The Estimation and the Tendering process in

Construction Industry
Aug 24, 2015
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The Estimation and the Tendering process in Construction

Industry
1

Introduction:

This chapter contains the literature review pertaining to the entire

project bid process comprising of Estimation, Tendering, Tender
opening and Award of Contract. A brief description of different types
of Tender procedures is also included in this chapter. A case study on
the impact of wrong estimate has been included for better
understanding of the risks posed by improper estimation and the
concept of E-Tendering is also reviewed at end of this chapter.
Although I focused some part of this chapter in the UAE construction
prospective however I believes that its almost similar across the
Middle East.
2

Estimation

Brook (1997) defines Estimation as The technical process of the

predicting the cost of construction. In NQF (2007), Estimation is
described as ...the process used by the contractor to establish the
cost to themselves of carrying out construction works.

The process of estimation has entirely changed within the last 15

years than at any time (Brook, 2008). Estimation process starts right
after receiving of tender documents. Bryan (1991) explains that
entire process of estimating a project is always time consuming and
often tedious. The Estimator is main character of the whole
estimation process. The Estimator receives the contract drawings,
specification and appropriate bill of quantities and starts work in
given time frame.
The whole exercise of Estimation allows the Management to take
any action during execution of the project, by comparing the
estimated and actual level of production (Brook, 1997). Further,
Brook emphasizes that the Estimate Base Document also provides
budget to the Management, enabling them to control costs during
construction execution and also provides for many assessments and
judgements that will be made during the construction stage (Brook,
1997).
However the effectiveness of the whole estimation process depends
on the way this process is considered during the execution stage.
There will be no value of Contract documents and all the effort of
Estimator and Estimation process, if these will not be used in
effective and efficient way of contract execution (Gandy, 1993). It is
common practice that after the estimator has estimated the cost of
the various BOQ items, the management who are authorized to
decide on the final price make changes to the tender by adding or
subtracting certain percentage on the costs as per corporate

strategy. This percentage is commonly known as the management

mark up. Often this mark up is not based on any scientific
calculation but rather is derived from rule of thump or expert
judgement of the management. Such a practice raises ambiguity in
the final tender bid and increases the risk of the tender becoming
overly priced or even under priced. This change is often out side the
control of the estimator and may affect the adequacy of the tender
price.
Cost Estimation from Clients perspective is essential to know the
expected project cost for allocation of the budget and the feasibility
of any project. On the other hand, the Contractors undertakes the
cost estimate practice basically for the tendering purpose in order to
get the project with good profit margin. Usually, the Client provides
the bill of quantities for tendering purpose, which has been prepared
by the Project Consultant. However, on receipt of the tender whole
documents, it is the Contractors Estimators responsibility to cross
check all quantities with contract drawings and specification. It is
very common practice that Contractors Estimator always finds
ambiguity in the BOQ (Brook, 2008).
3

Tender and the Tendering Process:

FIDIC (1987) defines Tender means the Contractors priced offer to

the Employer for the execution and completion of the Works and the
remedying of any defects therein in accordance with the provision
of the Contract, as accepted by the Letter of Acceptance.

Brook (1997) defines Tender as A sum of money, time and other

conditions required by a tenderer to complete the specific
construction work. Karim (2009) defines Tendering process is a
series of actions to generate offers or offers from single bidder, or a
number of competitive bidders hoping to be awarded the business
in words, service, or supply of goods. The whole process of
tendering in construction and engineering industry is a
comprehensive and complex procurement process and very
expensive exercise for Employer and Tenderer as well (Teo, 2009).
Tendering especially for big and complex projects can be a very
costly exercise equally for Employer and Tenderers, but this would
be money well spent if the targets achieve successfully (Al Tamimi,
2009). Many experience players of this industry will agree that a
proper tendering process fulfils two objective; viz; a) The Employer
gets competitive and realistic price for the project that he intends to
undertake and b) The Contractor or the Tenderer upon making due
investigations before submitting his tender, fully understands the
requirement or nature of the proposed work and Employers
requirement. Brook (2008) states that, the time the Contractor
spends in preparation of a Tender, gives support to the Contractor to
understand the nature of project, which will benefit the completion
of project on time. Not only this, the Tenderer will also be able to
understand the various risks involved in that project till completion
before make a decision on their bid price (Al Tamimi, 2009). Teo
(2009) inveterate with his experience that, there are several
examples in the construction market where parties compromise on
the legal issues during or after tendering process for fear that they

will not be able to complete the project on time. Baloi & Price (2003)
confirms that many factors extensively play a vital affect on
construction cost right from estimating process to the end of the
project.
4

