ce-332 construction engineering and management bidding and procurement lecturer : assoc. prof. dr....

CE-332 CONSTRUCTION ENGINEERING AND

MANAGEMENT

BIDDING AND PROCUREMENT

LECTURER : ASSOC. PROF. DR. AHMET ÖZTAŞ

UNIVERSITY OF GAZİANTEPDEPARTMENT OF CIVIL ENGINEERING

Lecture 6

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CHP6- BIDDING AND PROCUREMENT

Introduction Qualification of Bidders Work Packages Construction Documents Bidding Information

Invitation to Bidders, Instruction to Bidders, Bid Form, Alternates, Addenda

Contractual InformationAgreement, General

conditions, Special Conditions)

Bonds Insurance Technical Information Drawings, specifications) Analysis of Bids Award of Contract Conclusion

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Learning Objectives

In this chapter you will learn the following:1. The process involved in breaking down a

project into work packages2. The issues involved in prequalifying and

inviting contractors to bid3. The specific parts that make up a

construction work package4. The issues involved in analyzing bids

and alternates and awarding a contract

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Procedure

OwnerTurnover

Construction

Authorized

Construct

Bidpackages

InviteBidders

Bidperiod

Selectcontracto

rBid

ConstructionDocuments

ApproveDesign

ConceptualDesign

DefineScope Design

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Introduction -1

Deciding to bid on a project is not a trivial matter for a construction company. Motivation depends on:Strong economic market…. Contractors choose which projects to bid.Slower economic market….Contractors may bid on less desirable one.

Motivations: long-term and short-term goalsShort –term goal: profitLong-term goal: community recognition, client

relationship.Companies main motivation is to receive a good return

on its investment.If project has ingredients necessary to return a good

profit, motivation is high. But, ingredients are different for different firms.

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Introduction -2

Depending on expertise in company, one firm can turn a good profit on a project while another less.

Factors makes one company succeed over another: Their knowledge of and experience with the

specific type of project, Relationship with key subcontractors, Ability to buy out the job, Estimating capability, Project team set up, Safety record, How efficiently they conduct their business, Overhead costs .

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Introduction-3

Companies may bid on projects to: Establish a relationship with a new client, Maintain a relationship with an established client, To an unusual project to add variety to its portfolio, Have high publicity quotient ( benefits to

community)When decides to bid it enter into a common process.

Estimators solicit prices from subcontractors, Subcontractors do material takeoffs from drawing and specs

that results in quantities, then X by unit cost, Unit costs is established by vendors and suppliers. Similar exercise is done for labor and equipment

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Introduction-4

So, direct cost = material +labor + equipment Add administrative costs for running job at site

(these are field indirect costs) Add overhead (what it cost the company to run) Profit (how much profit is reasonable for

company)Determining for the cost of the work:Direct costs + Indirect costs = Cost of the work Cost of the work + %for overhead and profit =

total cost to the owner

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Qualification of bidders-1

Before a company is awarded a job, a qualification process is performed. There are two methods of qualifying bidders:

Pre-bid qualification: Contractor submits information about the firm before the bid documents are released. Its advantage is that when the bids are received, the lowest bidder can usually be selected. This saves time and potential disputes.

Post-bid qualification: It is submitted with the bid and reviewed by owner during bid opening &analysis

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Qualification is determined by: Evidence of capability from previous

jobs Financial strength and stability Previous availability Personnel availability Safety record

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Advantage of pre-qualifying bidders is that, When the bids are received, the lowest bidder can usually be selected. This saves time and potential disputes with bidders disqualified after the bid on the bases of financial or technical ability.

CM keep a list of qualified contractors and subcontractors to produce a list of bidders for the owner.

Number of bidders… 5 – 7 for contractors3 for specialty

contractors

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Work Packages-1

A) CM delivery: One of the advantages of construction

management delivery method is that it is possible to package the work to the best advantage of the project in terms of both price and efficiency.

It allows fast-tracking the workb) DBB delivery: When the project is fully designed before it is bid,

there are a number of advantages to breaking the project into various work package, as well

First, it allows for the incorporation of local practices. Second, packaging the work reduces overhead: the

more packages, the fewer markups.

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Contract Hierarchy $172.24 K 10% markup,

Price to owner $158.4 K 10%markup,

$144 K 20%markup

$120 K

20%markup

Direct cost of sheetmetal work=$100 K

General General contractorcontractor

MechanicalMechanicalsubcontractsubcontract

HVACHVACsubcontractorsubcontractor

Sheet metal subconcontractor

Work Packages-2

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Work Packages-3

There are disadvantages in splitting the work into separate packages:

Omission of responsibilities, Redundancy of work Poor coordinating Improper packing of the work

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Construction documents

Translate owner's needs so that contractor can execute them correctly. They are the communication link among all parties.

Current practice is to put all narrative pieces into one documents that accompanies the drawings to form complete package.

