Tenders - receiving and selecting

Page contents:

• Conditions of tendering
• Closing tenders
• Opening received tenders
• Re-calling of tenders
• Recommending acceptance
• Case study
• Letters of acceptance
• Contract commencement

Conditions of tendering

Checklist of information to be provided by tenderers

These are prerequisites to acceptance of tender and may be required to be submitted with the tender, or requested prior to acceptance of tender:

• schedule of rates
• schedule of main subcontractors
• schedule of extension of time costs
• estimated monthly cash flow
• priced bill of quantities, if required
• schedule of rates, if required
• schedule of current commitments*
• referees*
• submission of daily rate for overheads and profit
• bank guarantees (if owners' requirements)
• licence number (where applicable), type of licence (as applicable)
• dilapidation report, if applicable, (what is required, e.g. photographs, description etc)
• insurances (insurers, validity to, amount, type and scope)
• program (preliminary) as required
• daywork (conditions, if applicable)
• noise control (requirements)
• names of responsible personnel, should tender be successful
• contract time if to be nominated by tenderers
• statement that no arithmetical errors made in tender

*These items are often part of the pre-tender assessment procedures in 'selected' tenders.

Non-conforming tenders

Non-conforming tenders are tenders that offer to provide something other than what the client asked for in the tender documents. The principles of fair and reasonable competitive tendering ordinarily dictate that non-conforming tenders which may give advantage to one or more tenderers will not be considered but, unless a policy of not considering them has already been established with your client, it may be difficult to put to your client that they should refuse to consider a non-conforming tender which provides a more cost effective solution.

Fairness to tenderers can be maintained if the information to tenderers states that the client may consider non-conforming or alternative tenders. So that proper comparison can be made, it is preferable that all tenderers are required to submit a conforming tender, and offer the non-conforming tender as an alternative.

This does not apply to specific requests in the information to tenderers to submit alternative prices such as on other construction methods or staged completion of a project.

Information to persons other than tenderers

The architect should advise tenderers whether tender information will also be made available to others such as manufacturers, suppliers or subcontractors, and whether or not the names of tenderers will be revealed to others.

Particular persons

The ABIC suite of contracts allows the owner (client) the option to identify 'particular persons' who will become the subcontractor or supplier under provisional or prime cost sums. Refer Particular persons.

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Closing tenders

There are a number of conventions associated with the receiving and opening of tenders that should be respected. These include the time and day for closing tenders and how non-conforming and late tenders are managed.

Day for closing tenders

The preferred closing date for tenders is generally a Tuesday, Wednesday or Thursday, allowing at least one clear day before or after a weekend or building industry holiday. The closing time for tenders to be submitted should be no earlier than 12 noon.

Late tenders

The architect should establish with the client the action to be taken with tenders received after the due closing time, or with informal or uninvited tenders. Possibilities include:

• not accepting late tenders
• accepting them under certain conditions
• returning them (if delivered by post) unopened and endorsed with the time and date of receipt
• handing them, appropriately endorsed, to the client

Tenderers should be informed in the conditions of tendering that late tenders will not or may not be considered.

Method of submission of tenders

Although submission by mail is the accepted method, the information to tenderers should advise whether or not tenders submitted by electronic means, such as email or fax, are acceptable. The information to tenderers should also confirm the procedures for accepting electronically or faxed submitted tenders.

Non-receipt of tenders

If the number of tenders received by closing time is insufficient, the architect may, with the client's approval, extend the tender period (without opening tenders) or re-call tenders. In both cases, the architect should immediately advise those who have tendered.

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Opening received tenders

The procedures for the opening of tenders should be established by prior agreement between the architect and the client and should be set out clearly in the information provided to tenderers.

Procedure at opening of tenders

This should include such matters as:

• Will tenders be opened at closing time or at some other time?
• Who will be present to witness the opening? (It is usually accepted that each tenderer has the option of being present.)
• Where will tenders be opened?
• To whom will tenders be disclosed and what details will be disclosed?

There is an obligation to consider all tenders received before the closing time, at least to determine whether they conform.

After opening of tenders

Validity period

30, 60 and 90 days are common 'validity periods' for building tenders. The validity period should be stated in information to tenderers or, if not, tenderers should be asked to nominate one.

At law, a tender will lapse if a withdrawal has been communicated to the client, if a counter-offer is made (by the client) or if a validity period has expired without an agreed extension of time. A tender will also lapse, in the absence of other conditions, by the passing of reasonable time. Determination of the length of this 'reasonable' time depends on several factors, such as cost escalation rates at the time.

Checking of tenders

Committing a contractor to an unrealistic price due to error may cause financial difficulties for both parties. Where circumstances indicate that there might be an error in the lowest acceptable tender, the architect should recommend to the client that the tenderer be asked to either confirm the tender or withdraw it.

