estimator's pocket book

Estimators Pocket Book


duncan cartlidgE

duncan cartlidgE

QUANTITY SURVEYING

The Estimators Pocket Book is a concise and practical reference covering the main pricing approaches, as well as useful information such as how to process sub-contractor quotations, tender settlement and adjudication. It is fully up-to-date with NRM2 throughout, features a look ahead to NRM3 and describes the implications of BIM for estimators.

It includes instructions on how to handle:

the NRM order of cost estimate;

unit-rate pricing for different trades;

pro rata pricing and dayworks;

builders quantities;

approximate quantities.

Worked examples show how each of these techniques should be carried out in clear, easy-to-follow steps. This is the indispensible estimating reference for all quantity surveyors, cost managers, project managers and anybody else with estimating responsibilities. Particular attention is given to NRM2, but the overall focus is on the core estimating skills needed in practice.

Duncan Cartlidge is a Fellow of the Royal Institution of Chartered Surveyors with more than 25 years involvement in construction. His experience includes private practice in both the UK and Europe, commercial management for leading European contractors, and managing and delivering graduate and postgraduate programmes in surveying and related topics. He is an Associate Tutor at the College of Estate Management, Reading, and a Visiting Lecturer at Glasgow Caledonian University, and sits on the Quantity Surveying and Construction Professional Group Board of the RICS.

www.duncancartlidge.co.uk

Routledge titles are available as eBook editions in a range of digital formats

www.routledge.com

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The Estimators Pocket Book is a concise and practical reference covering the mainpricing approaches, as well as useful information such as how to process sub-contractor quotations, tender settlement and adjudication. It is fully up-to-datewith NRM2 throughout, features a look ahead to NRM3 and describes the impli-cations of BIM for estimators.

It includes instructions on how to handle:

the NRM order of cost estimate; unit-rate pricing for different trades; pro rata pricing and dayworks; builders quantities; approximate quantities.

Worked examples show how each of these techniques should be carried out in clear, easy-to-follow steps. This is the indispensible estimating reference for allquantity surveyors, cost managers, project managers and anybody else with esti-mating responsibilities. Particular attention is given to NRM2, but the overall focusis on the core estimating skills needed in practice.

Duncan Cartlidge is a Fellow of the Royal Institution of Chartered Surveyors with more than 25 years involvement in construction. His experience includesprivate practice in both the UK and Europe, commercial management for leadingEuropean contractors, and managing and delivering graduate and postgraduateprogrammes in surveying and related topics. He is an Associate Tutor at the Collegeof Estate Management, Reading, and a Visiting Lecturer at Glasgow CaledonianUniversity, and sits on the Quantity Surveying and Construction Professional GroupBoard of the RICS. www.duncancartlidge.co.uk

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Duncan Cartlidge FRICS

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First published 2013by Routledge2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN

Simultaneously published in the USA and Canadaby Routledge711 Third Avenue, New York, NY 10017

Routledge is an imprint of the Taylor & Francis Group, an informa business

2013 Duncan Cartlidge

The right of Duncan Cartlidge to be identified as author of this work has been asserted by him in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988.

All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers.

Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe.

British Library Cataloguing in Publication DataA catalogue record for this book is available from the British Library

Library of Congress Cataloging-in-Publication DataCartlidge, Duncan P.

Estimators pocket book / Duncan Cartlidge.pages cm

Includes bibliographical references and index.1. Building--EstimatesHandbooks, manuals, etc. I. Title. TH435.C363 2013692'.5dc23 2012037995

ISBN13: 978-0-415-52711-8 (pbk)ISBN13: 978-0-203-57909-1 (ebk)

Typeset in Goudy byKeystroke, Station Road, Codsall, Wolverhampton

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DedicationAmelia and Daniel

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Contents

Preface ix

1 Introduction to estimating 1

2 Pre-tender estimating 38

3 Resources 67

4 Unit-rate pricing 87

5 Tender settlement/adjudication 221

6 The supply chain 252

7 Applied estimating 275

Appendix A: Indicative costs per square metre for a range of building types 292

Appendix B: Useful rules and conventions 294

Further reading 299

Index 302

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Preface

Estimating, like measurement, is one of the core skills of construction profes-sionals, and success as an estimator relies, among other things, on a soundknowledge of the relevant technologies. However, in recent years, with theincreasing use of sub-contractors, estimating from basic principles has tendedto be left out of university courses and training programmes. Not only areestimating skills required for preparing bids, but also during the post-contractphase they are essential when negotiating rates and prices for settling finalaccounts and claims. When times are hard and work scarce, the role of estimatorsbecomes even more crucial, as they are the people within a contracting organi-sation who win work, keeping the cash flow flowing and the ever more slimprofit margins intact. Estimators are to be found in a wide range of organisationsacross the building, civil engineering, and mechanical and electrical sectors,working for main contractors, sub-contractors and component manufacturers.

Estimating tends to be a specialism that people come to during their profes-sional lives and learn on the job. To the authors knowledge, there are no degreeprogrammes or courses in estimating in the UK hence the need for a pocketbook for construction professionals and students.

The increased pervasiveness of systems like BIM claim to reduce the need forthe manual measurement, quantification and costing of building projects whether this is the future is anyones guess; however, the time when sophis-ticated software will ever be able to carry out tender adjudication and assess riskand negotiate with the bank is perhaps a few years away yet!

Forty years or so ago, the majority of work was based on a fully detailed billof quantities, prepared by a quantity surveyor employed by the client; typically,the tender would have been based on a detailed bills of quantities. In the modernconstruction market, bids are now based on a variety of approaches, includingwork packages, cost plans, and drawings and specification, requiring contractorsand sub-contractors to be flexible in their approaches to formulating a bid andidentifying risk.

The examples in this pocket book are based entirely on the RICS New Rulesof Measurement 2: Detailed Measurement for Building Works.

Duncan Cartlidgewww.duncancartlidge.co.uk

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1Introduction to estimating

Estimators are to be found in a wide range of organisations across the building,civil engineering, and mechanical and electrical sectors, working for maincontractors, sub-contractors and component manufacturers. Estimating, likemeasurement, is one of the core skills of quantity surveyors and constructionmanagers, and success as an estimator relies on a sound knowledge of therelevant technologies; however, over the recent past, with the increasing useof sub-contractors, estimating from basic principles has tended to be left outof university courses and training programmes. Estimators carry a great respon-sibility, as they are the people within a contracting organisation who win work,keeping the cash flow flowing and the profit margins intact. Estimating tendsto be a specialism that people come to during their professional lives and learnon the job. To the authors knowledge, there arent any degree programmesor courses in estimating in the UK. Estimators are responsible for the prepa-ration of tenders or bids that are submitted within a given time frame andusually in competition with other contractors or sub-contractors, to win work.The format and extent of the information that estimators are supplied withto prepare a bid will vary according to the procurement strategy. Forty yearsor so ago, the majority of work was based on a fully detailed bill of quantities,prepared by a quantity surveyor employed by the client, and typically thetender would have been based on:

two copies of the bills of quantities; indicative drawings; form of tender; instructions for receipt of tender; technical reports/studies.

More recently, the format and the completeness of tender documentation havetended to vary considerably, with the traditional bills of quantities being usedless and less. Lic

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Generally, there are two strategies for obtaining a bid:

by negotiation; or by competition.

