Tendering Process and Management

# Chapter 11: Tendering Process and Management Think of tendering as the bridge between your carefully crafted design and the reality of getting it built. It's where architectural vision meets market forces, contractor capabilities, and budget constraints. For Victorian graduates entering practice today, this intersection has become particularly challenging, but understanding the dynamics at play will help you navigate these waters with confidence.  Let's start with the current market context, because it fundamentally shapes every tendering decision you'll make. The construction industry is experiencing unprecedented volatility, with 2,832 companies entering insolvency in 2023-24, the highest proportion across all industries. In Victoria specifically, we saw 86 companies fail in August 2023 alone. This isn't just a statistic, it means that the contractor offering the most attractive price might not be around to finish your project. Understanding this reality transforms how you approach every aspect of the tender process. The traditional approach of seeking the lowest price through open competition has become increasingly risky. Instead, successful architects are adopting selective tendering, where you invite pre-qualified contractors to bid rather than opening the process to all comers. Think of it like choosing a specialist surgeon rather than asking every doctor in town to quote on an operation. You want contractors who understand your project type, have proven financial stability, and maintain strong supplier relationships. The administrative burden of selective tendering, the prequalification, the financial checks, the reference verification, actually saves time and reduces risk compared to dealing with tender submissions from unknown contractors who may lack capability or stability. The magic number for tender participants has shifted significantly. Where projects once attracted six to eight bidders, three to four quality contractors now represents optimal competition. This might seem counterintuitive, wouldn't more competition drive better prices? In theory, yes, but the reality is more nuanced. Quality builders have become selective about which tenders they pursue, given that preparing a comprehensive tender can cost them $10,000 to $50,000 depending on project complexity. They'll only invest this effort if they see genuine opportunity, fair documentation, and reasonable winning odds. When you invite too many tenderers, good contractors often decline to participate, knowing their chances are diluted. You end up with submissions from desperate contractors who need work at any price, exactly who you don't want building your project.  Your tender documentation quality directly influences the prices you receive, but not always in the way you might expect. Clear, comprehensive documentation reduces what's called "risk pricing", the padding contractors add to cover uncertainties. When contractors can't understand the full scope, they protect themselves by inflating prices to cover worst-case scenarios. However, there's a paradox here: over-documentation can also increase prices. When you specify every minute detail, contractors price the complexity of managing all those requirements. The sweet spot involves comprehensive scope definition with enough flexibility for contractors to apply their expertise to methodology and sequencing. Consider how a contractor reads your documents. They're simultaneously assessing what you want built, how long it will take, what could go wrong, and whether you'll be reasonable to work with. Every ambiguity represents risk, and risk translates to dollars. A detail showing "weatherproofing as required" might generate a $5,000 allowance from one contractor and $25,000 from another, based purely on their interpretation and risk appetite. Better to specify exactly what weatherproofing system you want, even if it means more upfront documentation effort. Financial assessment of tenderers has evolved from optional due diligence to essential risk management. The days of simply checking if a contractor has insurance are long gone. You need to understand their current workload relative to capacity, their payment history with suppliers, and their financial trajectory. A contractor operating at 80% of their annual turnover capacity is already stretched, adding your project might push them beyond sustainable limits. Tools like Equifax's procurement risk assessments provide valuable data, but nothing replaces direct conversations with recent clients and suppliers. Ask specific questions: Did progress payments flow through to subcontractors? Were variations handled fairly? Did the contractor maintain adequate site resources throughout the project? The market volatility has made provisional sums and escalation clauses standard practice rather than exceptions. A provisional sum is essentially an educated guess for work that can't be accurately priced at tender stage, perhaps ground conditions are uncertain, or material specifications await client decisions. These mechanisms acknowledge that neither party can accurately predict costs months into the future. Rise and fall clauses, once rare, now appear in most contracts, allowing price adjustments based on verified cost increases in labour and materials. This shifts risk from being entirely contractor-borne to being shared more equitably with clients.  Two-stage tendering has emerged as a sophisticated response to current challenges. Instead of seeking a fixed price based on complete documentation, you first select a contractor based on capability, experience, and approach. Think of it like choosing a dance partner before choreographing the routine together. During stage one, contractors compete on qualifications, methodology, preliminary pricing, and team composition. The successful contractor then collaborates during stage two to develop the design, improve buildability, and establish final pricing through open-book negotiation. While you lose some competitive tension after stage one, you gain invaluable buildability input, shared problem-solving, and often better project outcomes through early contractor involvement. This collaborative approach requires a mindset shift. Traditional tendering positions contractors as adversaries competing for your client's money. Two-stage tendering recognises contractors as potential partners in delivering project success. The contractor who helps identify a more efficient structural system during design development shares in the value created. This alignment of interests can be particularly valuable for complex projects where buildability expertise significantly impacts cost and programme. The current market also demands careful attention to tender timing and validity periods. Contractors once held prices for 90 to 120 days; now 30 to 60 days is standard, with some requiring acceptance within two weeks for volatile trades. This compressed timeline means you need all stakeholders aligned before calling tenders. A client who needs three weeks to arrange financing might find all tender prices have expired by the time they're ready to proceed. Remember that your role extends beyond simply managing the process, you're your client's advisor through one of their project's most critical phases. This means translating market complexity into clear recommendations, protecting them from risks they don't understand, and sometimes delivering hard truths about budget feasibility or timeline expectations. When the lowest tender exceeds the budget by 30%, your value lies not in somehow making it work, but in clearly explaining why the market has moved and what realistic options remain. The AS 4120:1994 Code of Tendering underpins ethical tender management, establishing principles that protect both principals and tenderers. These aren't just guidelines, they're professional obligations that maintain industry integrity. Fair treatment of all tenderers, confidentiality of tender information, and transparent evaluation processes aren't just good practice; they're essential for maintaining the professional relationships that sustain your career. The construction industry in Victoria is surprisingly small; your reputation for running fair, professional tender processes will follow you throughout your career. Looking ahead, the Building and Plumbing Commission's replacement of the VBA in July 2025 will bring enhanced consumer protections and stricter oversight of contractor selection. These changes will likely increase documentation requirements and professional liability considerations around tender recommendations. Staying ahead of these regulatory shifts while maintaining practical, commercial approaches to tender management will distinguish successful graduate architects from those who struggle with the complexity. **Key Terms:** - **Selective tendering**: A procurement method where only pre-qualified contractors are invited to submit tenders, balancing competition with quality assurance - **Risk pricing**: Additional costs contractors include in their tenders to cover uncertainties in documentation, site conditions, or market volatility - **Two-stage tendering**: A procurement approach where contractor selection based on capability precedes collaborative design development and price negotiation - **Provisional sum**: An allowance included in contracts for work that cannot be accurately priced at tender stage due to incomplete information - **Open-book negotiation**: A transparent pricing process where contractors share actual costs and margins during price development - **Rise and fall clause**: Contract provisions allowing price adjustments based on verified increases in labour and material costs