The tendering process is centred on a document outlining a project’s details and the work it entails. Its goal is to attract bids from skilled contractors and suppliers, but it can come in many forms. The most common types of tendering in the Australian construction industry can include.
But what are the differences? Are these all names that essentially mean the same thing? Are there pros and cons to each method of tendering? E1’s Tender Management Platform has been helping builders get to market with their tenders for many years, so we’ve pulled all of our knowledge to help you understand, create, and successfully respond to the different types of tenders in construction.
Understanding the various methods of tendering
There are advantages and disadvantages to each tender process, and as a buyer, it is a good idea to understand these before soliciting bids.
The different tender types aren’t mutually exclusive, and the process is flexible. Why? Because the ultimate goal is to find the best match. Here is an explanation of each tender method that can be used in the Australian construction industry:
Open
Anyone can submit a response to an open tender invitation. To help trim the list of applications initially, open tenders may require some form of prequalification before submission.
Open tendering is competitive and allows emerging contractors the opportunity to win work. This encouragement of competition is by design and promotes fairness and transparency.
Open tendering is a popular choice in private and public construction, and can result in lower-priced bids. Open tenders have also become a bit more popular in government contracts, shifting from 40% to 55%. Some builders will use an Expression of Interest (EOI) process to gather qualitative information as a lead-in to open tendering.
Negotiated
Negotiated tendering minimises the number of suppliers or contractors that are invited to submit a tender, to allow for more in-depth negotiation to reach an agreement. This is more common in highly specialised contracts or when extending an existing contract.
For builders, this can be a method of reducing cost, but it does discourage competition (which leads to higher prices). Negotiated tendering is popular in private construction and can streamline the tender process, develop a realistic budget, and minimise the risk of running over budget.
Serial
In serial tendering, builders will set a scope of work for a series of projects, all of which are similar in nature. It is common for subcontractor prices to be a little bit lower here due to the guarantee of ongoing work.
For those bidding, this can reduce the time it takes to apply for tenders while establishing a long-term business relationship with a large or growing builder.
Selective
Selective tenders are often sent to a short list of contractors, and only those invited may submit a bid. Popular in specialty or complex projects, the goal is to limit the responses to those suitable for the work, thus speeding up the process of finding the right subcontractors.
This can sometimes be rough for unknown contractors who don’t have their foot in the door. In this case, the open tendering process is sometimes the gateway into selective tendering and a higher chance of winning work (with less pricing and negotiation leverage for the builders due to fewer obtained quotes).
Selective tendering only reduces the review of proposals if competent contractors participate. It also closes the door on new and small companies that may provide exceptional services.
Framework
Framework tendering looks for subcontractors who can provide on-call work over a long period. The subcontractor is required to provide a schedule of rates, a list of resources and other overhead charges.
This method can reduce costs and is suitable when quick responses are needed for things like repairs, as the contract is already in place.
The different tender types aren’t mutually exclusive, and the process is flexible. Why? Because the ultimate goal is to find the best match.
Single-stage
A single-stage process has fully designed tender documents, ready to go before the invitation is even sent. It awards one contract for the entire project and must wait until all information is available so a realistic bid can be supplied.
ECI/two-stage
Early Contractor Involvement (ECI) or two-stage tendering is often the best option when the initial design isn’t complete. Subcontractors are selected in two stages and will often submit an initial fee for design and a second for construction (as an example).
It is common for the successful subcontractor to provide information related to the second stage, even though the last packet of work is not guaranteed.
This tendering method is common in complex or large-scale projects where exact specifications aren’t always ready at the start of the project. It can also be a more time-consuming and expensive process.
Request for Tender (RFT)
This Request for Tender (RFT) process is interchangeable with some of the methods listed above, but is commonly used when the scope of work is known, and the documentation and contract conditions are ready to go.
Request for Proposal (RFP)
A Request for Proposal (RFP) is used when there is some uncertainty around the specifics of a project. Documentation is often developed but not finalised, the scope of the market is unclear, or the builder really isn’t quite sure what they are looking for yet.
Request for an Expression of Interest (REOI)
The Request for an Expression of Interest (REOI) is also popular when the scope of the project is unknown, or the buyer only wants to review bids from a small number of quality suppliers.
It is common for the REOI to only be sent to a short list of potential contractors whose quality of work is already known to the builders.
Why is the type of tender important?
For the developer, the tender type used is crucial to ensure the highest quality of work and best value. For bidders, the tender type will determine how you position your bid, along with the specific documentation you’ll be required to submit.
As each type of tender has advantages and disadvantages, businesses and subcontractors should be aware of these before requesting work or bidding on a project.
Better tendering with E1 Builder
To make the tendering process simpler, E1 helps builders by providing an end-to-end tendering solution. We not only help you get to market quicker, but also make it easier to make smarter, safer subcontractor procurement decisions. You’ll get more quotes and broaden your project’s quote coverage.
Find out why over 900 builders use and trust E1 as the industry standard today.
Alexander
Green
General Manager - Subcontractors
