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CHAPTER 2 STANDARD PROCEDURES FOR PROCUREMENT

2.1 Introduction

When goods, works or services are procured, a clear procedure has to be followed to

minimize the errors and maximize the benefits. Over the years these procedures have

been evolved and Standard Procurement Procedures are available to provide

consistency to the process.

Application of Standard Procurement Procedures is necessary for a systematic

approach for tendering and awarding of contract for construction projects. It should

assist the Employer to receive sound competitive tenders in accordance with the

tender documents so that they can be assessed quickly and efficiently. At the same

time it should provide the opportunity and incentive to contractors to respond easily

^ to tender for projects which they are qualified to implement. It is expected that the

adoption of standard procurement procedures will minimize tendering costs and

ensure that all tenderers receive a fair and equal opportunity to submit their offers on

a reasonable and comparable basis.

In-the case of projects involving either international or local tendering (large and

complex in nature), prequalification is desirable, since it enables the employer to

establish the competence of companies subsequently invited to tender. It is also in

the interest of contractors, since, if prequalified, they will know that they are

competing with a limited number of other firms, all of whom possess the required

competence and capability.

A good standard procurement procedure should facilitate flexibility and alternative

courses of action that may have to be considered according to circumstances.

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2.2 Available Standard Procurement Procedures

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Apart from the Sri Lanka Government Financial Regulations (Ministry of Finance

1992), there are published standard tender procedures available for Client's use for

selecting contractors for construction projects. This research studied the following

standard procedures in detail so that these can be compared with the Sri Lanka

Government Financial Regulations.

1. Guidelines for Tender Procedures - Sri Lanka (ICTAD 1990)

2. FIDIC Tendering Procedure (FIDIC 1994)

3. Code of Procedure for Single Stage Selective Tendering (NJCC 1977)

4. Code of Procedure for Two Stage Selective Tendering (NJCC 1983)

It is not the intention of this report to provide a detailed description of the

procedures. The essence of the procedures have been considered when the standard

procedures were established as given in 2.3.

2.2.1 Guidelines for Tender Procedures - Sri Lanka (ICTAD 1990)

These guidelines have been prepared for the use of Employers who wish to procure

supplies and services through competitive tender procedures. Whilst safeguarding

the interests of the Employer, the procedures outlined also provide for an impartial

evaluation of the tenders so as to create confidence amongst the tenderers to enable

them to prepare realistic tenders. Though the guidelines are specially designed for

procedures to be adopted for large scale contracts, they could, however, be the basis

for procedures for small contracts too.

2.2.2 FIDIC Tendering Procedure (FIDIC 1994)

FIDIC is the International Federation of Consulting Engineers comprising of

National Associations whose members comply with FIDIC's code of Ethics.

The procedure is suitable for tendering for most international construction works, but

it may be adapted to suit the particular requirements occasioned by the size and

complexity of a. project, and any special condition imposed by the established

procedures of the employer or financing institutions. It reflects good current practice.

The procedure is related to FIDIC's "Conditions of Contract for works of Civil

Engineering Construction", but can be readily adapted to any acceptable contract

form.

FIDIC believes that the second edition provides a comprehensive and complete

procedure, compatible with other recognised tendering procedures, which will

encourage and enhance the ultimate objective of receiving responsive and

competitive tenders.

2.2.3 Code of Procedure for Single Stage Selective Tendering (NJCC 1977)

This code assumes the use of standard forms of building contract. The Contractor's

tender is the price for which he offers to carry out and complete, in accordance with

the conditions of the contract, the work shown on the drawings and described in the

bills of quantities and/or specifications.

This tendering procedure demands that the Contractor's Tendered Price should not be

altered without justification. The code lays down alternative methods of dealing with

errors or discrepancies between prices and the tender figures.

2.2.4 Code of Procedure for Two Stage Selective Tendering (NJCC 1983) /

This code assumes the use of a standard form of building contract, which would be

entered into, following the successful completion of the second stage procedures.

The purpose of this code is to set out procedures for the selection of a contractor by

means of a first stage competitive tender based on pricing documents related to

preliminary design information, and which provides a level of pricing for subsequent

negotiations, the production of a second stage tender by pricing, in accordance with

the first stage tender, bills of quantities reflecting the completed design.

