DTU

FACULITY OF TECHNOLOGY
Dept. Civil Eng.
CENG- 5202 :CONTRACT,
SPECIFICATION AND QUANTITY
SURVEY

CHAPTER 1
COSTRUCTION PROCUREMENT AND CONTRACT

YITAYAL TS.
 CONTENT
S
 Procurement and Contract

 Stages in Construction

 Introduction to procurement

 Types of Procurement

 Procurement and Contract Management

 Procurement and Contract Delivery System

 Procurement Management

 Procurement Preparation

 Tendering

 Tender Evaluation

 Tender Evaluation Report

1.1. Stages in Construction
 The following are the common formal stages for a
construction project:
Inception Planning &
Tendering Stage
& Design Stage
Feasibility

Construction Award of Contract Bid Evaluation

Commissioning
& Acceptance

3
1.1. Stages in Construction
i. Inception and feasibility
 At this stage the owner puts his visions and wishes and with this as

the starting point, the various groups (professionals) try to

conceptualize the project and prepare a conceptual design.
 At this stage the owner will heir a consultant to formally design and

develop the concept into a practicable project.

ii. Planning and Design stage
 Planning is a function of devising the cause for future with a vision,

formulated for the future state of the organization or project.

 At this stage the consultant plans and designs the project based on

the owner’s requirement and the possible constraints.

4
1.1. Stages in Construction
iii. Tendering Stage
 At this stage contractors are invited to offer their best technical and

financial offers as per the conditions and specifications depicted in

the contract documents.
iv. Bid Evaluation / Evaluation of Tenders
 The bids are evaluated based on:

 Compliance with the contractual terms and conditions,

 Correction of bid prices,
 Detailed analysis.

5
1.1. Stages in Construction
v. Award of Contract
 After the negotiations have been successful, the contract will
be awarded to the successful contractor.
 The formal Steps might include:

 Write a letter of acceptance

 Write the letter to proceed with the works
 Performance bond: 10% a guarantee that he will do the job as
per agreed
 There are different methods & types of construction contracts. The

owner generally makes the selection.

 The type selected depends on the kind of work being performed

and
the conditions under which it is being performed.
6
1.1. Stages in Construction
vi. Construction
 Here is where the actual execution of the works takes place as per

scheduled.
vii. Commissioning and Acceptance
 Commissioning is a process where by the contractor makes sure that

all installed mechanical or electrical parts are operational.

 Acceptance has two stages:
 Provisional acceptance: the client accepts the completed works on
provisional basis for a period one year. During this period all
payments except the retention money are paid.
 Final acceptance: At this stage the owner completely accepts the
works executed and the retention money is released to the contractor.

7
1.1. Stages in Construction
Cont.…

8
1.2. Introduction to Procurement
 Construction Industry involves procurement and contract

management systems in order to ensure fair competition and

distributions of obligations and rights among stakeholders.
 Competition helps:

 The Project Owners’ -acquire the five rights

(Counterpart, Cost, Time, Quality and Quantity)
 The Project Financiers’ & Regulators’ -
value market principles and effective utilization of
finance, and
 The Project Providers’ - get impartial & neutral
Opportunity for business.
 Procurement is a process used to select the lowest competitive and

qualified bidder for procuring services, works or goods from

potential competitors based on reasonable & relevant criteria.
9
1.2. Introduction to Procurement
 Procurement can also be expressed as a method used to employ or

buy services or works or goods for the value (in the form of money)
which includes reasonable profit.
 An effective and efficient procurement method ensures the following

rights called the "Five Rights".

 The Right Quality,
 The Right Quantity,
 The Right Cost / Price /,
 The Right Counterpart and
 The Right
Time.
 The Right Quality
 Right Quality is always based on two major factors. These are the

technical expectation and the economic consideration, i.e.; Price &

Availability.
10
1.2. Introduction to Procurement
The Right Quantity
 The quantity should be computed carefully and included in the BOQ

correctly.
 If the quantity is found mistakenly small :

 Project Budgeting will be affected due to less quantities

 Construction planning will be affected and cause under stocking
 Tenderers can manipulate their offer due to it
 Overzealous contract administration is caused, and
 Contractor cash flow will be affected.
 On the other hand if the quantity is mistakenly more, it will cause

high stocking, more storing places and risk of spoilage; unhealthy

practices due to over budget provisions; and manipulation in
tendering.

11
1.2. Introduction to Procurement
Cont.
TheTendering
 Right Cost/ Price with negotiation and market intelligence
together only way that ensures the right cost and
accomplishing
techniques the
is task successfully.
the
 Competition is the bases for determining the Right Cost or Price.
The Right Counter Parts
 This is to guarantee that the parties agreeing to accomplish the task

shall be fit to the job.

The Right time
 The right time for the provision of resources and accomplishment

of obligations of each party shall be set and agreed.

12
1.3.Types of Procurement
 Procurement types can be classified based on the things to
be procured and the way how they are procured.
 There are six bases for classifying procurement methods. These are:

13
 1.3.Types of Procurement Cont…
A. Things to be Procured: Goods, Services, or Works
 A-1. Procurement of Goods: Physical resources like Materials

and
Equipments are made available using Procurement of Goods.
 A-2. Procurement of Services: In the construction Industry

procurement of services are often termed as consultancy services

 These include serviceslike
procurement. Pre-feasibility and
studies, Feasibility Design and
Construction Management
Contract Consultancy Services,
Administration of Research or
projects,
Study based Consultancy Services, etc.
 A-3. Procurement of Works: In the CI procurement of works mean

the procurement of contractors to carryout the actual physical

infrastructures.

