Effective date: 1 July 2018
Objective: To help Agencies achieve efficiency in tendering and reducing the burden of the tender process
Summary
The construction procurement principles recognise the role of competition and contestability in achieving value for money. This needs to be balanced against the cost of tendering and the need to conduct tender processes efficiently.
Striking this balance should reduce the burden of participating in tender processes for all tender participants. This might include using consistent processes and contractual terms and conditions.
This Guidance focuses on reducing the risk of the tender process becoming a burden to potential tender participants while meeting the need for competition. It addresses factors creating unnecessary burdens to either or both parties to a tender.
Process planning and efficiency
Participating in a tender process involves time and cost for tender participants and the procuring Agency. This burden can be minimised if the Agency takes the time to prepare and plan the procurement properly, as required by Tender preparation and planning (Direction 3.1).
A disorganised tender process is likely to either discourage participation or result in risk premiums being applied to tender responses. Agencies should, when selecting tender participants, use processes that:
- are mindful of the impact on the market;
- are appropriate for the Procurement Model;
- are conducted in an efficient and timely way; and
- reduce unnecessary transaction costs for all tender participants.
Agencies can improve tender process efficiency by:
- developing and approving the scope of the tender before going to market;
- avoiding using bidders’ tender submissions as a pricing service for options;
- addressing the requirements that all tender participants will need to undertake – for example providing Bills of Quantities for Construct-only contracts;
- providing reports on ground conditions, contamination or native title that tender participants require to prepare their response;
- using consistent processes and contractual terms and conditions, where appropriate; and
- to the extent possible, obtaining statutory approvals before going to market and incorporating the requirements of that statutory approval into the Tender Documentation.
Although undertaking a particular study or process may add to the Agency’s preparation time, it will save tender participants’ time and put all participants on a level playing field.
The tender evaluation phase should be programmed into evaluators’ calendars to avoid lengthy delays between tender submission and contract award. This ‘waiting’ time is costly for tender participants, particularly if teams have to be retained and not move to other roles.
Specific requirements to reduce the burden of tendering
Promoting efficiency in the tender process (Instruction 3.3) establishes three specific requirements to reduce the burden of tendering:
- not requesting unnecessary information;
- establishing cost estimates; and
- having a firm intention to proceed before beginning a tender process.
Do not request unnecessary information (Instruction 3.3.1)
Requesting from tender participants only the information that is required for the relevant stage of the tender process is more efficient for tender participants and the Agency.
Agencies should consider the following ways to reduce the volume of information requested:
- Establish the information required to assess the evaluation criteria in a substantially complete evaluation plan.
- Do not request the same information at multiple stages of the tender process. Information sought at particular stages of the procurement should be relevant to the evaluation process at that stage.
- Do not request information if using a Register where the information has been provided in advance during prequalification. It is sufficient to confirm that there are no changes to the information and request submission by exception.
- In relation to information requirements:
- Project-specific documents should be, where possible, prepared only by shortlisted tender participants.
- Project plans such as a Safety Management Plan and Quality Plan, if not assessed in the evaluation criteria, should be required only from the preferred tender participant to include in the contract documentation.
- Material provided in the context of an earlier stage in a multi-stage tender process should not be required to be resubmitted in a later stage unless it is in an expanded form or the content of the material requires change.
Note that data held in a Register gives Agencies access to information ranging from basic business details to more comprehensive details including:
- the capability of the tender participant;
- the management/operating systems used by the tender participant including occupational health and safety management and industrial relations management;
- financial capacity;
- areas of expertise/skills/resources; and
- past performance.
From the tender participant’s side participating in a Register reduces the costs of preparing a detailed capability and capacity submission for each and every procurement opportunity.
Establish cost estimates (Instruction 3.3.2)
Agencies should establish cost estimates before releasing a tender. This might mean engaging a professional cost adviser.
A tender should not be released to market if it includes a requirement to price multiple options simply because the scope has not been sufficiently defined. Pricing multiple options imposes significant costs on the potential tender participants.
Example 1
An Agency intends to construct a new community health centre and has allocated funds for its construction. The budget is tight and the Agency is looking to reduce costs.
A community meeting room is planned as part of the project, but funds for this component are subject to approval by another Agency.
The Tender Documentation describes that the health centre will comprise the health centre and the community meeting room which is subject to separate funding approval. The design allows for the community health centre to be constructed either with or without the community meeting room. The tender can be released to market in this form as the project scope has been finalised and the additional scope subject to additional funding approval has been disclosed.
Example 2
The Tender Documentation requires tender participants to price three types of external cladding material because the budget may not extend to cover the preferred cladding material. The tender should not be released to market in this form as the requirement to price multiple options is due to the project scope being incomplete. The Agency should finalise the project scope – determine which cladding material is to be used – before releasing the tender.
The restriction on pricing multiple options does not apply to:
- outcome-based specifications when market innovation in defining a solution is invited;
- where a project is subject to a high level of uncertainty and alternatives are included to future–proof the project (real option decision points – terminate, expand or descale) are relevant; or
- where partial funding is approved, but the funding of the full project is not yet secured, and the Tender Documentation clearly indicates the additional scope that may be included subject to additional funding approval.
In these situations, explain the situation in the Tender Documentation and include a strategy for addressing the flexibility required in the contract.
Before releasing a tender to market, Agencies may need to validate the expected total project cost so that it has confidence that the market can deliver the tender within the budget. This may be particularly relevant if a more advanced design becomes available, or if significant time has passed since the budget was developed and approved.
Have a firm intention to proceed before issuing the tender (Instruction 3.3.3)
To avoid unnecessary effort on the part of both the tender participants and the Agency, in general a tender should not be released to market until the project funding is confirmed and there is a firm intention to proceed.
This includes avoiding publishing forward notices of upcoming procurement (see Forward notices (Direction 5.1)) in advance of funding approval or the government’s public commitments.
In circumstances where partial funding is approved, but the funding of the full project is not yet secured, the Tender Documentation should clearly indicate:
- the scope of work for which funding is approved; and
- the additional scope that may be included subject to additional funding approval.
Useful resources
Efficiencies in Major Project Procurement benchmarks for Efficient Procurement of Major Infrastructure, Volume 2 Benchmarks for Efficient Procurement of Major Infrastructure (Infrastructure Australia, June 2012)
Describes efficiency strategies for very large infrastructure projects.
Towards agreed expectations: Tender strategies to improve Design and Construct Infrastructure Delivery Outcomes (Commonwealth of Australia Department of Infrastructure and Transport, June 2012)
Describes tender strategies to improve Design and Construct infrastructure delivery outcomes.
National Framework for Traditional Contracting: The Guide Good Practice and Commercial Principles for Traditional Contracting (Department of Infrastructure and Regional Development, September 2015)
Describes strategies to engage the market in the most effective and efficient way.
Economic evaluation for business cases – Technical guidelines (Department of Treasury and Finance, 2013)
Discusses use of real option analysis in the planning process.
Investing under uncertainty Real options analysis technical supplement (Department of Treasury and Finance, 2018)
Discusses how to deal with procurements involving uncertainty – using real options.
Tools and support
The Practitioners Toolkit includes key documents, guidance and information about the Ministerial Directions and Instructions for public construction.
For further information about the Ministerial Directions and Instructions for public construction procurement, please contact the Construction Policy Team.