Kate Kennedy

Olswang Masterclass –6 October 2015

Using Two Stage Tendering Effectively

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Why use two stage tendering?

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• Generally more used in large or complex tendering

• Current market is contractor friendly

• Inability to get sufficient numbers of contractors serious about tendering for projects has meant two stage tendering has become a necessity on some projects

• A way of establishing whether a project is feasible without having to start works

• Greater cost certainty

• Early appointment of the contractor can lead to an earlier start on site

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What is two stage tendering? First Stage

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• Tendering contractors are invited to provide a quote on the basis of an incomplete design, price and programme.

• The employer then choses a preferred contractor to work with during second stage of the tender (the pre-construction period)

• The first stage then ends with the appointment of the preferred contractor on the terms of a PCSA. The PCSA governs the relationship between the employer and the contractor in the period leading up to the contractor’s submission of its construction stage tender.

6 October 2015

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Second Stage

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• During the pre-construction period, the contractor advises the employer on the buildability of the design, tenders long-lead subcontracts and builds up a fixed price, programme and cost plans

• In order for this second stage to be a successful springboard to the works, the contractor has to be proactive in its engagement.

6 October 2015

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Advantages of two stage tendering

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• Employer has pre-existing relationship with the contractor and consulting team before the works commence

• Contractor’s knowledge of previous, similar schemes is made available earlier

• Value engineering facilitated at an earlier stage

• Allows a more collaborative approach

• Greater client control over pre-selection and appointment of subcontractors

• Reduction of abortive tender costs

• Can avoid buildability issues once the project has commenced

6 October 2015

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Disadvantages of two stage tendering

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• Potentially could compromise a client’s commercial position

• Can lead to an abuse of negotiating position, which leads to damaged relations from the start of the build

• More complicated and can be more expensive and has higher initial costs than single stage procurement methods

• Needs a sophisticated client

• Can be difficult to replace the contractor

6 October 2015

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Practical points for employers to try and maintain a strong bargaining position

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• If the client has a bargaining chip of future work, that can help

• Don’t start on site prior to the agreement of the second stage tender

• Try to make sure you maintain high quality design information throughout

• If you can, try to include works packages in the first stage tender in order to ensure that they can be priced on the basis of a competitive rather than negotiated tender

• Keep client involvement in the second stage procurement of subcontractors. This gives the client greater cost certainty for the works

6 October 2015

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Points to note for the PCSA

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• Ensure there is a ‘get out’ route for the client without suffering significant delay or extra costs

• Try to ensure as many t’s and c’s of the schedule of amendments as are possible are agreed.

• Obligation on the contractor to liaise with the employer to agree proposed sub-contractors for works packages.

• Ensure there is no obligation on the employer to enter into the building contract.

• Ensure that all work carried out under the PCSA is subsumed within the building contract when executed

• Query whether any collateral warranties might be needed during the PCSA period

6 October 2015

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•For more information•please contact:

Brussels+32 2 647 4772

London+44 20 7067 3000

Madrid+34 91 187 1920

Munich+49 89 203 031 300

Paris+33 17 091 8720

Singapore+65 6720 8278

Thames Valley+44 20 7067 3000

Kate Kennedy

+44 20 7067 3773kate.kennedy@olswang.com

@hardhatlawyer