14
1.3.Types of Procurement
B. Bidders’ Coverage: Competitive Vs. Negotiated
Tendering
 B – 1.Competitive Tendering:
 Used for the selection of better and capable winning bidder among
the various eligible firms.
 Competitive bidding can either be Open or Limited
Competitive Bidding in the form for their invitations.
 B – 1.1 - Open Tendering – all eligible bidders are allowed.
 Consumes time for tendering and bid –evaluation
 Might result in incompetent bidder
 Results in better cost

15
1.3.Types of Procurement
B. Bidders’ Coverage: Competitive Vs. Negotiated
Tendering
 Advantages of Open Tendering
 It allows all interested contractors to compete on equal grounds
and potentially strong new contractors may appear in the
competition.
 It gives the opportunity for local authorities to demonstrate the
best bargain possible for public and government money and
assures fairness in selecting contractors.
 It helps to prevent contractors from forming rings i.e. agreeing on
offers to be submitted to the owner due to the long list of
contractors and may not know each other.
 The owner may obtain the least possible construction cost
estimates due to the tight price competition among long list of
contractors. 16
 1.3.Types of Procurement

B. Bidders’ Coverage: Competitive Vs. Negotiated

Tendering
 Disadvantages of Open Tendering
 Due to the long list of contractors, tender evaluation will take
longer time incurring additional overhead costs to the owner.
 Public accountability may be questioned, if the lowest offer is not
accepted during the financial evaluation of tenders.
 Contractors with ill-equipped management may submit the
lowest offer and inevitably the contract can drag out causing delay
and incurring additional cost to the owner.
 If the submitted tender price is too low and the contractor is losing
money, then the contractor may try to reduce the quality of works.
 It is also very normal that qualified and experienced contractors
may not participate in the tender knowing that the competition
will be very tight. 17
 1.3.Types of Procurement
B. Bidders’ Coverage: Competitive Vs. Negotiated
Tendering
B–1.2 - Limited Tendering / Selective Tendering
 Only those passing a certain qualification criteria are allowed.

 Applicable when the project is urgent or unique.

 Avoids the rejection of Bids which are non – responsive for technical

evaluations.
 The short list of contractors is usually prepared based on
different criteria such as:
 Contractor’s previous reputation in business,
 Financial standing,
 Available resources especially of machineries and manpower,
 Normal conduct of business i.e. the specialization of the contractor,
 Attitude on contractual claims, and others.
18
1.3.Types of Procurement

B. Bidders’ Coverage: Competitive Vs. Negotiated

Tendering
B–1.2 - Limited Tendering / Selective Tendering
 The selective tendering has the following advantages to the project

owner:
 Competent contractors are participating in the tender and it is fair
to select the contractor with the lowest offer.
 It reduces the time and overhead cost of tender evaluation and
facilitate the early commencement and completion of the project.
 It results in less abortive tenders and, hence, a
reduction of tendering cost and waste in the construction
industry.
 Enable competing contractors to include an adequate
level of profit which helps to give stability to the construction
industry 19
 1.3.Types of Procurement
B–1.2 - Limited Tendering / Selective Tendering

 The selective tendering has also the following disadvantages to the

owner
 Tender prices are inevitably higher than would have been under
open tendering due to the limited number of competing contractors.
 Contractors who are not interested in the tender may submit high
prices rather than withdrawing from the tender not to remove their
names in the subsequent tender lists.
 There is a great chance of forming rings among contractors unless
the composition of the list of contractors is variable for each tender.
 Care shall be taken to ensure no favoritism in inclusion and
exclusion of contractors from the short list especially in public and
governmental projects.

20
1.3.Types of Procurement
Cont…
B. Bidders’ Coverage: Competitive Vs. Negotiated
Tendering
B–2. Negotiated Tendering
 Negotiated contracts are made particularly when the contactor has

special skills to undertake particular work which require a high

degree of technical competence or is capable of completing the works
within a required time period.
 Direct appointment of an eligible firm
 Exceptionally exercised
 Applicable when the project requires special skill and is very
urgent
 The offer might be higher than the norm

21
1.3.Types of Procurement

B. Bidders’ Coverage: Competitive Vs. Negotiated

Tendering
B–2. Negotiated Tendering
 The advantages of negotiation tendering are:

 The contractor can participate starting from design stage

contributing his experience for a better quality and performance
of works.
 It allows early commencement and completion of projects with a
better understanding of the contracting parties.
 Client’s tendering costs are substantially reduced owing to the
production of minimal tendering information.
 All the important points of the construction project (e.g.
construction programme, method and procedure) are discussed
during the negotiation and this effects the rational price.
22
 1.3.Types of Procurement

B. Bidders’ Coverage: Competitive Vs. Negotiated

Tendering
B–2. Negotiated Tendering
 The disadvantages of negotiation tendering are:

 Contractors will offer higher tender prices.

 Client obtains an offer which is not truly competitive and does
not reflect what the construction market can bear.
 There may exist legal implications of joint design
when the negotiation results in design and production overlap.
 Contactor experiences difficulty in estimating on
outline information.
 It may not satisfy the requirements of public accountability in
construction projects for public sector clients.
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 1.3.Types of Procurement
C. Geographical Coverage: International Vs Regional Vs National Vs
Local Tendering
 Based on geographical coverage: i.e. International,
Regional, National and Local Tendering.
 Such types of procurements are generally caused by three
major factors.
 Local Capacity – lack of local capacity,
 Financial Sources – depending on financial source and,
 Globalization – free tread policy (WTO)
 In Practice - Preference Margins – Up to 10% margins might
be used to encourage local firms.

