharing risks and rewards.
    The success of this setup solely depends on memorandum of understanding.
    Identifying responsibilities of each party is bit difficult in joint venture procurement system.
    5. Private Financing Initiative (PFI)
    Contractor is solely responsible for all functions of construction.
    After successful completion, project shall be transferred to owner.
    This is very helpful for clients who do not have a sound financial background.
    This method generally used by governments of developing countries.
    NOTE:
    Generally, it is experienced that traditional method provides more quality assurance in a
    complex project though it consumes more time than other methods.
    Design and build method is suitable for relatively small projects in complexity whereas
    management contracting can be possible if the project is identified in package basis.
    Joint venture is not a very easy procurement method to adopt since it requires a lot of trust
    and mutual understanding.

    CHOICE OF SYSTEM
    The procurement method selection procedure is determined by means of the case project based
    on typical criteria.
    It is determined in the following process:
    1. Identification of project objectives and constrains to project objectives
    2. Identify procurement selection criteria
    3. Weightless of client criteria and procurement method
    4. Procurement appropriateness
    5. Procurement review session
    Factors influencing the selection of procurement systems in the construction industry
    External environment
    Factors from the external environment consist of variables like market competition, information
    technology, regulatory environment, natural causes and globalization, politics, finance etc.
    Internal environment:
    This can be divided under three main factors such as project characteristics, client’s
    characteristics and client’s requirements which can be sub-divided into cost related factors, time
    related factors and quality related factors.
    Socio–economic thought:
    It is derived from the four factors: political thought, government (public) or private segment
    venture, market or monetary condition and developing innovation.
    Client requirements:
    This factor incorporates: customer's particular prerequisites, political obstructions, globalization
    and customer's level of information.
    Capital cost/cash flow:
    This factor clarifies the total variation. It is hard to clarify this component, since just a single
    variable impacts upon it - customer and fee related variable. If this component measures capital
    cost, it is identified with factors of customer necessities variables.
    Project characteristics:
    This factor is obtained from variance that clarifies the total fluctuation. In particular, impact of
    the life cycle on venture, range and technical complexity of the venture.
    Time:
    Price competition:
    Responsibility:
    COMPETITION IN CONSTRUCTION MARKETS
    In the construction markets there exists different types of competition.
    This develops the context of the marketing role by examining different market types.
    This has a direct bearing on the tactics used in the marketplace and helps to show the likely
    reaction of competitors to any moves a firm may make.
    In order to understand the precise relationship between output, revenue and price, a firm has to
    know the structure of the market or industry into which it is selling its product.

    TYPES OF MARKETS
    a) Perfect Competition
    The perfectly competitive market acts as a benchmark from which other market situations can be
    judged.
    Here both buyers and sellers correctly assume that they cannot affect market price.
    Characteristics of a Perfect competition
    1. The product sold by firms in the industry is homogeneous. - This means that the product sold
    by each firm in the industry is a perfect substitute for the product sold by every other firm. In
    other words, buyers are able to choose a product from a large number of sellers in the knowledge
    that it is essentially the same.
    2. Any firm can enter or exit the industry without serious impediments. - Resources must also be
    able to move in and out of the industry without, for example, government legislation preventing
    any resource mobility.
    3. There must be a large number of buyers and sellers. - When this is the case, no single buyer or
    seller has any significant influence on price. Large numbers of buyers and sellers also means that
    they will be acting independently.
    b) Imperfect Competition
    The clients and contractors have to take into account how their individual actions will affect the
    market price.

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