The packages is divided into three general sections: bidding, contractual, technical

The bid requirements, the agreement, technical specifications, drawings, addenda and contract modifications all form part of the construction documents.

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Breakdown of documents

Bid forms instructions to bidders Contract forms General conditions Supplementary conditions Technical specifications Drawings Addenda Change orders

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Bidding information

The bid documents are sent out with the drawings and specifications and are often bound in the specification book.

This section of the documents contains the invitation to bid the instructions to the bidder the bid form itself

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Invitation to Bid

Invitation to bid is a request for pricing. Owner prepares it with the assistance of designer or CM.

It includes information that is relevant to the project: Type of project: road, building, industrial, etc… Size of project Location of project Bid due date Start and completion dates Bonds Document location Legal requirementCM meet with contractors, or a pre-bid conference is

held.

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Instruction to bidders

Instructions to bidders are usually bound in the specifications.

Although they may repeat some of the information in the invitation to bid or on the bid form, the instructions are mostly concerned with the following:

Bid due date Instructions about filling out the form Places to indicate fees form additional work Unit prices Location to deliver the bid Method of awarding contracts Expected dates of award and start of project

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The bid form is the document upon which the bidder submits the price. The form is usually prepared bye the designer, with blanks left to be filled out by the bidder.

Items may include some of following: Name of contractor, Price both in numbers and in words, which minimizes

decimal point mistakes, Price break down for the major trades, which can

guide progress payments and assist review of the bid’s accuracy,

Amount of the bond, Alternates: that is, the price of other materials or

altered scope of work

Bid form-1

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Bid form-2

Fees for additional work so the owner can set parameters for any fees allowed within change orders,

Unit prices if quantities are unclear and can not be figured accurately until construction,

Time required for the job so contractor can decide most efficient way to do the work and set his bid accordingly.

Space for the contractor to acknowledge received of all addenda issued after the bids have gone out.

Key subcontractors. Legal status, signature, title and date.

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Alternates

In certain situations, owner wants to explore the cost for supplying an alternate material or method of construction.

Alternate: a request for a price for substituting one material for another, for adding to the scope of work, or for deducting from the scope. Some bid documents contain many alternates to be priced by contractor.

There are two ways to present alternates: Additive price: best method for owner to price for new item Deductive price: may leave some of the cost in price.Designer likes deductive price while owner likes additive priceAlternates may diminish interest because creates more work to

contractor.

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Addenda

After the documents are issued but before the bids are due, changes often need to be made. The most common reason is the need to correct simple mistakes in the bidding documents.

Contractors dig deeply into documents and can spot things missed by drafter or specification writer. Often contractor may propose a better method or product.

Also, owner makes final review during bid period.Addenda are competitively priced by the contractors

who are bidding the job and are acknowledged on the bid form in the space provided.

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Contractual information

Many contracts are issued during the course of project.

First… to architect and CM for preconstruction design and technical services.

The contract (issued with construction documents) goes to firm that will perform the work. It includes:

An agreement General conditions Special conditions Sample of bond (if required) Insurance requirements Sample of insurance form

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Agreement

There are several forms of contracts (see chp3), but general provisions are common to most agreements:

Identification of the parties Description of the project and the work Date of start Date of substantial completion Liquidated damages The contract sum Progress payments Interest rates Retainage Final payment Enumeration of contract drawings

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General conditions

The purpose of general conditions is to establish;

legal responsibilities, obligations, authority, and rights of all parties involve in the project. As name implies, these conditions are general in

nature and apply to any construction project. Although owner can devise his own general

conditions, most prefer a standard version. AGC, AIA, ASCE, Karayollari, Bayindirlik, DSI, etc.

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Special conditions

These are sometimes called supplementary conditions or special provisions of the contract. They are intended to supplement general conditions and are project-specific.

Special conditions include additional owner requirement such as provisions for prevailing wages and additional insurance requirements. Parking, use of toilet facilities, working in occupied spaces.

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BondsIf the contractor fails to perform in accordance with the

contract, a bond will protect the owner. Owner will pay. If contractor does not complete bonding company pay for it or find different contractor to complete.

There are 3 types commonly required in construction: Bid bonds: These are furnished with the bids and

basically guarantee that the contractor will enter into a contact with owner for bid price.

Performance bonds: These guarantee that a contractor will perform the contract in accordance with the terms of the agreement.

Payment bond: Also called labor and material bonds, these assure that the contractor will pay all bills, those leaving the owner unharmed by claims and liens.

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InsuranceThere are many forms of insurance that a contractor can purchase

to protect against risks during a construction project.Three are obligated by contract and law for the life of the project: Worker’s compensation: It is a state law that compensates

employees who are injured on the job. This insurance covers disability and medical treatment for injuries resulting from accidents that occur during employment.

Comprehensive liability: It protects the contractor against third-party claims. It covers injury to non-workers at site, damage caused by construction vehicles, damage occurring after completion, damage by subcontractors.