24
 1.3.Types of Procurement
D. Procurement Awareness: General and Specific Tendering
 To enhance proof of competition and increase accessibility, projects

are recommended to create awareness starting from its initiation.

 This approach is very helpful for:

I. The Project Owners to:

• identify interested bidders to issue Invitations by letters and
save time;
• identify bidders relevant for the procurement required; and
• protect loss of cost in preparing lots of tender documents.
II. The Bidders to:
 give sufficient time to assess the cost of the project;
 protect loss of cost only to participate; and
 encourage competent bidders
25
 1.3.Types of Procurement
D. Procurement Awareness: General and Specific Tendering
 Specific Procurement Notice (SPN) is an Invitation for Tender or a

Request for Proposal when the project is ready for implementation.

 SPN can be sent to those interested bidders identified following

GPN directly. Otherwise, it should be advertised on the bases of

enlarging opportunities.

26
 1.3.Types of Procurement
E. Procurement Steps:
 They are related with whether tender packaging for submission

separately and their evaluations are staged for a single or two steps
when invitations are made.
E-1 Single or Two Staged Tendering:
 Single: Bidders submit single proposal and the evaluation is carried

out on the same.

 Two Staged: When the bidders submit separate proposals and the

evaluation will be carried out separately, usually financial then

technical.

27
 1.3.Types of Procurement
E. Procurement Steps:
E-2 Pre or Post-Qualification Tendering:
Pre-Qualification
 Prequalification is an internationally accepted practice
in procurement management.
 It would normally be required for civil works contract of which its

nature and cost is large and complex.

 It is a procedure in which eligible bidders are invited to provide

evidence of their ability to perform the services required by the

employer.
 Prequalification is desirable because it enables the Employer to

establish the competence of companies subsequently evaluated.

28
1.3.Types of Procurement
E. Procurement Steps:
E-2 Pre or Post-Qualification Tendering:
Pre-Qualification
 Pre - qualification can be of two types:

1.During licensing requirements which entitled them for a single stage

tendering process. Tender evaluation criteria become the low priced
bid.
2.The Second is when two staged tendering is used to pre-qualify
tenderers’ for their technical competency. Then either
 The lowest priced bidder or
 The top evaluated bidder based on the weighted average of the
technical and the lowest bidder for financial scores will be
recommended for award.

29
 1.3.Types of Procurement
E. Procurement Steps:
E-2 Pre or Post-Qualification Tendering:
Pre-Qualification
 Pre - qualification should be based entirely on the ability of
the bidder to carry out the required works satisfactory.
 The following criteria are often used in determining this ability of the

bidder;
 Experience and past performance,
 Health, Safety and Environment Records, if any,
 Capability in respect of personnel and equipment,
 Organizational arrangement and facilities,
 Financial Status, and
 Schedule of Commitments.
30
 1.3.Types of Procurement
E. Procurement Steps:
Pre-Qualification
 Advantages of pre-qualification

31
 1.3.Types of Procurement
E. Procurement Steps:
Post-Qualification
 Post - qualification is a tendering type where Financial Evaluation is

carried out first and rank bidders on the basis of their offer for tender
price. Then technical evaluation follows.
 Technical Evaluation is performed step by step starting from the

lowest financially evaluated bidder until technically or cumulatively

qualified bidder is determined.
 The advantage of this approach is not to loose the lowest financially

evaluated bidder and to save time during technical evaluations.

 However, Post qualification approaches often cause to fix evaluators

on financial results and be locked and biased for successive

technical evaluations.

32
1.4. Procurement and Contract
Management
 Procurement and Contract Management involves major
processes: Contract Planning, Procurement Management and
three
Contract Management.

Delivery System
Contracting Contract
Method
Formulation
Procurement
Contract
Method
Contract Administration
Contra Types Procurem
Contract Closing
ct ent
Planni Managem Contract
ng ent
Procurement Managem
Preparation ent
Tendering
Tender Evaluation
& Notice of 33
Acceptance
 1.4. Procurement and Contract Management
Contract Planning
 Contract planning includes decisions on proposed Delivery Systems,
Procurement Methods and Contract Types to be followed and used
together with its provisions for alterations.
 This is because such decisions are related to regulatory
requirements
such as:
 Ethical (Neutrality, Formality, and Impartiality);
 Economical: (Proof of Competition, Least
Qualified and Evaluated Bidder);
 Accountable: (Obligations and Rights);
 HSE (Health, Safety and Environment); and
 Transparent: (Accessibility and Notice of Advertisement).

34
 1.4. Procurement and Contract Management
Procurement Management
 Procurement Management is a process of selecting individuals or

organizations to carry out the intended services and / or works.

 Procurement Management is carried out based on the provisions

made during the contract planning phase of the Procurement and

Contract Process.
 It involves the preparation of procurement documents, their

invitation and submission of tender proposals, and Opening and

Evaluation of tenders.
 On the bases of results from tender evaluations, the procurement

team will recommend the lowest responsive bidder for Contract

Management Phase.