2.3 Standard Procedures For Procurement

After a thorough study of the available procurement procedures the following six

stages have been identified as the necessary activities to formulate a standard

procurement procedure.

Stage 1 - Project Strategy

Stage 2 - Prequalification of Tenderers

Stage 3 - Obtaining Tenders

Stage 4 - Opening of Tenders

Stage 5 - Evaluation of Tenders

Stage 6 - Award of Contract

Under each stage the procedures given in the above procurement documents were

analysed and a common standard procedure was established.

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2.3.1 Project Strategy

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This involves Establishment of Procurement Method, Form of Tendering and

Preparation of Programmes.

Projects may be organized and implemented in accordance with different strategies.

A brief description of some of these is given in Table 1 .

Choosing the best strategy for a particular project depends on factors such as the

nature and complexity of the project, the access to finance, life cycle cost of the

project, the technical and administrative capability of the employer, the general

political and economic environment etc.

Primarily the procurement method depends on the client's requirement and the

Contractor's proposal.

The available procurement methods are

(a) Traditional Procurement System

(b) Design and Build Contracts (Package deal or Turnkey Contracts)

(c) Management Contracting

(d) Construction Management

When choosing the appropriate procurement methods, strengths and weaknesses

of both the client and the contractor to be assessed and the involvement of both

parties should be considered.

TABLE 1 - IMPLEMENTATION MODELS O F CONSTRUCTION P R O J E C T S

IMPLEMENTATION MODEL

REFERENCE TENDERING BASIS EMPLOYER'S/ENGINEER'S ROLE IN TENDER PHASE

TENDERER'S ROLE IN TENDER PHASE

EMPLOYER'S/ENGINEER'S ROLE IN EVALUATION PHASE

AWARD CRITERION

BUILD "BDD" Detailed design • Prepare tender documents incl. detailed design, specification and schedules of costs/bills of quantities.

• Submit tender price foi construction based on schedules of costs/bills of quantities prepaied from die detailed design.

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o Evaluate incoming tenders based on the tender evaluation criteria.

• Lowest evaluated price.

BUILD "BPD" Preliminary design " Prepare tender documents incl. preliminary design, specification and. bills of quantities.

o Submit tender price for construction based on bills of quantities prepared fiom estimated quantities fiom the preliminary design.

* Evaluate incoming tenders based on the tendet evaluation criteria. -

• Lowest evaluated price.

DESIGN AMD BUILD

"DB" Peiformance requirements

* Prepare tender documents incl. conceptual design, performance requirements, specification and schedules of costs.

o Submit preliminary' design and tender price for construction.

• Evaluate incoming tenders based on the tender evaluation criteria.

• Economically or financially most advantageous offer.

DESIGN, BUILD, OPERATE AND TRANSFER

DESIGN, BUILD AND OPERATE

"DBOT"

"DBO"

Outline of the project and performance requirements

Outline requirements and output requirements

• Prepare tender documents incl. conceptual design, performance requirements, specification, and schedules of costs.

• Prepare tender documents, performanc e requireinents, specification and schedules of cost per unit of output.

• Submit preliminary design and tender price for construction, operation and maintenance, and transfer.

• Submit conceptual design and cost per unit of output.

• Evaluate incoming tenders based on the tendet evaluation criteria

• Evaluate incoming tenders based on the tender evaluation criteria.

• Economically or financially most advantageous offer.

• Lowest evaluated price per unit of output.

Reference : FIDIC Tendering Procedure 1992.

Some important criteria to be considered for the selection of best Procurement for

a particular project is given below :

(a) Client's involvement with the process of Construction

(b) Complexity of the Project

(c) Separation of design from management

(d) Reserving the client's rights to alter the specifications

(e) Speed from inception to completion

(f) Certainty of price

(g) Client's contractual remedies for defective work.

( Murdoch and Hughes, 1992)

Forms of Tendering are to be established by determining the following.

(i) The part of the project for which tenders are to be sought,

(ii) The conditions of contract to be adopted,

(iii) The award criteria,

(iv) The tendering procedure, and

(v) The criteria which shall be used to prequalify tenderers.

Normally a preliminary overall programme covering all major activities of the

project should be prepared at the initial stage of the project. It should comprise the

main phases of the project, ie.