Builder’s risk: It protects against property damage during construction. It covers losses resulting from fire, smoke, water, explosions, vandalism, theft.

A fourth type of insurance often carried out by contractor is Umbrella liability. This works as excess coverage for other 3 in case of a catastrophic incident and also boosts the coverage on all.

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Technical information

They are written descriptions of quality of project. They detail the materials, equipment, and workmanship to be incorporated into the project.

Types of specifications: How specification is written determines how the contractor will use it.

Design specifications: detailed descriptions of materials, workmanship, installation, erection procedures.

Performance specifications: lay out expected results of work and leave methods to contractor.

Proprietary specifications: states exactly the product or method to be used.

Open specifications: non-restrictive and allow many different choices within set criteria.

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Organizations of specifications-1

The most widely used format is the Construction Specifications Institute (CSI) format.

CSI Format Division 0 Bidding and contract requirements Division 1 General requirements Division 2 Site work Division 3 Concrete Division 4 Masonry Division 5 Metals Division 6 Wood and plastics Division 7 Thermal and moisture protection Division 8 Doors and windows

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CSI Format Division 9 Finishes Division 10 Specialties Division 11 Equipment Division 12 Furnishings Division 13 Special construction Division 14 Conveying systems Division 15 Mechanical Division 16 Electrical

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Division o and 1 is non-technical, but other divisions are all technical and relate to work of trades themselves.

Break down of division 6:

Section number Section titles06050 Fasteners and supports06100 Rough carpentry… ….06600 Plastic fabrications

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Each trade section within the division is set up similarly so that bidder can easily find the information important for the bid and field personnel can refer quickly to information as they need it.

The format is a general guide and is varied depending on needs of the specification. Not all titles fit all situations. However, here is a general format:

Part 1 - General: This addresses the scope of work and explains the rules and conditions under which the work is to be performed. It breaks down into the following paragraphs:

References related work system descriptionSubmittals QA Delivery, storage, and handlingScope site conditions

Sequencing/schedulingAlternates Allowances unit price

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Part 2 - Products: This describes the material and equipment used to make the products used on the job.

Materials Equipment MixesFabrication Acceptable manufacturers

Part 3 - Execution: This details requirements for workmanship, quality, and installation

Inspection preparation field quality controlProtection Schedules installation/applicationAdjusting and cleaning Extra stock/spare parts

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Analysis of bids-1

Once all the bids have been received, the construction manager tabulates them in a spreadsheet. Such comparisons may consist of the base bid, alternates, addenda, qualifications, unit prices, exclusions, and value engineering suggestions.

If bidders provides pricing that is outside the plans and specifications, the project team needs to decide how to handle this. Generally, the following guidelines are used:

1- If the bidder who is low, even without an alternate, suggest an equal to or better alternate that makes him/her even lower, the owner has the option of accepting this bid

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Analysis of bids-2

2- If the bidder who is not low provides an unequal but acceptable alternates that than makes him/her low, the owner has the option of giving the other bidders in contention the opportunity to bid this alternate as well.

3- If the bidder who is not low and won’t ever be low suggest an acceptable alternate, the owner has the option of having the low bidder price this alternate.

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Award of contract-1

Award of the contract can be as simple as accepting the lowest bidder, and in the end it often is this simple. However many factor come into play when bids are received.

The apparent low bidder can turn out not to be lowest after de-scoping session take place.

Low bidder may be too far from the other bidders, raising the suspicion that he has missed something.

By law, the bidder is required to honor the price, no matter what; but nobody wants a contractor on the job who is not going to do well. In all cases the owner has the right to reject or accept the bids.

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Award of contract-2

The bidding period is a time of anxiety for the owner and the designer. In most cases, the project does not get bid it this estimates come in higher than the money available to complete the job.

The normal procedure is to redesign or reduce scope until the project’s budget is on target. However, these are only estimates of the work, not the real pricing.

Once the bid is accepted, contract negotiations begin. Once the owner and the contractor sign the contract, the construction phase begins.

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Conclusion-1

During the bidding period design work is launched into the construction arena. Assembling method of bidding documents is normally determined early in design process.

• Sometimes project is bid out to one prime contractor• Sometimes it is broken down into smaller bid

packages.How it is handled is determined by the delivery method

chosen by the owner. In addition, these bid packages are either fast-tracked or

released simultaneously. A fast-track approach leaves option of holding back pieces of project. This reduces bid numbers that must be processed at once.

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Conclusion-2

Pieces such as ROOFING, which occur later in construction process, can be bid later. The disadvantage to the owner is that all the costs are not known when the contract is signed.

Owners are concerned about getting the best contractor for the best price. Designers are concerned that their design meet the budget and contractors are concerned about submitting a bid too high and losing the job or submitting too low and losing money on the job. But if the bidding process is handled well, the probability of a successful project is good.

Next Chapter

Chapter 7 – Construction and closeout