35
 1.4. Procurement and Contract Management
Procurement Management
 The following issues are necessary for a successful
Procurement Management phase:
 Knowing and ensuring the implementation of
procurement
related National and International laws, rules and regulations,
 Adherence to the provisions made during the contract planning
phase including their change processes that is; with respect to:
Delivery Systems, Procurement Methods and Contract Types,
 Establishment of a flexible procurement team, and
 Adhering to the principles of Proof of competition, Impartiality,
Neutrality, Accessibility and Formality.

36
 1.4. Procurement and Contract Management
Cont…
Contract Management
 Contract Management is a process of reaching contractual agreement

for implementation, its administration and finally concluding the

contract.
 Similar to the procurement management process, it shall be based on

the provisions decided during the contract planning phase. It

involves:
 Negotiation based on tender evaluation recommendations,
 Signing of contractual agreement,
 Administration for contractual implementation,
 Progress tracking, and
 Changes, claim and disputes administrations.

37
 1.4. Procurement and Contract Management
Contract Management
 The following issues are necessary for a successful Contract

Management phase:
 Knowing and ensuring the implementation of contract related
National and International laws, rules and regulations,
 Adherence to the provisions made during the contract planning
phase including their change processes, that is; with respect to
delivery Systems, Procurement Methods and Contract Types,
 Identifying, recognizing and involving all potential or key
stakeholders to form a contract team,
 Understanding, mapping and monitoring all contract conditions
agreed upon, and
 Ability to administer changes, claims and disputes.

38
 1.5. Procurement and Contract Delivery system
 Procurement and Contract Delivery system is the way Project

Owners together with Project Regulators and Financiers determine

the assignment of responsibilities to Project Stakeholders along the
Construction Process.
 Procurement and Contract Delivery system is often determined

during the Basic Planning phase of Construction Project.

 Generally, there are six types of Procurement and Contract Delivery

systems. These are:

 Force Account,
 Design Bid Build (DBB),
 Design Build (DB) or Turnkey,
 Finance / Build Operate System (BOT),
 Construction/Facility Management Consultancy, &
 Alliances and Outsourcing.
39
 1.5. Procurement and Contract Delivery
 system
Such Procurement and Contract delivery systems are developed
overtime and are shown in Fig. below.

Force Account - Since development started

Design Bid Build (DBB) – 1950s / 1987

Design Build (DB) / Turnkey - 1970s Onwards / Mid 1990s

Finance / Design Build Operate - 1980s / ……

CM / Facility Management - Mid 1990s / 2000s

Alliances & Outsourcing – 2000s / 2000s

40
 1.5. Procurement and Contract Delivery system
Cont…
Force Account
 When the Project Owners engage themselves to undertake the

project, it is called a force account delivery system.

 Often such a system is promoted if the Project Owners believe that

there is a comparative advantage in Cost, Time and Quality issues.

 When there is a lack of capacity from the private sector to undertake

very large and technologically new projects, public companies do

undertake such projects using Force account delivery systems.
 When projects are unattractive to bidders.
 These days this type of delivery system is often used when projects

are small and places are remote.

41
 1.5. Procurement and Contract Delivery system
Cont…
Design Bid Build (DBB)
 Is the most practiced type of delivery system in the Ethiopian

Construction Industry – Since 1987

 Project owners → Basic Planning → Design – Consultants →

Bid - Contractors→ Project Built.

 Client – coordinates the different packages.
 Consultant – Design and may supervise the project - (Provide the

methods not the end result).

 Contractor - construct works with due care and diligence and

complete them in accordance with the contract, but they are not held
responsible for design deficiencies.

42
 1.5. Procurement and Contract Delivery system
Design Bid Build (DBB)
 This traditional approach becomes less popular due to the following

factors:
 Severe Adversarial relations between the design and contract
administration consultant and the contractor
 Fragmented contract for the project owner
 Project owner responsibility for risks associated with the design
and contract administration
 Non - Impartiality of the Design and Contract Administration
services
 The inability of design and contract administration consultants to
cope up with new construction technologies and
constructability issues of their designs

43
 1.5. Procurement and Contract Delivery system
Design Build (DB)/ Turnkey
 Is a response to problems associated to the last two types of delivery

systems.
 Design-build contracts are exactly as what the name implies. One

contractor responsible for both the design and construction.

 Reduces fragmentation, adversarial relations and Project Owners’

risk. However, there is loss of control & Higher cost of tender &
risk.
 A design-build contract provides distinct advantages to the owner

who no longer needs to referee disagreements between the designer

and the contractor because they are working together under the same
contract.
 This type of contracting is growing in popularity.

44
 1.5. Procurement and Contract Delivery
system
Design Build (DB)/ Turnkey
 Advantages of DB are as follow:
 Minimizing Project owners’ risk transferable due to Designers’ faults;
 Accountability and entire responsibility for both design and
construction which entitle the employer to receive completed project
is onto a single contractor;
 Employers’ responsibility to co-ordinate interfaces between different
project elements is avoided;
 Single point responsibility minimizes the opportunity to claims by the
contractor due to design related issues;
 Coordination between design and construction processes will also be
enhanced, and
 The client budget or financial requirement is defined early enough in
the development process.
45
 1.5. Procurement and Contract Delivery system
Cont…
Design Build (DB)/ Turnkey
 Disadvantages of DB are as follow:

 Since limited supervisory role by the employer representative is

practiced; which is relatively flexible and makes the employer
distanced from the whole process, the employer has little chance to
understand what is developed and entertain variations in
requirements implying loss of control.
 Contractors in order to provide reasonable offer, their tender cost is
higher than in the case for DBB delivery system
 The increase in risk transferred onto the contractor will be
counterbalanced by the increase in contract prices which can be
taken to include these costs of risks.