Non-acceptability of any tender

To avoid doubt it is preferable to state in the information to tenderers that the client is not bound to accept the lowest, or any, tender but, where tenderers have demonstrated that they are acceptable to the client after a selection or pre-qualification process, it is generally considered only fair that the lowest tender is the one accepted.

If none of the tenders submitted is acceptable to the client, the architect may negotiate with the lowest valid tenderer to endeavour to arrive at a satisfactory new tender, after notifying all tenderers that it is doing so. Negotiation should not proceed with more than one tenderer at a time.

Varying the scope of tenders after closing date

Substantial changes to the scope of the works would make the process invalid on the basis of fairness and tenders should be called again. Where there is only a minor change, however, it is appropriate to negotiate with the successful tenderer.

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Re-calling of tenders

If no acceptable tender is achieved using competitive tendering procedures, it may be an indication that the tender market is saturated. In these circumstances, the appropriate course of action is to either negotiate with the lowest conforming tenderer as discussed above, or to vary the scope of the works substantially and call for new tenders.

Alternatively, if the client instructs, it is acceptable to wait a reasonable amount of time and re-call tenders, but this should only be done in exceptional circumstances as what is considered to be a reasonable time is likely to be substantial from a client's viewpoint; it may be a period of six months or more. Re-calling tenders on substantially the same scope too soon afterward signals to the market that the client is not serious, or inviting tenders in good faith, and the tenders received, if any, are even less likely to be satisfactory. During that time negotiations with the preferred tenderer (or, if none has been found, with another tenderer) can take place. The architect should obtain authority before re-calling tenders.

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Recommending acceptance

While the client must decide whether or not to accept a particular tender their decision will, in most cases, rely on the recommendation provided by the architect. The tender report and recommendation must therefore be thorough and carefully crafted to ensure that the client has all of the facts and options when making the decision.

Architects should be very careful in recommending tenderers or contractors to clients. There are two points to remember:

• Your client will make the final selection. You are providing additional information to help your client make an informed decision.
• Stick to the facts. Recount your experience of builders, don't make promises about how they will perform in the future.

The architect must give the client a report of all tenders received and raise any doubts about a tender, or contractor, with the client. The report should recommend to the client either the acceptance of a tender or the non-acceptance of any tender. The architect should not recommend acceptance of a non-conforming tender (not based on the tender documents), but should inform the client of the details of non-conforming tenders and anticipate that the client may ask for advice on whether the alternative presented will be acceptable to meet their requirements. Provided that, as discussed above, the tenderers have been notified that the client may consider non-conforming tenders it is acceptable for the client to consider them and the architect to advise on them.

The architect's advice to a client in recommending prospective or successful tenderers should be clear and accurate. To say 'I have worked with Builder X on three occasions and the work has been satisfactory' is vastly different from 'Builder X always produces satisfactory work'. The former is based on evidence, while the latter is a subjective generalisation, which may or may not be correct.

The architect must also ensure that tenderers are aware of the status of information that is being provided. If the tenderers will not be able to rely on some of the information provided, say so as clearly as possible. If in doubt it may be prudent to have the client’s legal advisor write that part of the information to tenderers.

Architects, if asked to recommend a builder, must make it clear, in writing, that while all care has been taken in the choice of those recommended, no legal responsibility can be accepted for the performance of the builder ultimately engaged.

Also refer Guide letter 22: Recommendation to client - tender report.

Case study

A 1987 English decision (Valerie Pratt v J Hill Associates (1987) 38 Building Law Reports 25) held an architect liable to a client for expenses incurred when the builder he had recommended proved to be both unreliable and insolvent.

The client asked the architect to obtain tenders from people he thought would 'give a fair price' and 'do a good job'. The architect replied that he had received two tenders from builders who had carried out previous contracts for him and were 'very reliable'. The terms of the architect's appointment imposed no express or implied duty on the architect to enquire into the financial stability of builders tendering for the work.

The builder selected proved to be extremely unreliable. An arbitration led to court proceedings which resulted in the builder being deregistered and becoming insolvent. The plaintiff client argued that she was entitled to recover money paid to the builder under certificates issued by another architect who had taken over the job from the defendant, plus the costs of the arbitration proceedings and legal expenses not recovered from the insolvent builder.

The architect was held to be liable to the client for all her losses because he represented that the builder was financially stable and reliable. The statement was held to be binding in contract. The wording contained in his letter to the client put him in the position of virtually guaranteeing that the builder's performance would be satisfactory.

Architects in Australia who make similar representations, without reasonable grounds, may also be liable to the client for losses suffered under section 52 of the Trade Practices Act 1974 (Cth), for misleading and deceptive conduct, or the equivalent provisions contained in the Fair Trading Act operating in their state or territory. Architects may also expose themselves to liability for negligent misstatements.

The case illustrates the difficulty of architects commenting on a builder's financial stability. It may be prudent for an architect to suggest that a client undertakes a check on the builders' financial resources, or an architect may conduct a trade check on behalf of the client. Such a check, however, may not necessarily reveal all the relevant facts and, in any case, an architect cannot warrant the stability of the builder. The relationship between the client and the builder is a business arrangement.

