6.29 Whilst a sensible list of tenderers is important for traditional procurement routes, it is vital for design and construct work, the cost of which is particularly high. An analysis of the cost of tendering prepared for the Review by 3 national contractors, contrasts and compares the cost of tendering under single stage design and build, traditional procurement and the first stage of a two stage design and build procurement route (see table 10). It will be seen that the single stage design and build costs between nearly twice and 2% times the cost of stage one under a two stage system, and an even higher percentage compared with traditional procurement routes.
TABLE 10: AN ANALYSIS OF THE COST OF TENDERING
| £5M | £10M | £15M | £25M | £40M | £60M | £80M | |||||||||||||||
| D&B | Trad | D&B Stage 1 Costs | D&B | Trad | D&B Stage 1 Costs | D&B | Trad | D&B Stage 1 Costs | D&B | Trad | D&B Stage 1 Costs | D&B | Trad | D&B Stage 1 Costs | D&B | Trad | D&B Stage 1 Costs | D&B | Trad | D&B Stage 1 Costs | |
| Design fees | Nil | Nil | Nil | 3,000 | Nil | Nil | 6,000 | Nil | Nil | 9,000 | Nil | 3,000 | 12,000 | Nil | 5,000 | 15,000 | Nil | 6,000 | 20,000 | Nil | 7,000 |
| Presentation brochures | 2,500 | Nil | 2,000 | 3,500 | Nil | 3,000 | 5,000 | 1,500 | 3,500 | 6,500 | 1,500 | 4,500 | 10,000 | 1,500 | 6,000 | 10,000 | 1,500 | 7,500 | 10,000 | 1,500 | 8,000 |
| Quantities | 4,000 | Nil | Nil | 7,000 | Nil | Nil | 10,000 | Nil | Nil | 15,000 | Nil | Nil | 20,000 | Nil | Nil | 25,000 | Nil | Nil | 30,000 | Nil | Nil |
| Enquiries | 3,500 | 3,000 | 2,500 | 5,000 | 4,000 | 4,000 | 6,000 | 5,000 | 5,000 | 7,000 | 6,000 | 5,000 | 8,000 | 7,000 | 6,000 | 10,000 | 8,500 | 7,000 | 12,000 | 10,000 | 8,000 |
| Estimating | 5,000 | 4,000 | 3,000 | 6,000 | 5,000 | 4,000 | 9,000 | 7,500 | 5,000 | 12,000 | 9,500 | 6,000 | 15,000 | 12,000 | 7,500 | 20,000 | 15,000 | 9,000 | 25,000 | 20,000 | 10,000 |
| Tender planning | 4,000 | 4,000 | 2,500 | 4,500 | 4,500 | 3,000 | 5,000 | 5,000 | 3,500 | 6,000 | 5,500 | 4,000 | 8,000 | 7,000 | 5,000 | 12,000 | 9,000 | 6,000 | 15,000 | 10,000 | 6,500 |
| Legal, insure commercial | 2,000 | 2,000 | 1,000 | 3,000 | 3,000 | 2,000 | 3,500 | 3,500 | 2,500 | 4,000 | 4,000 | 3,000 | 5,500 | 5,500 | 4,000 | 7,000 | 7,000 | 4,500 | 8,000 | 8,000 | 5,000 |
| D&B management | 4,000 | Nil | 3,000 | 4,000 | Nil | 3,000 | 5,000 | Nil | 4,000 | 6,000 | Nil | 4,500 | 7,500 | Nil | 6,000 | 8,500 | Nil | 7,500 | 10,000 | Nil | 7,500 |
| Total | 25,000 | 13,000 | 14,000 | 36,000 | 16,500 | 19,000 | 49,500 | 22,500 | 23,500 | 65,500 | 26,500 | 30,000 | 86,000 | 33,000 | 39,500 107,500 | 41,000 | 47,500 130,000 | 49,500 | 52,000 | ||
| Factor | 1.79 | 1.89 | 2.11 | 2.18 | 2.18 | 2.26 | 2.50 | ||||||||||||||
| Tender value % | 0.50 | 0.26 | 0.28 | 0.36 | 0.17 | 0.19 | 0.33 | 0.15 | 0.16 | 0.26 | 0.11 | 0.12 | 0.22 | 0.08 | 0.10 | 0.18 | 0.07 | 0.08 | 0.16 | 0.06 | 0.07 |
Source: CIEC, February 1994.