46
 1.5. Procurement and Contract Delivery system
Cont…
Finance Build Operate Transfer (BOT)
 Design-build-operate contracts are not as common as DB. They may

be used for projects such as athletic arenas, water treatment plants,

water purification facilities, and toll highways.
 The principle is that the contractor will retain some percentage to

ownership in the facility, up to 100%, for a specified period of time,

and operate the facility of a profit during that time to recoup the
capital investment (total cost plus profit).
 The period of ownership by the contractor may vary from few years

to permanent. During the period of ownership, the contractor is

responsible for all costs of ownership, and all profits resulting from
ownership.
 In the case of athletic arenas, there is typically a revenue-or profit-

sharing agreement with the term ownership or municipality. 47

 1.5. Procurement and Contract Delivery system
Cont…
Finance Build Operate Transfer (BOT)
 This delivery system is advantageous because of three major factors:

 It minimizes owners’ scarcity of financial resources;

 It devoid of considerable risks from the project owners and
lessen regulatory activities; and
 The facility is well operated and transferred with free of charge
or minimum compensations to project owners.
 The increasing popularity of the BOT project is largely due to a

shortage of public funding and the opinion that the facility will be
more efficiently managed by a private entity.

48
 1.5. Procurement and Contract Delivery system
Cont…
Construction/ Facility Management Consultancy
 Construction Management Consultancy Delivery System is a

response to problems associated with DB and BOT where the

Project Owner was not well represented for its benefit and the
problem of fragmentation between Planning and Implementation.
 Construction management consultancy firm is used to coordinate all

activities from concept inception through acceptance of the facility.

 Facility management consultancy adds operation of facility during
Construction
 operation Management
to Construction Consultancy
Management service are particularly
Consultancy.
attractive to organizations that involve in construction
physical
infrastructures such as MoE, MoH, Real Estate
Organizations, MoWRs, MoT&C, etc.
49
 1.5. Procurement and Contract Delivery system
Cont…
Construction/ Facility Management Consultancy
 Construction Management Consultants then represents
Project Owners to carry out the following services:
 Feasibility studies of Construction related services
 Plan and Monitor the Triple Constraints of Project Performances
 Lead and Organize regulatory systems of the
Construction Industry
 Valuation, Quantity Surveying and Procurement and
Contract Management Services

50
 1.5. Procurement and Contract Delivery system
Cont… Partnering, Alliances, Outsourcing (Running and
Specialized Delivery System)
 The need for constructing quicker, cheaper and to a higher quality

of physical infrastructure by clients and at the same time with

 Very minimized or no dispute questioned
fragmentation of packaging,
 Costs related to wastes and overheads,
 Single staged procurement systems,
 Involving in less competitive and comparative
advantage for services and works and existing stakeholders
relationships.
 As a result,

 Running delivery system using Partnering and Alliances,

 Specialized delivery system using Outsourcing,
51
 1.6. Procurement
Management
 Procurement Management process can be idealized into three major

processes. These include Preparation, Tendering, and Evaluation

(including Award Recommendation) Processes.

Procurement Team Preliminary Evaluation

Tender Document Detail Evaluation
Approval of Tender Award Recommendations
Docs
Procuremen Tendering Tender
t (Invitation - Evaluation
Preparation Opening)

Invitation
Clarification
Submission
and Opening
56
 1.6. Procurement Management
A. Procurement Preparation
 Procurement Preparation phase is meant for the formation of a

Procurement Team; the preparation of Tender Documents and their

approval for procurement implementations.
1. Procurement Team
 Ethiopian Procurement Regulation states that a Procurement team

consisting of a minimum of five members shall be established.

 As Tender Evaluation is a joint technical and commercial exercise,

the project owner shall consider that the necessary experts shall be
composed in the procurement team.

53
 1.6. Procurement Management
A. Procurement Preparation
2. Preparation of tender documents
 Tender Documents are prepared to:

 Instruct bidders on the procedures for the preparation

and
submissions of bids,
 Inform prospective bidders about the nature of things
to be procured,
 Inform bidders about the criteria for evaluation and selection of
the successful bidder, and
 lay down the contract conditions, delivery system,
procurement methods and contract types of the project.

54
1.6. Procurement Management

A. Procurement Preparation
2. Preparation of tender documents
 Tender documents include:

1. Form of Invitation to Tender or Request for Proposals;

2. Instruction to Tenderers (Standard and / or
Particular information) or Terms of References;
3. Prequalification Documents if necessary – Refer
procurement methods based on stages;
4. Forms of Tender - Refer Contract Documents (Chapter 2);
5. Forms of Contract Agreement - Refer Contract
Documents (Chapter 2);

55
1.6. Procurement Management

A. Procurement Preparation
2. Preparation of tender documents
 Tender documents include:

6. General and Particular Conditions of Contract – Refer

Contract Documents (Chapter 2);
7. Bill of Quantities and Drawings - Refer Contract
Documents (Chapter 2);
8. Technical Specifications & Methods of Measurement
– Refer Contract Document (Chapter 3 & 4); and
9. Other Forms, Formats and Schedules – Refer
Contract Document Parts (Chapter 2).