NEGOTIATION

Negotiation involves the client and contractors representatives sitting downand negotiating a price for a project without the benefit of competition fromother contractors. It is viewed with suspicion by many who consider that,without competition, a contractor will take advantage of the situation andnegotiate a higher than market price as the client has no alternative otherthan to accept it. However, the advantage of negotiation is that the esti-mating/bidding process can be shorter than with the competitive approachand that if there is trust between the parties the tender can be no more costlythan by introducing competition. Due to the potential to deliver a projectearlier than otherwise would have been the case, project finance may berecouped earlier and finance charges reduced. In this situation, the estimatorwill be involved in providing the negotiator with data on materials, labourand plant costs, etc. This technique will be discussed later in Chapter 7.

COMPETITION

The majority of work in the construction industry is won through competition,with three or four contractors or sub-contractors submitting confidential bids;it is a system that nearly always guarantees that the lowest price wins. Themost popular procurement routes that use competition are:

single-stage competitive tendering; two-stage competitive tendering; design and build.

PROCUREMENT ROUTES

Single-stage selective tendering

The approach to the estimating and bidding process will vary according to theprocurement strategy adopted by the client for a project. The procurementroute will also affect the type of documentation and other tender informationreceived by the estimator. During the 1960s in the UK, the traditional strat-egy described below was the most commonly used form of construction

Estimators Pocket Book2

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procurement involving a bill of quantities, with approximately 60% plus ofall contracts being let on this basis in both the public and private sectors. Inrecent times client pressure has seen its popularity decrease to around 40%.This approach to procurement is also commonly referred to as architect leadprocurement as traditionally the client has chosen and approached an archi-tect in the first instance; it is then the architect who assembles the rest of thedesign team: structural engineer, services engineer, quantity surveyor, etc. Thechief characteristics of traditional single-stage competitive tendering are asfollows:

It is based on a linear process with little or no parallel working, resultingin a sometimes lengthy and costly procedure.

Competition or tendering cannot be commenced until the design iscompleted.

The tender is based on fully detailed bills of quantities. There is a lack of contractor involvement in the design process, with the

design and technical development being carried out by the clients con-sultants, unlike some other strategies described later.

Other procurement paths have attempted to shorten the procurement processwith the introduction of parallel working between the stages of client brief,design, competition and construction. During stages C, D and E Concept,Design Development and Technical Design of the RIBA Plan of Work, thequantity surveyor should draw up a list of tenderers. The list should comprisethree contractors/sub-contractors who are to be approached to carry out thework. The list may be extended to six in the public sector, although it isincreasingly difficult to find this number of competent contractors that areavailable at the same time. During the preparation of the bills of quantities,the quantity surveyor should contact prospective firms that have the approvalof the client and the architect, to determine whether they are available to bidfor the project. In the first instance, this is done by telephoning the chiefestimator of a prospective contractor and giving brief details of the proposedproject, including the approximate value, the date for dispatch of documentsand the starting date. The decision on whether or not to tender for a projectwill be influenced by:

workload; future commitments; market conditions; capital; risk;

Introduction to estimating 3

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prestige; estimating workload; timing one of the decisions that will have to be taken by the design team

is the length of the contract period, a critical calculation, as successfulcontractors will be liable to pay damages in the event of delays and non-completion.

If the contractor is interested and available for the project, the enquiry isfollowed up with a letter giving the following information:

name of client, architect and other lead consultants; name and type of project; location; approximate value; brief description; date for dispatch and return of tenders; start on site and contract duration; form of contract; particular conditions applying to the contract.

When the single-stage procurement route is used, the estimating departmentwill receive the following documentation during RIBA Plan of Work Stagesand stages Pre-Construction F, G and H Production Information, TenderDocumentation and Tender Action:

two copies of the bills of quantities, one bound and one unbound (thebound copy is for pricing and submission, the unbound copy is to allow thecontractor to split the bills up into trades so that they can be set to sub-contractors for pricing);

indicative drawings on which the bills of quantities were prepared; the form of tender a statement of the tenders bid; instructions (precise time and place) and envelope for the return of the

tender.

Only indicative drawings are sent out with the tender documents; however,details are also given of where tenderers may inspect a full set of drawings,usually the architects office. Details should also be included of times whentenderers may gain access to the site.

The usual time given to contractors for the return of tenders is four weeks,although for a particularly complex project this may be six weeks. The tenderdocuments contain precise details for the return of the tender, usually 12 noon


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at the selected date at the architects office. Note that the system describedabove is the one used in England and Wales; in Scotland it is slightly differentin so far as the tenderers submit a priced bill of quantities, not just a form oftender for consideration.

It is common during the tender period for contractors to raise queries withthe quantity surveyor on the tender documentation. If errors, omissions orother anomalies come to light then the quantity surveyor, once the problemhas been resolved, must communicate the result in writing, to all tenderers,so that they continue to work on the same basis.

Completed tenders are submitted to the architects office on or before therequired deadline stated in the instructions. Any tenders that are submittedlate should be discarded as it is thought that late submission may have madeit possible to gain an unfair advantage. In England and Wales, a submittedtender may be withdrawn any time prior to acceptance.

The tenders are opened and one selected but what criteria should be usedfor selection? Traditionally, the lowest price was chosen on the basis that thisprovides the client with the best value for money; however, there is an increas-ing realisation that the cheapest price may not provide clients with the bestvalue for money over the life cycle of a building.

One tender is chosen and another bid is selected as a reserve. Both selectedand reserve tenderers are informed, with the first-choice bidder being instructedto submit fully priced bills of quantities for checking as soon as possible, usuallywithin 48 hours. The unsuccessful tenderers are told that they have not wonthe project. Bills of quantities are very comprehensive documents, containingthousands of individual prices and other data relating to a contract and it isnow the responsibility of the quantity surveyor to check the bills and preparea tender report for the client.

Tender evaluation

The tender evaluation should be treated as a confidential exercise. Once thequantity surveyor is handed the priced bills of quantities, the due diligenceand evaluation can begin. The checks that should be carried out are as follows:

Arithmetical checks confirm that prices have been extended correctly andthat page totals are accurate and have been correctly carried forward totrade/element summaries and from there to the main summaries. It is notuncommon for extended bill rates to have errors, and any such errors shouldbe noted. In the JCT Practice Note 6, there are two accepted ways to dealwith errors in computation:


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The tenderer should be given details of the errors and allowed theopportunity of confirming or withdrawing the offer. In other words, the tenderer would proceed as if the error had not been made. If thetenderer withdraws the offer, the second reserve bills of quantitiesshould be called for and examined. An amendment, signed by bothparties to the contract, should be added to the priced bills indicatingthat all measured rates are to be reduced or increased in the same pro-portion as the corrected total of priced items exceeds or falls short ofsuch items.

In the second alternative, the tenderer should be given the opportunityof confirming the offer or of amending it to correct genuine errors.Should the tenderer elect to amend the offer and the revised tender isno longer the lowest, the offer of the reserve tenderer should be exam-ined. If the errors are accepted by the tenderer then the rates in questionshould be altered and initialled.

Any items left unpriced should be queried with the tenderer. The general level of pricing should be examined and in particular the

following checks should be made:

Similar items that appear in different parts of the bills should be pricedconsistently, for example excavation items that appear in substructure,external works and drainage.

