Contractor Selection

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  Contents Aim   Learning outcomes  1. Introduction  2. Pre-qualification  2.1 Selection 2.2 Procedure 2.3 Technical factors 2.4 Financial factors 2.5 Drawing up the tender list 3. Tender evaluation  3.1 Price 3.2 Technical evaluation 3.3 Commercial evaluation 3.4 Cultural fit 3.5 Site visits 3.6 The interview 3.7 The weightings 3.8 The award © The College of Estate Management 2005   Paper 0251V4-0  Contractor selection  Contractor selection Paper 0251 Page 2 Aim This paper aims to:  Explain the procedure for selecting a contractor for a construction project. Learning outcomes After studying this paper you should be able to:  Appreciate the difficulties in appointing a contractor.  Identify the factors affecting contractor selection.  Understand the importance of a multi-criterion approach to appraisal.  Prepare a list of factors to be used in tender evaluation.  Contractor selection Paper 0251 Page 3 1 Introduction Selection of the most appropriate contractor is a fundamentally important part of the  procurement process. Ensuring that the chosen contractor has the correct combination of technical skills, managerial expertise and financial resources has long been recognised as critical to project success, and has conventionally formed part of the  process of tender list selection. There is a long-held belief that, for traditionally procured projects, if all of the contractors invited to tender meet the requisite criteria and all tender on the same set of basic information, then the firm submitting the lowest price must represent best value for money. This perception has now been discredited in many parts of the world. It became increasingly apparent that, where this was the case, contractors were  prepared to take substantial commercial risks to submit the lowest bid, sometimes tendering at or even below cost, in the belief that post-contract variations and claims would allow them to recover their financial position during the course of the contract. In addition, increasing project complexity (both in terms of the project itself and the context in which it is constructed) have led directly to more complex contractor selection methodologies based on a combination of price and other factors. In the UK the selection of a main contractor or a subcontractor is now the subject of a code of practice published by the Construction Industry Board. This code of practice sets out the overall procedure which should be followed, divided into three separate stages: 1.the qualification and compilation of the tender list; 2.tender invitation and submission; and 3.tender assessment and acceptance. The flow chart in Figure 1 details these three stages and the steps to be taken at each one. This paper looks in detail at the initial qualification step and the evaluation of the tender from the final stage. Similar processes may be followed for the selection of consultants where competition is required. The choice of contractor/subcontractors can be a crucial decision, affecting the satisfactory completion of a project. It should not be taken lightly, and any procedure which will minimise the risk potential must be worthwhile. The key commercial risks in any project, from the client’s point of view, will be that the chosen contractor will fail to complete the project within acceptable time, cost or quality standards. Contractors submit tenders in competition, seeking to obtain a project at the maximum level of profit with regard to the competition. They often tender for work at fixed prices, although generally their resource costs are not fixed. They make assumptions as to likely plant and labour outputs, which may or may not be achieved, and all the work is generally subject to the vagaries of the weather. It is now also generally recognised that in the modern construction market place there are many different types of client and contractor, and that the commercial relationship  between them can take many forms. These range from a traditional, often confrontational, supplier/customer arrangement where the employer decides precisely what is required and the contractor simply provides what the client asks for, to closely collaborative arrangements such as partnering, where employer and contractor generally work together to develop the project jointly and resolve any problems which may arise.  Contractor selection Paper 0251 Page 4 In addition to these relational constraints, in Europe the procurement of works and services in the public sector is constrained by law under the various European Union Procurement Directives. These regulations, which are incorporated into UK law through the Public Works Contracts Regulations, prescribe a methodology which must be followed when inviting tender for public sector works or services, and is designed to ensure maximum fairness and transparency in the tendering and contractor selection processes. It is against this background that the client is going to make a choice as to which contractor should carry out the project. FIGURE 1  
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