56
2.Preparation of tender documents
Bidding Document (PPA)
 Part 1- Bidding Procedures

Section 1 – Instructions to Bidders

Section 2 – Bid Data Sheet
Section 3 – Evaluation and Qualification
Criteria Section 4 – Bidding Forms
Section 5 – Eligible Countries
 Part 2- Schedule of Requirements

Section 6(A) – Scope of Works

Section 6(B) – Technical Specifications
Section 6(C) – Drawings
Section 6(D) – Bills of Quantities (or
Activities Schedule)

57
2.Preparation of tender documents
Bidding Document (PPA)
 Part 3- Contract

Section 7 – General Conditions of

Contract Section 8 – Special Conditions
of Contract Section 9 – Contract Forms

58
A.2. Preparation of tender
documents

59
A.2. Preparation of tender documents

60
1.6. Procurement Management
A. Procurement Preparation
3. Approval of tender documents
 Includes the checking, renewal and approval of tender

documents.
 Check list is usually used for tender document approval.

Prepare Checklist for

1. Request For Proposal including Proposed Program and Terms
of References
2. Architectural, Structural, Electrical and Sanitary Preliminary
and Final Designs
3. Feasibility Studies for Big Projects
4. Road and Bridge Designs
5. Water Works Designs
6. Contract Documents
7. General Points
61
1.6. Procurement Management

B. Tendering Phase
 Tendering Phase includes Invitation, Clarification, Submission and

Opening of tenders.
 Normally open tenders are floated for a period between 30 to 45 days.

Limited and Negotiated tenders can be invited between 7 to 15 days.

1. Invitation: The invitation to tender shall clearly state:
 The owner and his desirous service or works
 Eligibility requirements,
 Place to get further information,
 Where to purchase & submit tender documents,
 How long the tender will be floated,
 How should the tender offer be packed, and
 When and where submission and opening of tender will take place.
62
 1.6. Procurement Management
B. Tendering Phase

Sample Form for Invitation to Tender for Construction Works

The ……. has received a loan / grant from …. in …. towards the cost of ….. and it is
intended that part of the proceeds of this loan will be applied to eligible payments under
the contract for ….. This Tender is open to all bidders from eligible source countries as
defined in the ….

The ….. invites sealed bids from eligible bidders of Categories …. with renewed license
and tax registration for the year under tender and / or equivalent eligible bidder for the
construction and completion of ….

The Project consists of the following …. together with ………

Description Area (m2 ) Remark

Page-1
63
1.6. Procurement Management
Cont….
B. Tendering Phase

Sample Form for Invitation to Tender for Construction Works Cont…

A complete set of bidding documents may be purchased by interested bidders on
submission of a written application to …., and upon payment of a nonrefundable fee of
Birr …….. at or before …. on ….

Interested eligible bidders may obtain further information from, and acquire the bidding
documents, at the office of the Employer at ….

All bids must be accompanied by a security of ….. of the bid amount in Birr or an
equivalent amount in a freely convertible currency.

Wax sealed envelops containing offer for furnishing all the necessary labor, equipment
and material for performing satisfactorily and completing of all works as illustrated and
described in the tender documents shall be deposited in ……
Page-2

64
1.6. Procurement Management
Cont….
B. Tendering Phase

Sample Form for Invitation to Tender for Construction Works Cont…

The envelope shall be submitted as follows
A separate wax sealed envelope and marked “Tender Security” carrying contractor’s
Tender Security as and statement of qualification.
A second wax sealed envelope and marked “Original Tender Document” carrying the
original Tender Offer.
A third wax sealed envelope and marked “Copy of Tender Document” carrying the copy
of the Tender Offer.
A fourth wax sealed envelope and marked “Tender Offer” carrying all the above three
envelope.
All envelopes shall bear the following reference
The Outer and Inner envelopes shall bear the full address of the bidder. The outer
envelope shall also bear the following statement:
“DO NOT OPEN BEFORE …… HRS ON ….. OF …., 20 …. ”
The Original Tender Envelope shall be opened if and only if the Tender Security
Envelope carrying the security & statement of qualification is valid.
Page-3 65
1.6. Procurement Management
Cont….
B. Tendering Phase
Sample Form for Invitation to Tender for Construction Works Cont…
Bids will be opened in public and read aloud in the presence of Tenderers or their
authorized representative who choose to attend at …. On ….

The eligible bidder shall:

 Read the tender documents particularly the ITB and Technical Specifications before
rating BOQs,
 Visit and investigate the site of works (authorization shall be obtained from the
Employer on receipt of written request) before rating BOQs,
 Be required to furnish, if found a successful winner, a performance security from a
surety approved by the Employer, in the sum of a minimum of Ten Percent (10 %) of
the total contract sum for the faithful performance of the works in accordance with
the contract documents.
The ……. Reserves the right to reject any or all bids, to waive informalities, to advertise
for new bids or to proceed and do the work otherwise as may be deemed to be for its
best interest without giving reasons for doing so.
Page-4 70
 1.6. Procurement Management Cont….
B. Tendering Phase
2. Clarification and addendum
 Clarifications can either be requested by interested bidder or carried

out using a pre - tender clarification meeting.

 In both cases, issues clarified shall be sent (written) to all

bidders
participating for the intended services or works.
 The bidders shall submit their offer on or before the submission date

and time.
 Late bids are automatically rejected.