Project definition

tendering procedure

design

construction

taking-over

In order to ensure this compliance, details programmes should be made with

durations and deadlines for each activity. That is;

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Preparation of tender documents

Preparation of prequalification documents

Prequalification of tenderers

Obtaining tenders

opening of tenders

evaluation of tenders

award of contract

Time should be given in each programme for the employer to make necessary

decisions and give required approvals.

2.3.2 Prequalification of Tenderers

The aim of prequalification is to establish a list of capable firms whilst ensuring that

a proper level of competition is safeguarded.

Prequalification documents should normally include the following :

(a). Letter of invitation to prequalify,

(b). Information about the prequalification procedure,

(c). Project information and

(d). Prequalification application.

The prequalification application should contain;

Name and Address of the Employer,

Name and Address of the Engineer,

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Location of the project,

Description of the project and scope of work included in the contract,

Anticipated program, including the tender period, contract award date,

designs/constructions/commissioning period and any other relevant key dates,

Conditions of Contract to be used,

Criteria for evaluation of tenders,

Criteria for prequalification,

Details of any work intended to be undertaken by nominated subcontractor(s),

Anticipated sources of finance (including any requirement for contractor

financing),

Payment arrangements envisaged (including currencies),

Any financial guarantees to be given by contractor,

Whether price escalation arrangement will be included,

Language and law of the contract,

Any aspect of the intended work which is unusual and would thus have a'

bearing on the contractor's obligations, and

Charges for purchase of tender documents, if applicable.

(FIDIC 1994)

Standard prequalification forms are available in FIDIC (1994) and ICTAD (1990).

The prequalification notice should be published in appropriate newspapers and

journals to give sufficient publicity according to the particular circumstances of the

project.

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According to FIDIC (1994) evaluation of prequalification should consider the

following:

- Structure and organization of the company

- Experience in both the type of work and the country or region in which it is to

be undertaken.

Available resources, in terms of management capability, technical staff,

construction facilities, maintenance and training facilities, or other relevant

factors.

Quality assurance procedures and environmental policy

Extent to which any work would be likely to be subcontracted.

Financial stability and resources necessary to execute the project.

General suitability, taking into account any potential language difficulties

Litigation or arbitration history

If the resulting list, after excluding the unsuitable firms exceeds six potential

tenderers and there are no special regulations or conditions imposed on the employer,

the elimination starting from less qualified should be continued in order to arrive at

no more than six. (FIDIC 1994)

Selected tenderers should be notified and requested to confirm their intention to

submit a tender. (FIDIC 1994)

Instead of prequalification a short list of suitable contractors (Tenderers) could be

drawn up from the employers approved list of contractors or from an ad-hoc list of

contractors of established skill, integrity, responsibility and proven competence in

carrying out similar type of works.

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The. number of tenderers to be invited should depend on the cost of the project. This

number varies from 5 to 8. Additional one or two should be added in order to replace

any tenderers who do not accept the preliminary invitation. (JNCC 1977).

Format of the invitation to tender and form of tender should be sent to the selected

.tenderers. The conditions of tendering should be absolutely clear so that all tenders

are submitted on the same basis. It is recommended to use the standard forms of

building contract-in uriammended form. (NJCC 1977)

Pre-qualification is normally advisable for large or complex contracts to ensure that

invitations to tender are confined to capable organizations. In the case of small scale

contracts, special pre-qualification procedure may not be necessary. In such cases

post qualification procedure may be adopted in order to ensure successful execution

and completion of the work.

For all types of contracts, tenders may be restricted to contractors who are registered

with government organizations or other institutions under the Scheme of National

Registration and Grading of Construction Contractors developed by Institute for

Construction Training and Development (ICTAD) for works of similar nature. The

Evaluation Report should be submitted within the shortest possible period. (ICTAD

1990)

2.3.3 Invitation to Tender and Obtaining Tenders

The tender documents which are prepared by the employer/engineer should normally

include the following:

Letter of invitation to tender,

Instructions to tenderers,

Tender forms and appendices,

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Conditions of contract (Part I and II) together with any requisite

forms,

Specification,

Drawings,

Preamble to BOQ

Bill of quantities or schedule of prices,

Information data, and

List of additional information required from tenderers.

