Why construction projects go wrong before they even start – what should owners do?

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Over the last 3 weeks we have discussed the impact of clients (How can clients ensure their projects meet their expectations?), the design team (How designers can make construction projects more successful) and the owner’s project manager (How can the owner’s Project Manager ensure the success of their construction project) on the success of construction projects.

Yet, many projects are destined to fail before they even start. In this article I will discuss the owner’s tender or bidding documentation which they issue to construction companies so they can formulate a price to carry out the work.

Tender or bidding documentation

Owners, or their representatives, normally request contractors to price a project based on drawings and documentation they issue to them – the tender or bidding documentation. Unfortunately often this documentation is incomplete, incorrect and shoddy or has contradictory information. Sometimes the final facility constructed is radically different to the one proposed in the tender documentation, which gives rise to project variations, delays and disputes.

The purpose of this documentation is to provide sufficient information to construction companies so that they can accurately price the work. Together with this information the contractors should also be provided with information relating to the contract conditions and project conditions so they understand how the contract will be administered, what is expected of them and what they can expect from the owner and their representatives.

The risks of providing poor tender information

Providing incomplete tender information, inaccurate information or information of a poor quality creates a number of problems and risks:

1.       Some potential bidders may be put-off from pricing the project, thus reducing the number of bids, because:

a.       It becomes too much work and trouble to understand what the owner wants so that they can price the project accurately.

b.      They perceive the project as being too risky because they have to make assumptions.

c.       They could perceive that the owner and their team are so disorganised and unprofessional at tender stage and that this could be continued through the life of the project. Consequently they decide undertaking the project will be frustrating or fraught with risk.

2.       Contractors may make certain assumptions. These assumptions could make their price more expensive than it should be – for instance the owner may be providing water and electricity for construction, but if this isn’t stated in the tender documentation the contractor may include for the provision of these in their price.

3.       If contractors have to guess something or assume something in their tender they may add in an extra contingency to cover the risk of an incorrect guess. This makes prices more expensive.

4.       Any changes to the scope, documentation, specifications or further additional information given to the contractor after they have submitted their quotation or price could give them reason to ask for a variation. This can add to both the cost and the time of the project.

5.       Ambiguities and contradictions in the tender documentation may give rise to disputes and variations later.

6.       Some contractors may misunderstand the documentation, leading them to incorrectly price items or omit them completely, which leads them to submit an overall price lower than they should. Awarding the project to a contractor whose price is too low could lead to problems later should the contractor become bankrupt or default on the contract.

7.       Because of poor documentation, contractors may add numerous clarifications and exclusions to their bid. This can:

a.       Make it difficult to compare one contractor’s price with another’s because they haven’t all priced the same thing.

b.      Result in the time required to adjudicate the prices being extended while the queries and exclusions are resolved.

What should be included in the owner’s tender or bidding request?

So what should be included in the documentation to enable construction companies to formulate their price?

1.       A full Scope of Works for the portion of works the contractor must carry out.

2.       Milestone dates which indicate access dates, information issue dates and sectional and final completion dates. Preferably a construction schedule should be included. This should also include any interruptions to work and requirements to complete work after the owner and their other contractors have completed work.

3.       Project specifications.

4.       Sufficient information or detailed drawings to enable the work to be accurately priced.

5.       Special project conditions which may include limited working hours, access requirements, working with other contractors, etc.

6.       Detail the terms of the contract, which would include, payment conditions, sureties, warrantees, and retention monies. It’s usually best to include the conditions that will be used in the final contract.

7.       Contain the relevant site data and conditions which may include site surveys, ground conditions, etc

8.       Project specific safety and environmental requirements.

9.       Clearly state what the contractor must provide and what they will be provided, and by when. This may include services (like power and water), cranes, security, insurance and scaffolding.

10.   Specific quality requirements and testing.

11.   Commissioning requirements and spare parts necessary.

12.   Specific requirements the contractor may have to comply with such as providing particular staff or equipment.

13.   By when the price is required, who it must be addressed to, what must be included with the price, the format of the documentation and where it must be delivered to.

How long should contractors have to price a project?

Unfortunately many clients provide too little time for contractors to accurately price construction projects. The risk of this is that:

1.       Contractors decline to price the project because of insufficient time which then limits the competition.

2.       Contractors don’t have sufficient time to obtain the best quotations from their suppliers and subcontractors, which means their price is higher than it could be.

3.       Contractors have insufficient time to price the work so they add contingencies which inflate their price to cover items they were unable to price accurately.

4.       They are unable to fully develop alternative methods or materials which may have lowered their price.

The length of time required to price a construction project accurately will depend on:

1.       The size and complexity of the project.

2.       The level of detail supplied by the owner in their bidding documentation.

3.       The level of detail the owner expects to receive with the contractor’s price.

4.       The amount of design and specialised procurement that the contractors have to undertake to formulate their price.

5.       The level of work in the construction industry. If construction companies are all busy with pricing projects it may mean that new bids can’t be started immediately.

6.       The location of the project – projects in remote regions or other countries may take longer to price as construction companies may not be familiar with the local resources, conditions and subcontractors in the area.

Owners should consider asking their targeted contractors how much time they’ll require to price the project.

What can owners do to improve the tender process ensuring there won’t be problems later?

1.       Owners should engage professionals to prepare the tender documentation.

2.       This documentation must be reviewed to ensure it is complete, accurate and unambiguous.

3.       They should ensure the scope of works and design details and information has been firmed up so there won’t be too many changes later.

4.       They must allow sufficient time for contractors to formulate an accurate price.

Conclusion

Often owners rush the tender or bidding process. Time and money spent delaying this process to insure construction companies have the best and complete information to price the project is often time well spent. This will save additional costs and delays later. Proper tender documentation is invaluable and can avoid many of the disputes we see on projects today.

Next week I will discuss the role of the tender or bid adjudication process.

Other useful articles by the author

Choosing a subcontractor

Project documentation

Project scheduling – the relationship between time and cost

 (Written by Paul Netscher the author of the acclaimed books ‘Successful Construction Project Management: The Practical Guide’ and ‘Building a Successful Construction Company: The Practical Guide’. Both books are available in paperback and e-book from Amazon, other online stores and retail outlets - Order your copy now. This article includes information from a third book which will be published later this year)

© 2015 This article is not to be reproduced for commercial purposes without written permission from the author.

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