Items that are marked provisional and are therefore to be re-measuredduring the course of the works should have been priced at rates that areconsistent with the rest of the works.

There should be a check for caveats inserted by the contractor, forexample Removal and disposal of all protective materials has not beenincluded in the prices.

Once these checks have been carried out and the tender is free of errors, thequantity surveyor can recommend acceptance.

Advantages and disadvantages of single-stage competitive tendering

The advantages of single-stage competitive tendering are as follows:

It is well known and trusted by the industry. It ensures competitive fairness. For the public sector, it allows audit and accountability to be carried

out. It is a valuable post-contract tool that makes the valuation of variations

and the preparation of interim payments easier.


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The disadvantages are as follows:

It is a slow sequential process. There is no contractor or special involvement. Pricing can be manipulated by tenderers, and is expensive.

A modern variation on the traditional single-stage selective tendering theme

A fully developed business case is subjected to rigorous cost planning byconsultants in conjunction with the client.

Suitable contractors, say two or three, are pre-selected using appropriateselection criteria, such as:

commitment to supply chain management; the ability to guarantee life-cycle costs; capability to deliver the project.

The pre-selected contractors are asked to fully cost the project proposalsand submit their Best and Final Offer (BFO).

On the basis of the BFO, a contractor is selected and enters into a contractguaranteeing the BFO price and in some cases whole-life costs for a pre-determined period.

Work starts on site.

Two-stage competitive tendering

This was first used widely in the 1970s, based on traditional single-stage com-petitive tendering, i.e. with bills of quantities and drawings being used toobtain a lump-sum bid. Advantages include early contractor involvement, afusion of the design/procurement/construction phases and a degree of parallelworking that reduces the total procurement and delivery time. A furtheradvantage is that documentation is based upon bills of quantities and thereforeshould be familiar to all concerned. Early price certainty is ruled out, as theclient can be vulnerable to any changes in level in the contractors pricing,between the first and second stages.

Stage 1

The first-stage tender is usually based on approximate bills of quantities; how-ever, this does not have to be the case, and other forms of first stage evaluationmay be used, for example a schedule of rates, although there is perhaps agreater degree of risk associated with this approach. As drawn information,


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both architectural and structural, is very limited, the choice of bid docu-mentation will be influenced by the perceived complexity and predictabilityof the proposed project. The two-stage approach places pressure on designersto take decisions concerning major elements of the project at an earlier stagethan normally. Assuming that bills of approximate quantities are being used,they should contain quantities that reflect:

items measured from outline drawings; items that reflect the trades it is perceived will form part of the developed

design; items that could be utilised during the pricing at the second stage.

At an agreed point during the preparation of the first-stage documentation,the design for the first stage is frozen, thereby enabling the approximate billsof quantities to be prepared. Without this cut-off point, the Stage 1 docu-mentation could not be prepared. Note that it is important to keep a registerof which drawing revisions have been used to prepare the Stage 1 documen-tation for later reference during the preparation of the firm Stage 2 bills ofquantities. However, while the first-stage documentation is being prepared,the second-stage design development can continue. During the first-stagetendering period, attention should be focused on the substructure, as it isadvantageous if at the first tendering stage this element is firm. If a contractoris selected as a result of the first-stage tender then they may well be able tostart on site to work on the substructure while the remainder of the project isdetailed and the second-stage bills of quantities are prepared and priced.

When this procurement route is used, the estimator will have the task ofpreparing a competitive bid based on limited information. It should also beremembered that the rates included in the first-stage approximate bill ofquantities will form the basis for negotiating the second-stage detailed bill of quantities, should the first stage prove to be successful. The estimator shouldtherefore be alert to the temptation of including low rates just to win the first-stage tender.

Once completed, the first-stage approximate bills of quantities togetherwith other documentation are despatched to selected contractors withinstructions for completion and return in accordance with normal competitivetender practice. On their return, one contractor is selected to proceed to thenext phase. It should be noted that selection at this stage does not automat-ically guarantee the successful first-stage bidder award of the project this isdependent on the second-stage bidding process.

At this point, the trust stakes are raised assuming that a contractor isselected as a result of the Stage 1 tender, the following scenarios could apply:


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Client Contractor

The client trusts the contractor Although selected by to be fair and honest during the the Stage 1 process, there is noStage 2 negotiations. Failure could guarantee of work. There is no result in the client having to go knowledge as to the accuracyback to the start of the process. of the first-stage documentation or

the clients commitment to continue.

The client could ask the contractor The contractor could be asked toto join the design team to assure start on site on the substructurebuildability. while Stage 2 is progressed.

The client relies on the design team The contractor is rewarded on theto prepare documentation for Stage basis of letters of intent, quantum2 timeously. If Stage 2 bills of merit, etc. quantities are not accurate, the work will have to be remeasured for a third time!

The client could, under a separate The contractor could exploit their contract engage a contractor to position during Stage 2 pricing.carry out site clearance works whileStage 1 bids are evaluated.

Stage 2

The purpose of Stage 2 is to convert the outline information produced duringStage 1 into the basis of a firm contract between the client and the contractor,as soon as possible. With a contractor selected as a result of the first-stageprocess, pressure is placed on the design team to progress and finalise thedesign. Between contractor selection and Stage 2, usually a matter of weeks,the design team should prepare and price the second-stage bills of quantities.During this phase, it is usually the quantity surveyor who is in the driving seatand he or she should issue information production schedules to the rest of thedesign team. As design work on elements is completed, it is passed to thequantity surveyor to prepare firm bills of quantities, which are used to negotiatethe second-stage price with the contractor on a trade-by-trade or elementalbasis. It is therefore quite possible that the contractor will be established onsite before the Stage 2 price is fully agreed. Unless the parameters of the projecthave altered greatly, there should be no significant difference between theStage 1 and Stage 2 prices. Once a price has been agreed, a contract can besigned and the project reverts to the normal single-stage lump-sum contract


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based on firm bills of quantities; however, the adoption of parallel workingduring the procurement phase ensures that work can start on site much earlierthan in the traditional approach. Also, the early inclusion of the main con-tractor in the design team ensures baked-in buildability and rapid progress onsite.

DESIGN AND BUILD AND VARIANTS

Design and build, or design and construct, is a generic term for a number ofprocurement strategies where the contractor both designs and carries out theworks. This approach is extensively used in France, where both contractorsand private practices are geared up to provide this service to clients. In theUK, this approach has only become common during the last thirty years or so.The various forms of design and build are as follows.

Traditional design and build (D&B)

The contractor is responsible for the complete design and construction of theproject. D&B is one of the procurement systems currently favoured by manypublic sector agencies. During the past decade, the use of D&B variants in allsectors has increased from 11% in 1990 to 40% in 2012, for the followingreasons:

D&B gives a client the opportunity to integrate, from the outset, the designand the construction of the project.

The client enters into a single contract with one company, usually acontractor who has the opportunity to design and plan the project in sucha way as to ensure that buildability is baked into the design.

With specialist involvement from the start, this approach promises ashorter overall delivery time and better cost certainty than traditionalapproaches.