Letter of invitation to tender should include

Tender reference and title,

List of documents issued,

Receipt form for the tender documents (to be signed and returned by the

tenderers),

Instructions to inform the employer/engineer, in writing, of any significant

changes to the data supplied in the pre-qualification application, and

Date and place of tender submission and tender opening.

Tenderers should be informed of whether alternative tenders will be considered or

not. If a tender security is required, a form should be included in the tender

documents. It is recommended that the period of validity of the security (Bond) shall

equal the period of validity of the tender plus the time allowed for the tenderer to

provide his performance security under the terms of the eventual 'contract between

the contractor and the employer.

If a specific method of evaluation is to be used in selecting the successful tender, the

method should be described in the instructions to tenderers. (FIDIC 1994).

Tenders shall be submitted in duplicate (or in such number as the instructions to

the Tenders may indicated), on the approved Form of Tender. Each set of tender 18

C0c2g£ SeT R e l a t e s . § QoCeO

document should be enclosed in a separate envelope/package, sealed and

addressed to specified authority.

Tenders should normally close at the time and date specified in the tender notice

unless an extension of time has been granted by the Employer. Any tender

received later than the closing time should be rejected. Such rejected tenders shall

be returned unopened to the tenderers.

The tenderers or their representatives should be allowed to be present when the

tenders are open, and it should be so indicated in the Tender Notice or Instructions

to Tenderers.

Time allowed for the preparation of tenders should be determined in relation to the

size and complexity of the job.

Tenders submitted by each tenderer, should be based on identical tender documents.

If it is decided to amend the documents, the issuing authority or consultant should

inform all tenderers and extend the time for tendering if necessary (NJCC 1977).

Tenders are invited by publishing notices in the three languages in approved

Newspapers. The notice calling for tenders shall be of a standard form.

For major works or works of a specialized nature, tenders shall be invited only from

contractors pre-qualified for the project. Pre-qualified contractors will be invited in

writing to tender for the project. (ICTAD 1990)

2.3.4 Opening of Tenders

Date and time should be fixed for the official opening.

Check and display the sealed conditions of each tenderprior to its being opened.

As each tender envelope is opened, the following should be announced.

Tenderer's name

Tender price

Price of alternative tenders if appropriate

Tender security

Thereafter names of any tenderers disqualified should be announced with reasons.

Opening of tenders may be carried out in one of the following two ways which ever

is appropriate.

in public - The date, time and place of opening should be advertised in the press and notified to tenderers.

restricted - In the presence of those tenderers wishing to attend, all

having been informed of the date, time and place of the

opening. (FIDIC 1994)

Tenders should be opened as soon as possible after the time for receipt of tenders.

The lowest 3 tenderers should be asked to submit their priced BOQQ as soon as

possible and in any case within 4 working days in the case of two stage tendering .

All the others should be informed that their tenders have been unsuccessful. (JNCC

1977)

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2.3.5 Evaluation of Tenders

A committee should be appointed by the Chairman of the Tender Board or by the

Specific Authority for the Evaluation of tenders received.

On large projects, the committee shall consist of not less than three persons

knowledgeable on the Works. On small works, the committee may be less than

three persons with at least one member having necessary technical knowledge. In

the case of small .works, the committee may even be a single individual.

If a Consultant for the project is available, copies of one set of tender documents

should be forwarded by the Chairman of the Tender Board or Specific Authority for

the Consultant's Evaluation Report. (ICTAD 1990)

Tenders should be checked to establish that they are arithmetically correct, are

responsive without errors and omissions and consistent with the invitation to tender.

Tenders containing deviations are dealt with as given in the instructions.

Generally, evaluation of tenders consists of the following three components;

Technical evaluation

Financial evaluation

General contractual and administrative evaluation

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p

2.3.5.ITechnical Evaluation

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Technical Evaluation may include

. conformity with specifications and drawings

comparison of any proposed alternatives (if allowable) with the

requirements of the tender documents,

design aspects for which the contractor is responsible

v - methods of construction and temporary works

environmental considerations

quality assurance

programme

(FIDIC 1994)

2.3.5.2Financial Evaluation

Financial Evaluation may include

capital cost

discounted cash flow and nett present value

programme of payments

currencies

Af - securities

interest rates

down payments/retentions

day work rates

contract price adjustment proposals

(FIDIC 1994)

2.3.5.3 General Contractual and Administrative Evaluation

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General Contractual and Administrative Evaluation may include

conformity with instructions to tenderers

completeness of tenders

validity of tenders

exclusions and deviations - stated or implied

insurance

experience of proposed key staff

shipping, customs, transport, etc.

working hours

labour build-up, run-down and source

(FIDIC 1994)

2.3.5.4Rejection of Tenders

In the event of rejection of all tenders, the tenderers should be advised of the reason.