Disclaimers are likely to be ineffective in defending a claim for misleading and deceptive conduct under section 18 of the Australian Consumer Law – a national law dealing with misleading and deceptive conduct.

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Letters of acceptance

During the period after tenders have closed, but before work begins on site, there is a need to secure the contractor's offer and commence the contract. This is normally done by the completion and signing of the formal contract by the owner and the contractor. Sometimes the preparation of the contract can be delayed for various reasons and a 'letter of acceptance' is used in the interim.

The essential elements of a legally enforceable contract are the offer by one party and acceptance of the offer by another party. While there are other elements for most building contracts the tender or quotation by the contractor constitutes the 'offer' and, for it to be accepted, the normal procedure is for the owner to prepare a suitable contract that will become the document of acceptance.

When is a letter of acceptance appropriate?

There are many examples when, for a variety of reasons, the documents are not all available when the offer is accepted. For example, if a fully priced bill of quantities is one of the documents, it is all but impossible to obtain fully priced bills from the successful tenderer until some weeks after tenders close.

Another example may be when the owner asks the architect to negotiate some reductions in the lowest tender and these negotiations result in amendments to the (contract) drawings and specifications.

In both cases once the tender (amended or otherwise) is accepted the general intent of the parties is to proceed with the contract subject to the preparation of the revised and/or completed documents.

As a way of confirming this intention a letter of acceptance can be prepared by the architect, on behalf of the owner, that contains the details of the acceptance and any related conditions. Upon receipt of such a letter, the contractor can proceed with the works pending the execution of the contract documents. It must be understood that the letter of acceptance is used as an interim measure and in no way should it override or supersede the actual contract. Its contents must therefore be consistent with the other contractual conditions.

Letters of acceptance are firstly a formal confirmation of acceptance of an offer. They must therefore clearly state:

• under whose authority the acceptance is being made (ie on behalf of the owner)
• what is being accepted
• details of the accepted offer including the amount and, if applicable, the construction period of the accepted offer

The opportunity is also available to ensure compliance with other tendering conditions which may have been included in the conditions of tendering. For example, the provision of a construction program, list of proposed subcontractors, names of site personnel etc, could all be included under a general provision of acceptance:

As agreed, the Owner's acceptance of your tender is subject to…

Of course only matters that have been agreed can be included. If fresh conditions are included, the letter of acceptance becomes a fresh offer and the contractor could possibly walk away from the deal without penalty.

The obvious conclusion from this will be that the owner can withdraw his or her acceptance, or not proceed with it, if these conditions are not met by the contractor.

The letter of acceptance should also include all necessary contract administration information such as name of the owners representative, architects' representative, consultants' representatives etc.

The opportunity is provided to confirm numbers of documents to be supplied, procedures for architect's instructions, progress claims etc, all of which are generally discussed with the prospective contractors after the close of tenders.

Also refer:

• Guide letter 23: Successful tenderer - letter of acceptance
• Guide letter 24: Successful tenderer - request for information

The dangers of letters of intent

Some architects follow a long-established (but dangerous) practice of issuing a letter of intent to a tendering contractor, which advises that the owner intends to accept the tenderer's offer and enter into a contract, but only upon confirmation or resolution of certain items.

This letter of intent is seen as a tool to secure the contractor before an offer is finally accepted, but does nothing of the sort, as it is not binding on the contractor. It is also a dangerous and confusing practice.

The contractor may start gearing up and incurring costs, and if agreement is not ultimately reached on the offer, and a contract is not entered into, a dispute may occur over costs.

If the owner or architect requires further information from the tenderer, this should be in the form of a request for further information, not a letter of intent.

Once the information is forthcoming or clarified and agreement is reached, issue a letter of acceptance. This is a much clearer process.

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Contract commencement

A tender is an offer to enter a contract, if accepted. Oral acceptance should be avoided but, if unavoidable, confirmed in writing as soon as possible. If acceptance is by mail, the date of posting the acceptance is the date of contract.

If the architect informs a tenderer that the client intends to accept the offer (by implication, at a future date), the contract is not yet in existence. If, on the other hand, the architect (as the client's agent) notifies a tenderer that their tender has been accepted, the contractual relationship comes into existence, even though the contract has not yet been signed.

To avoid doubt as to exactly what are the contract conditions, particularly where the tender does not fully conform or there has been subsequent negotiation, it is preferable to use the former method, prepare the contract and contract documents according to what has been negotiated, and have the parties execute the contract. The date the last party signs is the date of the contract unless otherwise agreed.

Notifying unsuccessful tenderers

Prompt written notification that the tender was unsuccessful is a courtesy reciprocating the effort of tendering. Refer Guide letter 25: Unsuccessful tenderers - advice.

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