Studies have indicated that D&B outperforms traditional forms of procure-ment in several respects, although the differences are not that significant.One reason for this could be that, within the UK, for the organisations thatprovide D&B services, this is not their key competence and therefore whenthe opportunity comes to bid for a D&B project, temporary organisationsof designers and constructors have to be formed specifically for the project.For the contractor and the designers the next project may be traditionalcontracting and therefore the temporary organisation is disbanded.

Studies have also concluded that although delivery times are shorter whenusing D&B, the improvements in cost certainty are only marginal.


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The total delivery speed of D&B compared with traditional approaches is3033% faster.

The percentage of projects that exceeded the original estimate by morethan 5% was 21% in D&B compared with 32% for traditional procurement.

D&B is recommended by the Office of Government Commerce forprocurement within a partnership arrangement.

The main criticisms of D&B procurement are centred around the lack ofcontrol over quality of design, with little time being allocated for design devel-opment, and possible compromises over quality to provide cost savings by thecontractor. It is possible for the client to employ independent professionaladvice to oversee a D&B contract.

Successful use of D&B relies on the contractor preparing proposals thatinclude:

a contract sum analysis that itemises the financial detail on an elementalbasis;

detailed proposals of how the requirements of the clients brief will satisfied.

When D&B is chosen as the procurement route, the contractor will be respon-sible for design, estimating and building the project. It is unlikely that a bill ofquantities will be prepared; instead the contractor will prepare a number of workpackages to be priced by sub-contractors in the order required by the project.The process gives more latitude to the contractor to manage the process in away that maximises profit and delivers the project in the shortest possible time.

For these reasons, tender appraisal can be more difficult when using D&Bas a decision on which tender to accept depends not only on the pricessubmitted but also on the quality of the design and the delivery time. D&Bprocurement is organised in exactly the same way as single-stage lump-sumprocurement, with the drawing up of a short list and bids being submitted toa strict timetable.

Other variants of design and build

Other variants of design and build are:

enhanced design and build the contractor is responsible for the designdevelopment, working details as well as the construction of the project.

novated design and build the contractor is responsible for the designdevelopment, working details and supervising the sub-contractors, withassignment/novation of the design consultants from the client. This meansthat the contractor uses the clients design as the basis for their bid.


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package deal and turnkey the contractor provides standard buildings orsystem buildings that are in some cases adapted to suit the clients spaceand functional requirements.

MANAGEMENT PROCUREMENT

During the 1970s and particularly the 1980s, commercial clients and propertydevelopers started to demand that projects be procured more quickly than hadbeen the case with single-stage selective tendering. The three main manage-ment systems are:

management contracting; construction management; design and manage.

With fast-track methods, the bidding and construction phases are able tocommence before the design is completed and there is a degree of parallelworking as the project progresses. This obviously is high-risk as the wholepicture is often unknown at the time the works commence on site. This riskis exacerbated when this strategy is used for particularly complex projects orrefurbishment contracts.

Management contracting

Management contracting is popular not only with developers, as projects aredelivered more quickly, but also with contractors, as the amount of exposureto risk for them is substantially lower than for other forms of procurement.This is because a management contractor only commits the managementexpertise to the project, leaving the actual construction works to others.Management contracting was first widely used in the 1970s and was one ofthe first so-called fast-track methods of procurement that attempted to shortenthe time taken for the procurement process. When this procurement methodis adopted, the clients quantity surveyor will prepare a number of workpackage bills of quantities to be priced by sub-contractors.

Procurement is as follows:

Selection of a management contractor: as the management contractorsrole is purely to manage, it is not appropriate to appoint a contractor usinga bill of quantities. Selection is therefore based on the service level to beprovided, the submission of a method statement and the management fee,expressed as a percentage of the contract sum. This can be done on a


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competitive basis. As the management contractors fee is based on the finalcontract sum, there is little incentive to exert prudence.

The management contractor only bids to supply management expertise,although sometimes they can also supply the labour to carry out the so-called builders work in connection with services, as this work package can bedifficult to organise.

The project is divided into work packages, typically between 20 and 30,for example groundworks, concrete work, windows and external doors, andsuspended ceilings. The work packages are in effect a series of mini bills ofquantities, produced in accordance with NRM2, and therefore the timeallowed for pricing an individual package can be reduced to around twoweeks. The procedure for asking for bids is the same for single-stage selec-tive tendering.

At the same time, the cost of the project must be determined and thereforean estimated prime cost is established for each package. For the quantitysurveyor, this can be problematic as the design is incomplete and thereforeestimates of costs tend to be detailed cost plans, agreed with the manage-ment contractor.

Package by package, the works are sent to tender; when a contractor isappointed based on the mini bills of quantities, the contractor enters intoa contract directly with the client. Therefore, at the end of the process,there are 20 or 30 separate contracts between the management contractorand the work package contractors; there is no contract between the clientand the work package contractors.

The management contractors role therefore is to coordinate the workpackages on site and to integrate the expertise of the clients consultants.

Payment is made on a monthly basis to the management contractor, whoin turn pays the package contractors in accordance with the valuation.

The advantages are that work can start on site before the design work iscomplete, there is earlier delivery of the project and the return on clientsinvestment, and the client has a direct link with the package contractors.

In order to provide a degree of protection for the client, a series of collateralwarranties can be put in place.

The disadvantages are that there is a high risk for the client, a firm priceis not known until the final package is let, it is difficult for the quantitysurveyor to control costs, and any delay in the production of informationby the design team can have disastrous consequences on the overall projectcompletion.

A distinct JCT form of contract exists for management contracts.


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Construction or contract management

This is similar in its approach to management contracting in as far as theproject is divided into packages; however, the construction manager adopts aconsultants role with direct responsibility to the client for the overall man-agement of the construction project, including liaison with other consultants.Construction managers are appointed at an early stage in the process and, aswith management contracting, reimbursement is by way of a pre-agreed fee.Each work package contractor has a direct contract with the client, this beingthe main distinction between the above two strategies.

Design and manage

When this strategy is adopted, a single organisation is appointed to both designthe project and manage it using work packages. It is an attempt to combinethe best of design and build and management systems. The characteristics areas follows:

A single organisation both designs and manages. The design and management organisation can be either a contractor or a

consultant. Work is let in packages with contracts between the contractor or client,

dependent on the model adopted. Reimbursement is by way of an agreed fee.

Cost reimbursement contracts

Cost plus

Cost-plus contracts are best used for uncomplicated, repetitive projects suchas a roads contract. The system works as follows:

The contractor is reimbursed on the basis of the prime cost of carrying outthe works, plus an agreed cost to cover overhead and profit. This can bedone by the contractor submitting detailed accounts for labour, materialsand plant that are checked by the quantity surveyor. Once agreed, thecontractors costs are added.

There is no tender sum or estimate. The greater the cost of the project, the greater the contractors profit. The estimator has little to do in this method of procurement apart from

calculate the percentage addition.


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Target-cost

A variant of cost-plus contracts, this strategy incentivises the contractor byoffering a bonus for completing the contract below the agreed target cost.Conversely, damages may be applied if the target is exceeded.

Term contracts/schedule of rates

This approach is suitable for low-value repetitive works that occur on anirregular basis. Contractors are invited to submit prices for carrying out a rangeof items based on a schedule of rates. Contractors are required to quote apercentage addition on the schedule of rates. It is used extensively for main-tenance and repair works.