6.30 In those circumstances, clients ought to limit design and build tenders to 3, with 2 "reserve" names available40 if someone declines to tender. If a two stage tender system is contemplated, five firms could be invited for the first stage, with either one or two firms going through to the second stage. The two stage path is to be preferred. It is less wasteful of resources. Initial stage one bids would typically involve a conceptual sketch, a brief schedule of rates, a quote for preliminaries with mark up and a method statement41. The one (or two) successful firms then go through to the second stage to provide full details and costing of their proposals. I have been advised that two stage tendering can be used by public sector clients under the EU's negotiated procedure where that procedure can be justified. But it would be more difficult to use under the restricted procedure and would depend on tenderers dropping out if they perceived they had little chance of winning the contract (source: HM Treasury, May 1994). There is a strong case for revision of the EU rules to make it easier for public sector clients to adopt responsible, two stage tendering procedures. Departments involved in negotiation within the EU should press for such changes.
6.31 The design and construct route is particularly new in civil engineering. The Department of Transport set up its new Highways Agency on 1 April 1994. The Agency is now "responsible for managing and maintaining the existing motorway and trunk road network in England and for delivering the Government's road programme"". The DOT has introduced its own design and construct contract. The previous intention was that one third of new contracts would be on a design and construct basis by 1996, though that now looks unlikely because of public sector spending constraints. Four such schemes have already been let, of which two have been completed. The principal reason for adopting this procurement route was to transfer the ground investigation risk to contractors. That followed NAO/PAC criticism of the 28% excess of out turn over tender price under the ICE 5th Conditions route, based on the client accepting the ground investigation risk, and subsequent claims valued on a remeasurement basis43. The first two design and construct schemes were relatively straightforward projects. One came in under tender price. The other showed an excess, but that was due to a late major variation - the construction of an additional bridge. Other significant steps in civil engineering have included:
1. The success of the Alternative Tendering Initiative by the Scottish Office Roads Directorate, launched in 1991. For major schemes, the options offered to tenderers ranged from an ordinary conventional remeasurement contract under ICE 5th Conditions to the contractor redesigning the whole of the works and delivering the project for a fixed price lump sum and own (shorter) timescale. The initial response from contractors was suspicion, but the subsequent reaction was extremely constructive and as the initiative is being developed, out turn indications satisfactory. On certain projects where full design and construct procedures were used firms have been permitted to pool the cost of assessing ground investigation risk. In one earlier contract (1986) payments for design costs were made to unsuccessful tenderers.
2. The Lagan Bridge Contract in Belfast involved six firms being selected for the first stage of the tendering process, and three groups of contractors in joint ventures in stage two. The competition made provision for compensation to paid to each of the two unsuccessful tenderers. Consultants assisted the Department, and also Northern Ireland Railways, to assess the technical capability of the outline schemes. The Royal Fine Art Commission gave aesthetic advice on the design proposals.
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40 I am advised that for those projects which fall within the scope of EU legislation, "reserve " names may not be used if the "restricted procedure" has been chosen (source: HM Treasury, May 1994).
41 Unfortunately, as stated in the Interim Report, contractors' design and build tenders frequently involve architects providing sketches on a "no win, no fee" basis. Clients should require assurances from design and build tenderers that their own consultants have been and/or will be retained on the same basis of quality and price as if they were being retained directly by the client.
42 Written Answer by the Rt. Hon. John MacGregor, MP, 28 March 1994, Hansard columns 484-5.
43 NAO report "Department of Transport: Contracting for Roads" November 1992, and 43rd report of the Committee of Public Accounts, session 1992/3, "Contracting for Roads", May 1993.