If new tenders are to be invited, the causes leading to the rejection should be

carefully reviewed.

Tenders should not be rejected and completely new tenders invited against the

original tender documents for the express purpose of obtaining lower prices.

Rejection of all tenderers is justified when

tenderers are not substantially responsive to the tender document

too few tenders are received to ensure competition. (FIDIC 1994)

If negotiation fails as indicated in 2.3.5.6

2.3.5.5 Correction of Tenders

Examination of priced BOQQ should be done by the Consultant or the Appointed

Committee. Any errors will be dealt with using the following two alternatives.

Alternative 1

The lowest Tenderer should be given details of such errors and afforded an

opportunity of confirming or withdrawing his offer. If the Tenderer withdraw, the

priced bill(s) of the second lowest should be examined, and if necessary this tenderer

be given a similar opportunity.

If the tenderer confirms the tender; an endorsement should be added to the priced

bill(s) indicating that all rates or prices (excluding preliminary items, contingencies,

prime cost and provisional sums) inserted therein by the Tenderer are to be

considered as reduced or increased in the same proportion as the corrected total of

priced items exceeds or falls short of such items. This endorsement should be signed

by both parties to the contract.

Alternative 2

The lowest Tenderer should be given an opportunity of confirming his offer or of

amending it to correct genuine errors. For this purpose, genuine errors are defined as;

(i) discrepancy between the amount in figures and in words (ii) discrepancy between

unit rates and line item total. Should he elect to amend his offer and the revised

tender is no longer the lowest, the offer of the firm now lowest in the competition

should be examined.

If the Tenderer elects not to amend his offer, an endorsement will be required as

earlier in Alternative 1. If the Tenderer does amend his tender figure, and possibly 24

certain of the rates, in his bill(s), he should either be allowed access to his original

tender to insert the correct details and to initial them or be required to confirm all the

alterations in a letter. If in the latter case his revised tender is eventually accepted,

the letter should be conjoined with the acceptance and the amended tender figure and

the rates in it substituted for those in the original tender.

2.3.5.6 Negotiated reduction of tender

If the tender price exceeds the employer's budget the recommended procedure is for

a price to be negotiated with the lowest qualified tenderer. The basis of negotiation

and any agreements made should be fully documented. If these negotiations fail then

the employer should proceed negotiations with the next lowest and then with the

third lowest. If all these negotiations fail, new tenders may be called for. (NJCC

1977)

2.3.6 Award of Contract

The Contract-should be awarded to the tenderer submitting the lowest evaluated

responsive tender and must be made during the period of tender validity or any

extension thereto accepted by the tenderers.

Before the signing of Agreements, the construction programme, variation of work

items or additional works necessary and such other details may be fully discussed

and understanding should be reached. Method of Construction, Construction

Programmes, Cash flow Statements and other details submitted by the successful

tenderer may need adjustments or amendments in order to meet the Employer's

requirements. These matters need to be fully discussed, negotiated and finalized

before formal acceptance of the tender. All Agreements reached on these matters

should be incorporated into a "Memorandum of Understanding" (MOU), and

included in the documents forming part of the Agreement. (ICTAD 1990)

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The performance security should be furnished before the expiry of the validity period

of the tender.

Contract Agreement should include the following documents

Letter of Acceptance and M O U

Letter of Intent (If applicable)

The tender

Conditions of Contract

Specification

Drawings

B O Q

(FIDIC 1994)

and such other documents that are intended to form the contract.

Upon the furnishing of the performance security by the successful tenderer

Employer/Engineer should promptly notify the other tenderers in writing that their

tenders have been unsuccessful. At the same time arrangements have to be made to

return securities provided by the unsuccessful tenderers. (FIDIC 1994)

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