67
 1.6. Procurement Management Cont….
B. Tendering Phase
3. Tender opening
 Bids shall be opened in public on the date, at the time and place

mentioned in the invitation to tender and stipulated in the tender

documents.
 Ethiopian practice (public): Two representatives from MoWUD,

Project Owner, Consultant (if available), and Contractors (Who wish

to attend) by themselves or by their representatives shall attend
during the tender opening ceremony.
 The following will be carried out during tender opening:-

1. Tender Attendee members shall take their place and be registered,

2. Tender box opened and checked for faulty things,
3. Check the tender is the right one,
68
 1.6. Procurement Management Cont….
B. Tendering Phase
3. Tender opening
 The following will be carried out during tender opening:-

4. Bids will be opened one after the other,

5. All necessary data which deem useful such as Project Name,
Name of bidder, Bid Bond Amount, Tender Price, etc. will be read
aloud and recorded at the opening of bids.
6. Bidders representative shall sign a register to attest their
presence during opening, and
7. Tender committee members shall sign on the Tender

69
 1.6. Procurement Management
Cont….
B. Tendering Phase
B.3. Tender opening

70
 1.6. Procurement Management Cont….
B. Tender Evaluation
 Tender Evaluation Phase: is made to determine and make award

recommendation for the least evaluated bidder using preliminary and

detail evaluations.
 The recommended winner may or may not necessarily be the lowest

bidder.
 The following factors are used in determining the least evaluated

bidder.
 Technical qualification,

 Completion time,

 Commercial terms of the offer, etc

71
1.6. Procurement Management
Cont….
C. Tender Evaluation
1. Preliminary Evaluation
 Preliminary Evaluations are made for Eligibility and Arithmetic

Review requirements.
 Before commencing the actual evaluation, it is useful and
recommended to complete a Basic Data Sheet for each tenderer to
record key information and enable coding.
i. Eligibility Requirements
 Eligibility Requirements: Tenders are subjected to eligibility
qualifications before they enter to bid and their respective
evaluations.

72
 1.6. Procurement Management Cont….
C. Tender Evaluation
1. Preliminary Evaluation
i. Eligibility Requirement
 Most often sited issues considered in eligibility requirements are:

 Valid & Up to date Trade and Professional License,

 Valid & Up to date Membership to Financier Organizations,
 Valid provision of Bid Security or Bond,
 Completeness and submittals of all required documents,
 Turnover requirements fulfilled
 Power of Attorney, Signature & Sealing Requirements, and
 Appropriate Invitation, Packaging and
Submission Requirements.

73
 1.6. Procurement Management Cont….
C. Tender Evaluation
1. Preliminary Evaluation
 Responsive to Tender is based on the deviation from the bid

conditions. The more major deviations are witnessed the bid will be
rejected based on non – responsiveness to bid conditions.
Major Deviations Minor Deviations
 Affecting the validity  Do not affect the triple
of the constraints of the project
bid  Do not result in change of Bid
 Rejection or Price
Disqualifying conditions stated  Non conditional tenders
 Substantial effect on
the Bid Price

74
 1.6. Procurement Management
Cont….
C. Tender Evaluation
1. Preliminary Evaluation
ii. Arithmetic Review
 Most tenders are often submitted hastily and it is common to have

arithmetic error.
 Evaluation without arithmetic check will ultimately result in disputes.

 Therefore, it is a formal evaluation process to review arithmetic

before carrying out detail evaluations.
 At thisstage no adjustment on the unit prices is allowed. If the
contractor has made any arithmetic errors those are corrected.

If unit prices are left unfilled then it is assumed that the contractor
will have covered the prices in other sections of the submission.

Note: - Arithmetic review can be done if and only

when financial proposals are opened. 75
 1.6. Procurement Management Cont….
C. Tender Evaluation
2. Detail Evaluation
 Detail Evaluations include Technical, Commercial and Financial

Qualification requirements.
 Evaluations at this stage should first and foremost critically see the

technical and commercial offers and establish system that can ensure
common bases for comparison.
 Finally, the Financial offer will be updated using Absolute Results

from Commercial comparisons

76
 1.6. Procurement Management Cont….
C. Tender Evaluation
2.Detail Evaluation
Technical Evaluation
 Besides being required to submit a priced bill of quantity a contractor

is required to submit a technical compliance document.

 This technical compliance document will require submission
of required details.
 In the evaluation process, at least the following will need to
be checked.
 Completeness of bid

 General compliance to the tender requirements

 Substantial responsiveness to technical specifications and bidding

documents.
77
 1.6. Procurement Management Cont….
C. Tender Evaluation
Technical Evaluation
 In the evaluation process, at least the following will need to
be checked.
 Alternative proposals if any

 Acceptance for detailed examination

 Review of the proposed organization/staff organization chart

 Schedule of personnel capabilities

 Implementation schedule/ schedule of program of work/ details of

work program
 Availability of equipment/ schedule of plant and equipment

 Working hours

 Labour build up, run down and source

78
 1.6. Procurement Management Cont….
C. Tender Evaluation
Technical Evaluation
 In the evaluation process, at least the following will need to
be checked.
 Interest rates/ Day work rates

 Cash flow/ program of payments

 Schedule of suppliers/ Sub contractors

 Detail regarding site establishment

 Details regarding temporary works

 Details regarding the financial stability

 The original copies to be submitted

79
 1.6. Procurement Management
Cont….
C. Tender Evaluation
Commercial Evaluation
 This includes Benefit Forgone due to Completion Time; Additional