The Traditional Procurement Path:

There are many procurement paths which the Client decides at an

earlier stage prior to the start of tendering process. In the Middle
East, specifically in the Civil engineering works such as Roads,
Infrastructure, Bridges and Underpasses; tendering process starts
after the completion of design and all tender documents including
bill of quantities (Karim, 2009). This whole process is famously
known as the traditional method. Usually in the traditional
method, the Employer takes his plan through the earlier stage with
the help of a professional team consultant, before hiring
Contractor (Brook, 2008).
Latham (1994) suggested that, all the design work should be fully
completed by the project consultant and afterwards retained by the
Client and should not change, once the tender information is
dissipated.
5

Types of Tendering Process:

According to Guide of Tendering for Tenderer issued by Department

of Commerce, New South Wales (DoC, 2005) & Karim (2009), there
are four main processes:
5.1 Open Tenders:

In this procedure, the Tenderer is invited by public advertisement

and through e-tendering websites. Then the Tenderer has to
demonstrate in his tender, his skills, resources, experience, strength
and financial capacity to execute the project. This method is widely
used for small projects (Karim, 2009). Due to open invitation for a
large number of competitors, this process proves to be
advantageous in attracting a most economical bid. However, the
administration costs of floating such a tender are comparatively
high and sometimes the most economical bid is received from
Contractors who do not have proven track record, thereby increasing
the risk to the successful completion of project.

Selective Tender:
In this process only limited numbers of potential Contractor are
invited for tender in order to work any specialized work. Tenderers
are selected from the list of pre-approved Contractors who are
already qualified or pre-qualified for special works and contract
value, for instance, oil and gas projects, industrial or building
complex and sports complex (Karim, 2009). Latham (1994) explains
the difference between Qualification and Pre-Qualification as follows;
Qualification means Contractors inclusion in an approved
Contractors list and Prequalification means preparing a list of
Contractors as per their skills and experience, in accordance with
the nature of the project. In this procedure, Tenderers previous
record and work history in term of performance are carefully
reviewed. This procedure has a distinct advantage in terms of
trustworthiness of the prospective Contractors, since the credentials

of the Contractors are ascertained prior to invitation of bids. The

administration costs of floating such tenders are considerably less
although it runs the risk of attracting a higher price due to less
number of competitors.

Expressions of Interest:
In this process, Tenderer are invited by public advertisement to
quote for particular works that take place sporadically for instance
maintenance of major dams, breakwaters, pipelines etc.

Invited Tenders:
This process is used only in emergency situation for some specialist
works, where only few Contractors have such experience and
capability and they are always less in numbers.
Karim (2009) proposes addition of two more procedures in this list:
Serial Tendering & Two stage tendering. In Serial Tendering, the
Client or the Investor negotiates with the Contractor in order to give
them number of similar projects, and in the Two stage tendering
process, the Contractors involve at earlier stage of the project.
In UK, the Two-stage tendering is being used with increasing
frequency (Lawrence, 2009). In this process, the Contractor starts
his role on preliminary design and concept, at a very beginning of
the project. The purpose of the entities to work together is to
prepare the design and all relevant detail of the project and finally
agree on a fix price to enter into a design and build project.

Lawrence (2009) writes, this process give benefit to the Employer in

cost, accuracy and time saving. According to Lawrence (2009), Twostage tendering process is quite common in UK and slowly being
recognized in the Middle East construction industry as a prospective
way to achieve the Employers objective and at the same time
reduce the risk for the Contractor.
Chilton (2008) suggested that, the traditional JCT Lump Sum
contract (with or without design) should be selected by the
Employer for Two-stage contracts. He further explain the process,
the Employer issues the basic concept or information to at least five
to six potential Contractors to price overheads & profit and
preliminaries and propose their method to execute the project. On
the basis of the Contractors proposals, the Employer finalises the
Contractor to move into the second stage, which we normally called
post-contract work.
Chilton (2008) further highlighted the advantages and
disadvantages of this process. There are many advantage of this
process for the Contractors and the Employers. From the Contractors
point of view, the major benefit is being paid early and also by
becoming the part of Employers design team, resource planning
becomes more efficient and accurate. From the Employers point of
view, the Contractor will be able to give valuable advice or
suggestion at an early stage, based on his experiences on similar
project. Another major benefit served is the avoidance of disputes
and any problems related to construction work on post-contract

