winning tenders / securing tenderers in a competitive construction market - november 2016,...
TRANSCRIPT
Winning tenders / securing tenderers in acompetitive construction marketNovember 2016, Nottingham
Winning tenders / securingtenderers in a competitive
construction market
A joint seminar byBrowne Jacobson and Turner & Townsend
Overview• In this talk we will consider:
• Regional market conditions in the East Midlands
• What do employer’s want from their tendering contractors?
• How can employer’s make their tenders attractive in an increasinglycompetitive market?
• Key points to take away from this talk are:
• Preparation
• Sensible attitude to risk
• Having clear expectations
Tendering – ‘What do you want?’
Outputs
EmployerEmployer ContractorContractor
• Competition / Multiple Tender Returns
• Completely Aligned with Requirements
• Risk Transfer
• Flexibility
• On Budget / On Programme
• Delivered Safely
• Zero Defects
• Attention of their Supply Chain
• Realistic, Unambiguous Requirements
• Risk Transfer
• Repeat Business Opportunities
• Interesting Projects
• Clauses / Contract Terms that are relevant
to the project
• Certainty / Profitability
To ensure we do the right thing, we need to understand the wider market place
Employer and Contractor objectives –bridging the gaps
• Flexibility (such as voluntary termination and omission of works)versus certainty (guaranteed work and income)
• Different attitudes to risk – risk should be placed with the partybest placed to manage it
• Appropriate payment mechanism and periods for payment
Regional market conditionsEast Midlands
T end er Pr ice Inf lat io n Ind ex: C o mp ariso n o f C o mp et it o r F o recast
0%2%4%6%8%
10%12%14%16%18%
Average exc T&T T&T G&T Gleeds
An
nu
al P
erce
nta
ge
Ch
ang
e (%
)
2016 2017 2018 2019 2020
Assorted Consultants
Tender Price Inflation Forecast
Overview of Market Conditions 3Q2016
Fairly busy with effects of ‘Brexit’ not immediatelyfelt
Uncertainty looking ahead
Good visibility of future projects
Cautious approach is unfolding to investmentdecisions and to tenders
Tender price inflation 2.2% over coming 12 months
Material price fluctuations
Single largest supply chain challenge is availabilityof labour, placing upward pressure on cost
Regional basket of goodsEast Midlands
4.6%
4.9%
4.7%
4.1%
4.3%
4.5%
8.6%
10.8%
2.5%
3.6%
5.2%
6.5%
2.8%
0% 5% 10% 15%
Plumber/Electrician
Carpenter/Bricklayer
Carpet layer, Tiler,…
General Labourer
Site Foreman
Concrete
Reinforcement Bar
Structural Steel
Aluminium Curtain…
Aluminium Composite…
Copper Cable
Sheet Metal
50t Crane
Percentage increase (in nominal terms) of construction costs in thelast 12 months
4.3%
4.8%
4.5%
4.3%
4.5%
4.9%
6.8%
8.7%
3.9%
4.6%
4.9%
5.0%
3.5%
0% 5% 10%
Plumber/Electrician
Carpenter/Bricklayer
Carpet layer, Tiler, Plasterer
General Labourer
Site Foreman
Concrete
Reinforcement Bar
Structural Steel
Aluminium Curtain Walling
Aluminium Composite Panel
Copper Cable
Sheet Metal
50t Crane
Expected percentage increase (in nominal terms) of constructioncosts in the next 12 months
Regional market conditionsEast MidlandsOrder Book Completion
93.1%
40.1%22.5%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
2016 2017 2018
Pe
rce
ntag
e (%
)
Tendering Conditions
Lukewarm,50.00%
Warm,50.00%
Cold
Lukewarm
Warm
Contractor Portfolio
Single Stage,36.9% Two Stage,
14.4%Negotiated,
21.3%Framework,
24.4%
Other, 3.1%
Regional market conditionsEast Midlands
75% of surveyed contractorsexpect the market to remainat current levels
Equal split of remaindersuggested cooler or warmer
How do you get what you want?
