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