An arm's length single-stage, fixed price tender appears to suggest a commitment to accept unconditional responsibility for delivering works, services or supplies for a fixed amount of money. However, when applied to construction projects, this approach often drives inappropriate behaviours and encourages a focus on providing the minimum standard of materials and workmanship necessary to achieve the stipulated specification, the 'race to the bottom' as emphasised in Dame Judith Hackitt's Independent Review.
Single-stage, fixed price procurement gives rise to problems where a Client or Principal Contractor is provided with inaccurate fixed prices that are based on incomplete or inaccurate information. Clients, Principal Contractors, Principal Designers and other consultants, contractors, subcontractors and other supply chain members will all be vulnerable to safety risks arising from errors and defects if fixed prices are based on incomplete or inaccurate risk appraisals. This problem occurs wherever designs prepared by consultants, contractors and other supply chain members are priced without consultation, for example using one party's estimator with no detailed review of underlying costs by other team members. Quoting estimated prices in an arm's length single stage tender creates the illusion of low prices and cost certainty but also increases the risk of later claims and disputes when the true costs emerge. Compromises in quality and safety then arise from efforts to deliver the project within the prices quoted.
Problems in the construction industry by way of unpredictable outturn costs, delays and defects can often be traced to a single-stage, fixed price procurement process. In a single-stage approach, the Joint Contracts Tribunal (JCT) 2017 'Tendering Practice Note' observes that bidding contractors 'will do enough preparatory work to be successful at tender but are unlikely to be able to understand fully all aspects of the project or have sufficient time to identify and consider how to manage the potential risks to the project'. These failings are not necessarily the result of deliberate tactics, and instead may be attributable to an actual or perceived lack of time or of available and accurate information.
To the extent that the Client and other team members are confident that single stage procurement is appropriate for all or part of a project, for example where all designs, risks and supply chain costs can be established and agreed on the basis of reliable information from previous similar projects, they still need to consider collectively the measures necessary to mitigate the problems identified above. These measures include:
■ Agreement of a project budget using benchmarks from the previous comparable projects
■ Increased price transparency in tender returns
■ Thorough investigation of suspected abnormally low bids
■ Incorporating express provisions in the contract regarding joint management of risk
■ Integrating the roles and responsibilities of all team members.