Negotiated contracts

This strategy involves negotiating a price with a chosen contractor or con-tractors, without the competition of the other methods. Generally regardedby some as a strategy of the last resort and an approach that will almost alwaysresult in a higher price than competitive tendering, it has the followingadvantages:

an earlier start on site than other strategies; the opportunity to get the contractor involved at an early stage.

The contractors selected for this approach should be reputable organisationswith a proven track record and the appropriate management expertise.

RULES FOR PREPARING BILLS OF QUANTITIES/WORK PACKAGES

A large percentage of tender documentation is prepared in accordance withrules of measurement, principally New Rules of Measurement 2 and the CivilEngineering Standard Method of Measurement 4 for civil engineering works.A quick glance at NRM2 and CESMM4 may seem to suggest that in terms offormat and appearance they are very similar; however, the documents havebeen developed over the years to meet the needs and working practices of verydifferent industries. The essential differences between the two approaches areas follows. Until the publication of NRM2, the SMM7 gave no guidance onthe format or preparation of a bill of quantities/work package; it was merely aset of measurement rules. This has been addressed by Part 2 of NRM2, whichcontain guidance on such things as:


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2.2 Purpose of bill of quantities2.3 Benefits of bill of quantities2.4 Types of bill of quantities2.5 Preparation of bill of quantities2.6 Composition of a bill of quantities.

albeit for guidance purposes only. For example, the following items appear ina work package:

Bill No. 1: Main contractors preliminariesBill No. 2: Intrusive investigationsBill No. 3: Demolition worksBill No. 4: GroundworksBill No. 5: PilingBill No. 6: Concrete worksBill No. 7: Roof coverings and roof drainageBill No. 8: External and internal structural wallsBill No. 9: CladdingBill No. 10: Windows and external doorsBill No. 11: MasticBill No. 12: Non-structural walls and partitionsBill No. 13: Etc.

In contrast, CESMM4 is more prescriptive in its approach, describing itself assetting out a procedure according to which Bills of Quantities shall beprepared. In the same way, when measuring in accordance with NRM2 thequantity surveyor has licence to construct descriptions using the rules as thebasis, perhaps adding in non-standard phrases or items, whereas CESMM4 isvery specific to point out that work should be itemised and described inaccordance with the Work Classification.

SOURCES OF INFORMATION

Where does an estimator find information on rates and prices? There are a num-ber of sources, some more reliable than others, the main ones being as follows:

A firms own cost records these may take the form of previous successfulpriced bills of quantities or schedule of rates or may be more detailedinformation on labour outputs and constants for a range of trades andoperations. This information is usually closely guarded as it is commerciallysensitive.


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Every year around November, a number of builders price books arepublished. Perhaps the most well known is Spons Architects and BuildersPrice Book compiled by Davis Langdon, which is now in its 139th edition.Over the past 40 years or so Spons Architects and Builders Price Book hasspawned a number of other versions, including Civil Engineering andHighway Works, Mechanical and Electrical Services, and External Works andLandscape, priced at between 115 and 145. Many price books are nowlinked to web-based resources so that pricing data can be kept up to date.

Estimating software discussed in Chapter 7. The Building Cost Information Service. Builders merchants. Sub-contractors.

OPERATIONAL ESTIMATING

Operational estimating is widely used when pricing civil engineering workswhen it is necessary to consider the overall duration of an operation/operationsand the interaction with other trades. One of the fundamental differencesbetween the civil engineering and building contract documentation is that a typical bill of quantities, prepared in accordance with NRM2, will be adetailed schedule of items presented in either elemental or trade format. Civilengineering projects, which are always based on approximate bills of quantitiesthat have to be re-measured, tend to have fewer but larger items of say bulkexcavation or concrete work, and for this reason, from a measurement andestimating perspective, civil engineering has concentrated on operationsrather than individual work (bill of quantities) items. Civil engineering pro-jects can be so large that it is unrealistic to concentrate on individual items,and therefore this approach is thought to be more realistic; see Table 1.1.

Operational approach

Traditionally, when pricing a bill of quantities or work package, the unit-rateestimating approach is adopted; however, this method is not particularly suitedto the resource-based information generated by the pre-contract planningprocess. Therefore an estimator may wish to price some parcels of work, oroperations, as a package, rather than a series of separate items or unit rates.For example, the heavy mechanical plant used in earthworks may be used overa range of different bill-of-quantities items, and therefore can be difficult toprice accurately merely by calculating a number of individual rates and addingthem together. Operational estimating therefore consists of forecasting thecost of a complete construction operation rather than building up rates for the


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individual items listed in the bills of quantities/work packages. In order toarrive at the total costs, consideration must first be given to what is involvedin each element of the operation in terms of quantities, methods and outputsand these must then be related to the programme.

This is normally done by preparing a method statement, which is anarrative of how the operation is going to be carried out. A method statementshould be prepared after an appraisal of the drawings and other relevant data,specification and bill items, as well as site conditions/constraints and healthand safety issues. An operation is defined as a piece of construction work thatcan be carried out by a gang of operatives without interruption from anothergang. A procedure diagram is provided that shows the relationship of oper-ations to each other and so which are done in sequence and which are donein parallel. This allows a critical-path analysis to be quickly created by thecontractor. There are two sections: the first deals with site operations in termsof schedules of materials, labour and plant requirements, and the second withany work prefabricated adjacent or off site. At the end of the bill, managementand plant resources are given so they are included.

Between 1960 and 1984, a quantity surveyor called Edward Skoyles wasworking at the Building Research Establishment on a number of constructionindustry practices. One of his highest-profile outputs was his work on trying to


Ref. DescriptionCLASS E: EARTHWORKS

Unit Quantity Rate

E421 General excavation; other than top soil, rockor artificial hard material; maximum depth notexceeding 0.25 m

m3 120

E422 General excavation; other than top soil, rockor artificial hard material; maximum depth notexceeding 0.250.5 m

m3 657

E532 Excavation ancillaries; disposal of excavatedmaterial other than topsoil, rock or artificialhard material

m3 267

E522 Excavation ancillaries; preparation ofexcavated surfaces; material other than topsoil,rock or artificial hard material

m2 994

E623 Filling and compaction; embankments; non-selected excavated material other than topsoilor rock.

m2 56

Table 1.1 Sample bill of quantities based on CESMM4

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convince the building industry that it should adopt operational or, as they werelater rebadged, activity bills of quantities. When an operational format isadopted, the project under consideration is divided into operations rather thanbeing described in terms of the rules of the standard method of measurement.

The advantages claimed for operational bills of quantities included:

increased accuracy and better cost control; when using operational methods, there is a clearer picture of the resources

required to complete an operation and the total costs involved.

However, the operational format for building projects never became popularfor a number of reasons, including:

operational bills of quantities are very bulky, even for small projects andmore costly to produce than traditional formats,

the operational or activity-based format does not match the models andconventions in the construction industry for pricing and storing cost data.

Consequently there is little incentive for the building industry to adopt thismodel and it has never widely done so. Even so, operational estimating is notsolely confined to civil engineering, although its use depends on a detailedunderstanding of how a particular section of the work will be carried out, forexample lifting precast concrete plank flooring into place.

