Tender Negotiations: An Insider's Guide

By Author: iDigitize Social
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An invitation to tender might be published for a range of contracts, including equipment supply, the main construction contract (which might include design by the contractor), demolition, enabling works, etc. Normally, tendering refers to the construction works rather than securing consultancy services which are referred to as 'Appointing'.

Once tenders have been presented, tender negotiations might proceed with two preferred tenderers prior to the selection of the successful bid. They are an opportunity to agree or clarify any matters regarding the pricing and quality of the proposed works, conditions of contract and programme. This is the last chance the client and consultant team will have to negotiate with tenderers while they are still subject to the pressures of competition. In response to an invitation to tender, invited tenderers will submit their tender, which will include their price for supplying the goods or services along with proposals for how the client's requirements will be satisfied if these have been requested.

In competitive bidding, a contract is agreed upon following a tendering ...
... process where the award is often made to the cheapest (or best value) tender. The concept of negotiation generally allows more flexibility for the client to select a contractor on a basis other than the lowest bid. Negotiated contracts are generally agreed upon between a contractor and client that have experience of working together and have a relationship built on trust.

As the design documents very often have not been completed at the negotiation stage, a cost-plus contract or cost-reimbursable contract is commonly used for negotiated tenders. This allows for the reimbursement of the contractor for the costs incurred during construction, such as labour, equipment and materials, as well as profit and overhead charges for the management of the project.

Negotiated contracts may not be permitted by some organisations due to the perceived lack of accountability. On public projects, or projects that include a publicly-funded element it may be necessary to advertise contracts. However, despite having the advantage of being more flexible, negotiated contracts can also be less attractive for clients who may see the lack of competitive tendering as driving up costs; though it is often the case that a strong working relationship with a contractor whose practice is well-known may more than makeup for this over the duration of the project.

Advantages of Tender Negotiations:

The contractor’s costs and pricing are more transparent as they are not seeking to win the bid purely on the lowest tender.
Clients have flexibility in terms of choosing their preferred contractor.
It can allow early supplier involvement.
Time and cost savings are involved in removing the tendering process.

Disadvantages of Tender Negotiations:

The costs may be driven up by the lack of competitive bidding.
It can be seen as anti-competitive and exclusive, with the potential for ‘cozy’ relationships to develop between the client and the supplier.
Unless it is carefully structured and controlled, the negotiation process can create an adversarial atmosphere, even before the contract has been awarded.
There is a heavy reliance on trust between the parties.

Conclusion:

The above points prove that Tender Negotiations are an integral part of the tendering process. However, it is equally important to know the criteria for tender evaluation.

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