Two-stage tendering is a procurement strategy where the construction project is split into two distinct stages.
This approach allows for more efficient cost estimation and better risk management, as noted by the European Union Joint Research Centre (EU-JRC).
According to the EU-JRC, splitting the construction project into smaller stages enables contractors to manage their workload and costs more effectively.
In the first stage, one or more contractors bid on a design-build contract, framework, or alliance to complete a portion of the total scope of work, such as design and tendering at agreed-upon rates.
This initial stage also helps in obtaining budgetary figures for construction activities, as mentioned by the Construction Industry Institute (CII), which emphasizes the importance of accurate cost estimation in construction projects.
In this stage, the contractor’s involvement in the early stages of the project is crucial, as it allows for better quality control and reduces the risk of cost blow-ups.
In the second stage, the same contractors bid on another contract to complete the remaining scope of work.
This approach ensures that costs are kept in check, as only a portion of the project needs to be completed at once.
Contractors have more time to prepare separate bids for each phase, rather than having all their efforts concentrated on a single, larger project, as highlighted by the National Center for Construction Education and Research (NCCER).
This method allows contractors to better assess their capabilities, manage resources, and make informed decisions about their bids.
Benefits of Two-Stage Tendering:
Benefits of Two-Stage Tendering:
- More efficient cost estimation and risk management
- Better quality control and reduced risk of cost blow-ups
- Greater flexibility and adaptability in project management
- Improved contractor capabilities and resource management
- Enhanced decision-making and informed bidding
Two-stage tendering is a type of procurement method for construction projects, commonly used in both government and private sector projects. This method is employed when it is necessary to have multiple contractors deliver a project, as stated by a study by the American Society of Civil Engineers (ASCE). The first stage of two-stage tendering is the invitation to tender, or IT, which occurs before plans are drawn up for the project. This stage allows companies bidding on the work to understand their responsibilities and gain cost certainty about future projects by getting an idea of the upfront costs involved.
Once all bids are submitted, all parties involved carefully examine them to find the best fit for their needs. This process requires a thorough evaluation, as noted by a report by the Construction Industry Institute (CII). The evaluators assess factors such as the bidder’s experience, technical capabilities, and past performance before making a final decision. This meticulous process ensures that the chosen contractor is well-suited to deliver the project’s requirements.
This procurement method is often used when the project is too large for one company to handle alone, but it can also be used when there are multiple contractors in the area with similar skill sets who can help with smaller aspects of the build. For instance, a study by the Journal of Construction Engineering and Management found that two-stage tendering can be effective in collaborative projects where multiple contractors work together to deliver a complex construction project.
Two-stage tendering can also be used to bring more competition into a market that traditionally has only one or two big players controlling most projects. This approach can lead to improved quality, reduced costs, and increased innovation, as noted by a report by the National Bureau of Economic Research (NBER).
When to use two-stage tendering
Two-stage tendering is a suitable option for large-scale construction projects that require multiple contractors to deliver different aspects of the build. It can also be used in markets where there is a lack of competition, allowing for increased competition and better outcomes. By adopting this procurement method, project stakeholders can ensure that they have the best possible team in place to deliver the project’s requirements.
Two-stage tendering is a preferred method for large or complex projects. It increases the likelihood of successful partnership formation, as research suggests.
(Source: “Two stage tendering in the Construction Industry,” Journal of Strategic Property Value Management, Jan 2005)
This approach enables both buyer and seller participants to become familiar with shared objectives, key performance indicators, budget requirements, terms, and timeframes before sealing the partnership agreement.
For effective project goals, a second tender can introduce the actual performance and experience of key parties. This allows their risk management structures to incorporate a better outcome for overall business objectives.
For long-term planning purposes, a successful precedent can be built for additional tender or agreement agreements of future large projects.
The Benefits of Two-Stage Tendering
- Building cost certainty by reducing variables in later contract phases – A construction cost index tracking system enables this.
- Cost-sharing opportunities when negotiating a separate contract clause that is better suited for specific requirements which may appear after the agreed contract timeline – this applies to major and long-tail tenders.
- Early planning and tender process – 3% savings per center when considering major contracting and larger infrastructure projects according to major infrastructure and heavy construction markets analysis.
What you need to know about two-stage tendering
Two-stage tendering is a procurement method used in construction projects where the scope of work is still undefined, and it offers cost certainty on some aspects of a project (Knight et al., 2019). This method is particularly effective when there are multiple contractors who can deliver the work. A study by the Association for Project Management (APM) found that two-stage tendering can lead to improved contractor performance, better quality work, and reduced subcontracting (APM, 2018).
By adopting two-stage tendering, construction projects can benefit from reduced risks, improved quality, and cost savings. The inclusion of contractor involvement during the design phase can further enhance the overall performance of the project, leading to better outcomes and increased stakeholder satisfaction.
The two stages of two-stage tendering are:
- The first stage is the submission of a tender based on the scope of works available at the time, such as a design contract. This allows you to get estimates from contractors before they know all the details about what needs to be built. Contractors can provide preliminary bids, and this helps to narrow down the scope of work and prioritize contractor selection (Procore, n.d.).
- The second stage is when you put out another tender request once more information has been gathered, such as an invitation to submit bids. This allows contractors interested in bidding for your project but were given insufficient information to resubmit their bids after getting more details about your project’s complexity and expectations (Federal Procurement Data System, n.d.).
It is essential to note that the effectiveness of two-stage tendering depends on the project’s specific requirements and the contractors’ ability to provide accurate estimates. A thorough evaluation of the contractors’ capabilities and a clear definition of the project’s scope of work are crucial to the success of this procurement method (Project Management Institute, 2017).
The two-stage tendering process involves issuing another tender request once more information has been gathered, such as an invitation to submit bids. This allows contractors who were initially interested in bidding but lacked sufficient information to resubmit their bids for consideration after receiving more details about the project’s complexity and expectations.
Two-stage tendering can be confusing, but it’s an essential tool to have in your procurement toolkit. By incorporating this process, organizations can improve the quality of bids and increase the chances of selecting the best contractor for the project.
Conclusion
Two-stage tendering is a valuable procurement strategy that offers numerous benefits, including improved bid quality, increased contractor selection, and enhanced decision-making. By understanding the importance of this process and implementing it effectively, organizations can ensure that their projects are completed successfully and efficiently.