Civil engineering works

Civil engineering works, by contrast, have taken a broader-brush approach toestimating, due in part to the nature of many civil engineering projects, wherelarge quantities are involved as well as extensive use of mechanical plant. Inthe case of civil engineering works, different approaches to carrying out thework can have a significant effect on prices. All the resources needed for partsof the construction are considered together, instead of in isolation; exampleswhere this approach is successfully used are:

excavation and disposal; concrete work; drainage.

There is no hard and fast rule as to where operational-based estimating tech-niques stop and unit-rate estimating begins. In fact, it can be difficult toreconcile works priced on an operational basis with a bill of quantities.


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However, operational estimating is suitable for design and build tenderingwhen the contractor can use their own approach and no bills of quantitieshave to be submitted.

UNIT-RATE OR RESOURCE ESTIMATING

A price is calculated for each item in the bill of quantities as if the item is tobe carried out in isolation from the rest of the works. This is the traditionalapproach for pricing the majority of building work. The resources required foreach bill/work package item is calculated based on the amount of labour,materials and plant required. This process will be described in more detail inChapter 4.

MECHANICAL AND ELECTRICAL WORK

Until the 1970s, it was commonplace for mechanical and electrical instal-lations (e.g. hot and cold water, lifts, and air conditioning) to be included inthe bills of quantities as a Prime Cost Sum to be carried out by a nominatedsub-contractor. Note that nominated sub-contractors are no longer appointedwhen using JCT (11). In the case of some projects, a large proportion of thetotal cost could be accounted for by way of prime cost sums. Some clientsbegan to question why quantity surveyors should receive fees for work notitemised and measured and began to demand that mechanical and electricalitems should be measured just like building works. As a result, many practices largely the big guns of the profession began to establish their own in-housedepartments in order to produce detailed bills of quantities for mechanicaland electrical work. M&E specialisation for many quantity surveyors is perhapsregarded as a risky career move when compared with mainstream practice,although in reality M&E quantity surveyors are often in great demand.

CESMM4 requires that bills of quantities include a separate section forMethod-Related Charges, which enables the contractor the opportunity toinclude lump sums relating to the intended method of working. These costsare considered to be proportional to the quantities and are not included in theprices for the individual bill-of-quantities items. These charges can be adjustedas follows if the engineer instructs the contractor to carry out the work in adifferent manner:

Original MRC cost + Additional cost = Rate

Quantity


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METHOD-RELATED CHARGES (MRC)

Method-related charges refer to a sum inserted into a bill of quantities by atenderer to cover items or work that relate to the proposed method of con-struction, the cost of which are not proportional to the quantities and whichhave not been allowed for in the rates and prices of other items. Each item formethod-related charges should be fully described so as to define precisely theextent of the work and to identify the resources used. Method-related chargesare either fixed or time-related as illustrated in Table 1.2.

Civil engineering bills of quantities are provisional and therefore have to beremeasured during the actual construction phase.

In summary, MRC:

accommodate the variability in civil engineering works; describe the cost of performing the bidding contractors intended method; are used at the discretion of the bidding contractor; allow the contractor to be paid fairly when quantities change; apply to work whose cost is not directly proportional to its quantity.

MRC can be:

time-related charges; fixed charge.

Both are priced as sums.The bidding contractor inserts a description of his chosen working method

against groups of bill items. Each bidding contractor inserts descriptions of themethod to be adopted to include:

a clear description of what the MRC relate to; a description of the plant to be used.


Ref. DescriptionGENERAL ITEMS

Unit Quantity Rate

Method-Related Charges

The contractor is to insert method-relatedcharges relating to the works.

Table 1.2

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The bill of quantities describes and anticipates a method of construction;however, the contractor may opt to use a different approach. In the case of avariation:

for a reduction in quantities, MRC are usually paid in full; for an increase in quantities, costs are adjusted using the contractors

calculation method.

BID PREPARATION

Calculating the true economic cost of carrying out the works, as described inChapter 4, for a contractor or sub-contractor is only half of the bid preparationprocess; the second stage is what is known as tender adjudication or tendersettlement.

Tender adjudication/settlement

The true commercial cost to a contractor or sub-contractor is calculated fromdetermining the cost of labour, materials and plant, but will exclude two vitallyimportant additional components:

profit; general overheads.

The level of profit enjoyed by contractors/sub-contractors in the construc-tion industry is a closely guarded secret but is generally considered to be low, possibly with the exception of house building, compared with othersectors. However, when considered against the potential risks associated with the construction process, the profit margin or mark-up appears to be almost suicidal. The level of profit will of course vary from job to job andfrom year to year depending on a number of factors as fully discussed inChapter 5.


Truecommercial cost

Tenderadjudication

Tenderfigure

Figure 1.1 Bid process

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BID MANAGEMENT

An important part of preparing a successful bid is the correct management ofthe process and in particular pre-tender planning. Pre-tender planning seeksto:

Highlight any critical or unusual activities much of what is built is bespoke, that is to say it has a degree of uniqueness, and therefore it isimportant at an early stage in the estimating process to analyse what is tobe built and identify the extent of the uniqueness and any unusual details.

Examine alternative sequences and phasing requirements site constraintsor client requirements may require site works to be carried out in a non-standard sequence that may have an impact on costs. In addition, it maybe a worthwhile exercise for the contractor/sub-contractor to examinealternative approaches to site operations to save time and cost.

Calculate the optimum duration for temporary works and plant to remainin place. Items such as scaffolding can be expensive and therefore shouldbe left in place for the shortest possible time and taken down and removedwhen no longer required.

Check whether the completion time is realistic in relation to the com-plexity of the project as non-completion may render the contractor/sub-contractor liable for damages.

In addition to the above, there are a number of external factors that can havean impact on approaches to pricing; these are best considered by addressingthe following questions:

What are we building on what are the likely site conditions, topography,water table?

What is to be built what is the specification of the new project and arenew and untried materials and components going to be used?

Are there any special design factors is the proposed project a signaturebuilding or a straightforward convention building?

What impact will regulation, building regulations, and health and safety,for example, have on the project?

A vital part of the bid management process is a site visit by the estimator andthe tendering team, and this should be undertaken as soon as possible. Asmany site photographs and videos as possible should be taken and a site visitreport completed as an aide-memoire when back at the office. If a standardsite visit report is to be compiled then it should contain provision for thefollowing:


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A description of the general locality should be included, together withother local building works currently on site. If there are other buildingworks locally, a visit could be useful if there is the opportunity to investigatecurrent excavations.

The time of the year and the anticipated weather conditions should beconsidered, since adverse winter weather can impact on trades such asexcavation and drainage.

Ground conditions should be examined, together with any signs of surfacewater excavations/test pits indicating ground conditions and water table.

Topographical details should be noted, including the position of any trees,any protection orders on these and any site clearance or demolition work.

On brownfield sites, the necessity to decontaminate or remove dangerousmaterials should be explored.

The position of the site should be considered in relation to road, rail andother transport facilities, since these could have an impact on gettingmaterials onto the site.

The availability of space for temporary accommodation should be noted. If excavation is to be carried out, the location of the nearest tip for surplus

excavated materials should be determined, together with tipping charges,which will have to be taken into account when pricing excavation items.

The position of existing services and any overhead cables should be recorded. If a tower crane is to be used, any restraints imposed by surrounding build-

ings, overhangs, etc. need to be taken into account. Site access points should be noted, together with any restrictions. Depending on the nature and location of the project, the need for security

should be considered, including watching and lighting. Finally, local contacts should be recorded, for example sub-contractors and

suppliers.