EmployerEmployer ContractorContractor
• Select a Consultant Team
• Select an Appropriate Contract Form
• Develop / Understand Your Brief
• Establish a Clear Attitude to Risk
• Warm up the Market Place
• Establish Timescales
• Identify the Opportunity
• Track the Opportunity
• Establish a Clear Attitude to Risk
• Plan Resource to Respond
Preparation Stage
Risk profile – standard of design• Professional indemnity insurance linked to ‘reasonable skill and care’. Fitness for purpose is
generally uninsurable, alternative may be to produce a more detailed specification
• Contractors (and their insurers) will likely refuse to accept any deviation from the standardof reasonable skill and care
• The standard of design must be clearly drafted“The contractor warrants to the employer that:(a) the design has been and/or will be carried out with reasonable skill and care;(b) the design will, when completed, comply with any performance specification orperformance related requirements included or referred to in or forming part of thecontract documents;(c) the works will, when complete, comply with the Statutory Requirements and theConsents; and(d) the various elements of the design of the Works shall be properly coordinated andintegrated.”
• Note that only bullet point (a) is tied back to the standard of reasonable skill and care, therest are absolute obligations.
• Important distinction between standard of ‘architect’ and ‘design and build contractor’
Risk profile – ground and site risk• Employers may desire contractors to accept responsibility for unforeseeable
ground and site risk. This should be applied in the context of specific projectrisks, for example:
• Does the project involve a clear demolished site, or does it involve work toan existing structure?
• What information can the employer provide the contractor in relation to thesite and is the contractor allowed to rely on that information?
• What is the employer willing to pay for the contractor to accept responsibilityfor ‘unforeseeable’ site and ground risks?
Risk profile - general• Indemnities:
• Are they required?• If so, in relation to what loss or damage?
• Security:• What does the employer require?• What is the contractor able to offer?• What are the costs
• Specified perils
• Responsibility for the Employer’s Requirements:• Design and build – can the employer procure novations of the design consultants?• Traditional – if contractor is responsible for Employer’s Requirements, from a
practical perspective the contract drawings which do not form part of thecontractor’s designed portion should not be included in the Employer’sRequirements.
• Third party agreements
Incentivisation
• Choose the right contractual payment mechanism, i.e. lump sum fixed price,cost reimbursable, pain/gain
• Consider the length of the contract and who should bear the risk for changes influctuation costs
• Cash flow – agreeing appropriate payment durations
• Employers must illustrate confidence in themselves and their projects totendering contractors
• KPIs or continuous improvement
How do you get what you want?
EmployerEmployer ContractorContractor
• PQQ is to Establish Capability
• Direct the Questions Appropriately
• Easy for the Contractor to Complete
• Consider Processes & Policies
• Issue on Time
• PQQ is a Process of Exclusion
• Answer the Questions
• Demonstrate Experience
• Consider the Relevance of Your Response
Pre Qualification Stage
Process and policies
• Employers need to make clear which policies and process it requires contractorsto comply with, i.e. anti-bribery, freedom of information, data protection,modern slavery act
• Contractor’s must ensure they have appropriate procedures in place – don’t fallat the first hurdle!
• Browne Jacobson can provide a Modern Slavery Act toolkit
How do you get what you want?
EmployerEmployer ContractorContractor
• Place Risk where Appropriately Managed
• Incentivisation
• Timescales – Know the Market & Inputs
• Be Open
• Answer the Questions
• Demonstrate Experience
• Consider the Relevance of Your Response
• Avoid Standard Corporate Literature
• Don’t be Afraid to Ask Questions
• Share Innovation / Opportunity
• Be Open
Tender Stage
Conclusion• Some Uncertainty in the Market Place. Employers are more careful with money &
don’t want to take undue risk, but don’t have the resource to manage it. This isfuelling an increased behaviour of risk transfer.
• Contractor’s and supply chain don’t want to take on high risk projects.
• Employers should:• Prepare tender documents• Have a sensible attitude to risk• Have clear expectations on what they expect for their project
• Contractors should:• Prepare for tender responses and thoroughly review contract documents• Have a sensible attitude to risk• Have clear expectations on their key drivers for the project
Thank you