Costs due to differences in Foreign Currency Exchange and

Advance Payment requirements; and Provisions of Domestic or
Regional Preference Margins.
1. Benefit forgone due to completion time
 The Benefit Forgone (BF) due to additional completion time can be

computed using the following expressions:

BF = (FV – TO) / (1 + i)n; FV = TO (1 + i)n
Where: TO = Tender Offer after Arithmetic Check;
n = Completion time in days
i = Discount Rate = 0.05 % per day = 1.5 % per
month;
FV = Future Value 80
 1.6. Procurement Management
Cont….
C. Tender Evaluation
Commercial Evaluation
2. Additional cost due to
Foreign Currency
Exchange requirements
 Used when the tenders

have provisions to
quote different
currencies.
 For currency conversion, selling rates of Bank published by
an official source and applicable for transactions shall be used.
 Additional cost due to Foreign Currency Exchange requirements can

then be determined using selling rates at:

 15 days prior to tender submission date
 Tender Opening Date 81
1.6. Procurement Management
Cont….
C. Tender Evaluation
Commercial Evaluation
2. Additional Cost due
to Advance Payment
 Occurs when different amounts of advance payment are requested as

part of the tender offer.

 The Additional Cost due to differences in mobilization
advance requirements can be computed from the following
expressions:
APAC = {(AP x TO) / 100} – PV;
PV = A x PWF; A = {(AP%) x TO} / n; PWF = {(1 + i)n – 1} / {i(1 + n)n}
Where: AP = Advance Payment Requirement in %;
TO = Tender Offer after Arithmetic Check;
i = Discount Rate = 0.04 % per day;
82
n = Completion time in days
 1.6. Procurement Management Cont….
C. Tender Evaluation
Commercial Evaluation
3. Domestic or regional
factor
 Domestic or regional preference margin is a provision to give

preference to local companies even if their bid offer is not over by a

percentage often equals 7.5 - 10 % for construction works.
 This implies that domestic or regional companies can be awarded
the tender even if they are not lowest in tender price of the evaluated
bidders using all the other criteria.
 A contractor can be eligible for such preference margin if and only

if;
 Its legal constitution is in accordance with the Employers’ Country /
Region
 It is registered according to rules and regulations of the Employers’83
1.6. Procurement Management
Cont….
C. Tender Evaluation
Financial offer comparison
 After all commercial comparisons are considered on the same bases;

the Tender offer will be adjusted based on the Cost - Benefit principle
which involves adding costs and benefits foregone. That is:
TO evaluated = (TO + BFCT + ACAP + ACFE + AC PM )
Where TO
= Tender offer evaluated
evaluated
TO = Tender offer after arithmetic check
BFCT = Benefit forgone due to completion time
ACAP = Additional cost due to advance
payment ACFE = Additional Cost due to foreign
exchange ACPM = Additional cost due to
preference margin
84
 1.6. Procurement Management
Cont….
C. Tender Evaluation
Financial offer comparison
 Besides, Financial offers per groups of trades of works are compared

in order to evaluate whether tenders are front loaded or not.

 Front loading often cause disruption of projects or
overzealous contractual negotiations.
Rejection of All Tenders:
 Though is solely the power of the employer to decide, for the sake of

fairness it is recommended that such rights shall be exercised in the

following cases:
 All Tenders are found non – responsive during the
Preliminary evaluations
 Evidences of lack of competitions such as collusion among bidders,

monopoly, etc.
 Lowest responsive offer is found unreasonably high.
85
Procurement Procedure
Flowchart

9
1
Procurement Procedure
Flowchart

9
2
Tender Evaluation
 Preliminary Evaluation: - Eligibility Responsiveness and Arithmetic

Review
 Detail Evaluation: - Commercial and Equivalent Financial
Offer
Comparisons.
 Commercial Evaluation:

 Benefit Forgone due to Completion Time;

 Additional Costs due to Foreign Currency
differences in Exchange ;
 Advance Payment requirements; and

 Provisions of Domestic Preference

Margins.
 Finally the equivalent financial offer is

computed.
 Checks on front loading shall also be carried
94
1.6 Procurement Management
Cont.… Tender Evaluation Report
 Tender Evaluation Report may be written using the following
Outlines:
 Executive Summary

 Introduction

 Evaluation Results

• Preliminary Evaluations Responsiveness

• Detail Evaluations Results

• Award Recommendations

1. Introduction
1. Background
2. Basic Data
1. Tender Opening Records
2. Engineers’ Estimate 10
2
1.6 Procurement Management
Cont.… Tender Evaluation Report
2. Preliminary Evaluation Responsiveness
1. Instruction to Bidders
Responsiveness
1. Eligibility
2. Tender Security
2. Form of Tender and Appendices
Responsiveness
1. Form of Tender
2. Priced Bill of Quantities
3. Schedules
2.3. Contract Document Responsiveness
3. Detail Evaluation Results
1. Basic Data for Comparison 10
3
1. Assignment of Codes
1.6 Procurement Management
Cont.… Tender Evaluation Report
2. Commercial Offer Comparisons
1. Benefit Forgone due to
Completion Time Variations
2. Additional Cost due to Advance
Payment Requirements
3. Additional Cost due to Foreign
Currency Requirements
4. Additional Cost due to Local / Domestic /
Regional Preference Margins
3. Financial Offer Comparisons
1. Front Loading Assessment
2. Ranking of Tenders
4. Award Recommendations 10
1. Recommended Tender Offer 4
THANK
YOU!
10
6