TECHNICAL REPORTS

During the estimating phase, a number of technical reports may be produced/available to the estimator, including the following.

Site investigation reports

With an increasing proportion of developments occurring on previouslydeveloped brownfield sites and ever more challenging greenfield sites, therehas never been a greater need to carry out adequate site investigations. A well-designed site investigation can often lead to project cost savings in the longterm by allowing contractors to foresee potential problems. Site investigation


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reports range from the simple to the more comprehensive comprising hundredsof pages.

Trial pits

Trial pitting can be carried out by a variety of methods from hand-dug pits tomachine-excavated trenches. It is generally carried out to a maximum depthof 4.5 m with standard excavation plant and, depending on soil conditions, isgenerally suitable for most low-rise developments.

Window sampling

Window sampling is carried out by either tracked percussive samplers or hand-held pneumatic samplers. Samples are retrieved in seamless plastic tubes forlogging by a suitably qualified engineer. Window sampling is particularly suitedto restricted-access sites, contamination investigations and where disturbancemust be kept to a minimum.

Rotary boreholes

Rotary drilling techniques are employed where boreholes are required intovery dense gravel or bedrock. Samples of bedrock are recovered in seamlessplastic tubes for subsequent logging by a suitably qualified engineer and forlaboratory testing.

Information about ground conditions will be of importance to a contractoror sub-contractor when tendering on a design and construct procurementroute, as details of ground conditions will have an impact on foundation design.When a traditional single-stage procurement strategy is used, a contractor willrefer to site investigation reports to determine the water table, for example.

CONSTRUCTION DESIGN AND MANAGEMENT (CDM)

A pre-tender health and safety file is required by the CDM Regulations (2007)and is high on the agenda of tender review meetings, as contractors and sub-contractors need to know the extent of their responsibilities. The estimatormay be assisted by the health and safety manager to develop solutions toaddress such issues as:

safe access; appropriate site facilities; environmental issues; Considerate Constructors Scheme.


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If, in the opinion of the contractor, the design appears to be unsafe, then thetender submission should be declined. Any cost implications of identifiedhealth and safety issues together with proposed solutions should be includedin the preliminaries and passed onto the sub-contractors for inclusions inquotes. Valuable advice may be obtained from specialist sub-contractors, e.g.asbestos removal.

WHAT IS TO BE BUILT?

The materials and components to be used in a project will be described in the specification that accompanies the other tender documents. Generally, aspecification will take the form of:

a prescriptive document that spells out in precise terms what materials,components and workmanship standards are required; or

a performance specification that defines the levels of performance requiredbut leaves it to the contractor or sub-contractors to use appropriate mate-rials or components to meet the performance levels; even though notprescriptive, the contractor/sub-contractor must still use materials andmeet standards defined in codes of practice and British Standards.

The specification will be prepared by the design team using their own pro-cedures, which can vary in coverage and technical coverage. It should be notedthat contractors may ignore specifications if they contain standard clauses thatare not relevant to the job being priced or are too long. Systems such as NBS(National Building Specification) are now widely used and therefore ensurethat specification materials are up to date.

The specification is a contract document and if the tender process is basedon drawings and specification, that is to say without a bill of quantities or workpackage, then the contractor or sub-contractor needs to measure and quantifywhat has to be priced. This can be done in a number of ways.

INCOMPLETE DESIGN INFORMATION

In a perfect world, all information would be available at the tender stage; how-ever, increased pressure on time and professional fees makes this increasinglyunlikely. It is therefore probable that the information available on which tobase the bid is incomplete and contractors and sub-contractors need to assessthe impact of incomplete information on bid strategy. One approach is toinclude caveats or qualifications within the tender, as these make it clear that


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certain elements of the proposed project have been excluded from the bid.The advantages of this approach are as follows:

On face value, it may appear to result in a lower price than competitors. It mitigates risk due to lack of information.

On the other hand, there are disadvantages:

The bid may be dismissed as incomplete at the tender report stage by theclients quantity surveyor.

A contractor/sub-contractor may be asked to remove caveats and supply afirm price.

A second approach is to evaluate the impact of the missing/incomplete infor-mation, assess the risk posed by incomplete information and put a price on it.The advantages of this approach are as follows:

The bid will be free from qualifications and easier to assess by the quantitysurveyor.

It gives the perception of contractor competency.

On the other hand, the disadvantage is that all risks associated with incom-plete information are transferred to the contractor.

OTHER TECHNICAL REPORTS

These may be prepared for:

special site conditions such as fire risks and security risks; the condition of existing structures or temporary works; the treatment of hazardous materials such as asbestos and contaminated

ground/buildings.

METHOD STATEMENTS

Method statements are widely used in the construction industry, in a varietyof situations, for example:

to establish safe systems of work, demolition, alterations and adaptions; to investigate an alternative design or approach; to examine the method and resources associated with large-scale activities.


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Method statements are written descriptions/explanations of how it isintended to carry out certain sections of the works. For design and constructtenders, it may be a requirement that a method statement accompanies thecontractors/sub-contractors bid and certain clients may require a methodstatement to be prepared for projects over a certain value as part of their qualityassurance policy. Method statements can be useful for complex refurbishmentprojects and management contractors may prepare them to plan and managethe levels of interface between work packages. Method statements deal withthe use of labour and plant in terms of types, gang sizes and expected outputs.

PRE-QUALIFICATION

The pre-qualification of contractors and sub-contractors has become common-place in the UK construction industry. The process involves organisationsdemonstrating to a client that they have the necessary experience, expertiseand culture to be considered to supply a bid for future, but as yet undefined,work.

REGISTRATION CRITERIA

Pre-qualification for contractors or sub-contractors may take a number offorms, but the following paragraphs give some indication of typical requiredpre-quantification information.

Category registration

If the client has a wide variety of work then the pre-qualifying organisationsshould indicate which category of work they wish to be considered. For eachcategory, supporting details should be supplied to demonstrate the appropriatestaff workforce to carry out the work.

Financial information

In uncertain or difficult trading conditions, when insolvency rates amongcontractors and sub-contractors are high, it is vital that any organisationselected to carry out a project is financially sound.

If a company is a limited company then a full set of annual accounts, asprepared for shareholders and Companies House, including an audit report oran accountants report, could be required to be submitted. Any directors,partners and auditors or accountants should sign and date the accounts wherenecessary. In the case of a group or an ultimate holding firm that does not have


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consolidated accounts, accounts of other group firms that are relevant to theapplication or continued registration should be submitted and should include:

a directors report; an auditors or accountants report; a profit and loss account; a balance sheet; any notes to the accounts; any supplementary trading account.

In the UK construction industry, the vast majority of contracting organisationsare sole traders, partnerships or unlimited companies, and in this case thebusinesss full annual accounts for the latest accounting period, as preparedfor the owners and HM Revenue and Customs, including a signed and datedaudit or accountants report, should be submitted along with:

a profit and loss account; a balance sheet.

References

References from previous employers are also important and should be specificfor the work category being applied for. A minimum of two references shouldbe supplied for work recently carried out, say during the past two or three years.References from previous satisfied clients are one of the most effective ways tojudge the suitability of an organisation, provided that they are not for projectssuch a long time ago that personnel within the organisation may have changed.

Employers and public liability insurance

Contractors and sub-contractors applying for pre-qualification should be able to demonstrate that they carry effective employers and public liabilityinsurances. If selected for pre-qualification, evidence of renew should bedemonstrated each year.

Health and safety requirements

Pre-qualifying organisations should demonstrate their health and safety record,which may be done by completing a questionnaire or alternatively submissionof current accreditation with a scheme such as Safety Schemes in Procurement(SSIP) could be accepted.


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Equal opportunities information

An organisations policy on equal opportunities should be demonstrated bysub-contractors or contractors. Again this could be achieved by means of aquestionnaire.

Environmental standards

A qualifiers attitude to environmental matters and legislation can be examined by means of a questionnaire; once completed, this can be kept onrecord.

Geographical area listing

If future projects are nationwide, the pre-qualifiers should indicate the areasof the country in which they are willing to work and the value of contractsthey are prepared to take in these areas.

Management team information

Details of the management team together with their qualifications should besubmitted for approval.

PRE-QUALIFICATION DATABASE

One of the largest organisations currently operating a pre-qualification data-base for the construction industry is Constructionline (www.constructionline.co.uk/static/index.html). After a somewhat difficult start, Constructionline 4 is now a robust database of over 19,000 pre-qualified organisations. The pre-qualification criteria have been established and selected byConstructionline these may or may not correspond to an individual organ-isations criteria, but using a service such as Constructionline obviously savestime and money.

THE PRE-QUALIFICATION PROCESS

The first stage of the pre-qualification process has the following objectives:

limiting tendering to contractors with the necessary skills and experienceto successfully complete the project;

avoiding unnecessary cost to industry in the preparation of expensivetenders that have limited chance of success;


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ensuring a competitive tender process, leading to a best value for moneyoutcome for the client.

To achieve this, a six-stage process can be used:

1. Preparation of pre-qualification documents, including a project brief todetail the requirements of the project.

2. Advertisement and issue of prequalification documents to interested par-ties. The documents will require parties to demonstrate various financial,managerial and technical skills in addition to an appreciation for theproject. The documents will contain the evaluation criteria, the evaluationprocedures and the proposed timing of the evaluation process. Evaluationcriteria will be chosen to allow the evaluation team to determine the mostsuitable parties to be invited to tender.

Criteria may typically include:

financial status; legal status (entity); relevant experience; available resources (staff, plant, subcontractor and supplier relation-

ships); performance history, including safety, quality, claims; demonstrated understanding of the project and associated significant

issues, including technical, environmental and community.

Unnecessary and/or irrelevant information and unnecessary copies shouldnot be sought from parties seeking to pre-qualify and should not be supplied.

3. A briefing will be held, at which interested parties will be briefed on theparticulars of the project and where parties may ask questions.

4. After receipt of pre-qualifications, submissions should be comparativelyassessed in accordance with the evaluation criteria.

5. The evaluation team may seek clarification of any issues from applicants,verbally or in writing, but may not solicit additional information.

6. A list of pre-qualified tenderers is published. Successful and unsuccessfulparties should be invited to an individual debrief. When establishing thenumber of tenderers to be included within the select list, clients shouldconsider the competing aims of:

the cost to industry of the preparation of the tender and the possibilityof success for any particular tenderer;

ensuring a competitive tender field.


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On a major or complex infrastructure project, the tender list should berestricted to three tenderers. In some circumstances, there may be validreasons to extend the tender list up to a maximum of five tenderers, but inthis event the client could contribute to the cost of tendering.

THE TENDER PROCESS

The second stage of the procurement process is the tender, which will be putin place with the following objectives:

allowing each tenderer to develop a design to a sufficiently advanced stagesuch that it may tender a firm lump-sum offer;

allowing resolution of general issues requiring clarification to all tenderers; allowing resolution of specific matters only relevant to a particular

tenderers scheme (which require handling with care and strict attentionto security).

Information already provided by the tenderer in the pre-qualification processshould not have to be provided again in the tender process.

The tender process should be put in place in eight stages:

1. Tender documents will be prepared by the client, taking into account theissues raised in earlier sections of this model process. The documents willcontain the evaluation criteria, the evaluation procedures and the proposedtiming of the evaluation process.

2. After issue, an appropriate period will be allowed for the preparation oftenders. It is to the benefit of the client that this period be sufficient toallow tenderers time for the preparation of quality designs, to allow timefor innovation and to allow tenderers to minimise risk allowances byfinding appropriate alternative solutions. For a relatively simple mid-rangeproject (say 30 million), a period of not less than eight weeks should beallowed; for a major project (say >65 million), a period of not less than13 weeks should be allowed.

3. A site visit and a briefing will be conducted, at which tenderers will bebriefed on the particulars of the project and may ask questions.

4. If appropriate, a workshop will be held with proponents to discuss particularissues of general interest. For example, a geotechnical workshop may beheld, at which tenderers may ask questions of the clients expert and agreeon further geotechnical investigations to be carried out by the client.

5. Individual briefing sessions may be held. The objectives of these briefingswill be to maintain the confidentiality of the tenderers intended proposals,


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while at the same time ensuring that the proposals remain within theclients parameters for the project.

6. After receipt of tenders, submissions are comparatively assessed in accor-dance with the published evaluation criteria. Tenders are likely to containsignificant differences, particularly in the areas of design, time, cost, riskallocation, durability, operation and the like. Tenders may also differ interms of certainty of delivery and clarity of content.

7. The evaluation team may seek clarification of any issues from applicants,verbally or in writing, but may not solicit new information.

8. A preferred tenderer and a reserve tenderer will be established. Unsuccessfultenderers will be advised as soon as possible. Debriefing meetings will beheld with all tenderers.

COVER PRICING

Cover pricing is a practice whereby a contractor or sub-contractor submits a bid knowing that it is too high to win and is usually submitted when acontractor has been asked to submit a bid by a regular client, but is too busyto take on more work. Assuming that refusal to submit a bid will precludethem from being asked in the future, a high-cover-price bid is submitted.However, this practice can take on more sinister tones. In April 2008, theOffice of Fair Trading (OFT) formally accused 112 construction firms inEngland of participating in bid rigging on public sector contracts valued atsome 200 million. Some of the largest contractors in the UK, includingBalfour Beatty, Carillion and Interserve, were alleged to have participated incartel-type activity in bidding for public sector construction contracts, includ-ing schools, universities and hospitals. The focus of the OFTs investigationwas on cover pricing, a practice where companies place a high bid for workthat they have no intention of winning so that they are not left off a clientstender list. In addition, the OFT alleged that a minority of constructioncompanies entered into agreements where the winner of a contract wouldmake a payment of between 2,500 and 60,000 to the unsuccessful bidder,known as a compensation payment. In a damning statement, the OFTconcluded that it believed that the construction industry is rife with malprac-tice, referring to a previous investigation in 2004 into the roofing industry,when aggregate penalties of 4 million were imposed. In the case of the 2008allegation, the OFT went on, in 2009, to impose fines totalling 129 millionon contractors who had been proved to be colluding on bids, including up to11 million on individual contractors. Subsequently, the accused companiesappealed against the fines on the basis that the amounts were disproportionateto the alleged offence. In 2010, Building magazine published the results of a


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