which cause delay and unforeseen expense. The disadvantage from

the Employers point of view is by hiring early, the Contractor is no
longer in competition, and as a result despite the Employer
controlling the procurement process, he may find the project cost
gradually increasing at post contract stage. To avoid such
consequences the Employer and the Contractor should mutually be
agreement in the Condition of Contracts by allocating their risks
fairly.
After receiving of all tender documents, the Tenderers start their
bidding process. At this stage, the Tenderers can raise any queries to
consultant related to the tender drawings, specifications, and bill of
quantities etc. to obtain clarification for proper pricing purposes. The
Employer can also issue tender addendum changing any part of the
tender document. At this stage, the Contractor or Sub-Contractor
should visit the project site (Teo, Karim, 2009). Latham (1994)
argues that, tender preparation should not be rushed and time
should be utilised as per the given time frame mentioned in the
tender document. The Employer should give sufficient time to the
Tenderer to prepare and submit the tender without any
discrepancies.
6

Tenders Submission and Opening of the Tender:

This is the final stage when Tenderers submits their tender offer
before dead line stated in the invitation of the tender document;
along with require tender security to the Employer (Teo, Karim,
2009). According to Brook (2008), in the traditional method, the

tender submissions usually consist of form of tender and covering

letter.
The opening of tender in most cases happens at a predetermined
time and date which is mentioned in the tender document. The
Client opens the tender bids with or without presence of the
Contractor (Karim, 2009). The Client opens the tender bids in the
presence of Tenderers which is the normal procedure.
7

Award of the contract:

The Contractor is thereafter finalised, which normally based is the

lowest bidder, but sometimes the Client awards the project based on
different criteria, like the quality of offer, or better whole life costing
result, or shorter duration for completion offered, etc (Karim, 2009).
In any case, at this stage the Employer issues a Letter of Acceptance
to the successful Tenderer (Teo, 2009). However, Karim (2009) says,
sometimes there is no immediate issue of letter of acceptance; the
Employer can issue a letter of intent to entering a formal contract.
8

Risks during Tendering Process:

According to Teo (2009), due to current economic crisis, the

Employer may include the clauses in the conditions of tender in their
own favour to suspend or cancel the whole tendering process or
change the date of submission at any time. There are different
provisos that protect the Employer in most forms of the conditions of
the contract. It always advisable for the Employer to include in his
tender document the tender amount of the project and details of the

project information, based on his time and the budget constraint.

Regarding the scope and nature of the intended works that are
reasonably sufficient for Tenderers to appreciate the risk that they
will be undertaking, if they are successful. This will certainly
promote and encourage Tenderers to put in their most competitive
prices (Teo, 2009).
All the parties should be aware of their respective legal obligation
during the tender stage. Any default on the part of any party to
release the available information may give the other party the right
to claim compensation.
Karim (2009) specifies that Employers always prefer to see cost
certainty without accepting any price escalation, thats why they
prefer to fix the costs at earlier stage to avoid any claims. Karim
(2009) further explains that the greater the risk and number of risks
that the Tendering Contractor has to consider while tendering for
any works, the greater is the probability that he will load the price to
cover the risks which may never happen. Subsequently, it is more
likely that he will engineer claims to recover the real losses that he
has suffered.
9

Problems due to selection of the Lowest Bidding

Tenderer:
As we discussed above, it is very common practice, not only in the
Middle East in all over the world, that the Employer often selects the
Contractor by lowest bid criteria. The lowest tender price is usually

the key of the winning a contract. In fact, its most critical task for
the Employer to take decision. However, Flanagan & Norman (1982)
says the selection by lowest bid, will not necessary reflect the true
cost of the project. Thats why Latham (1994) clearly mentioned in
his report that, the criteria to select a consultant or a contractor
should be based on skill, experience and previous performance,
rather than automatically accepting the lowest in all cases. Hatush
and Skitmore (1998) believes that the selection of Contractor by
lowest bid procedure is often the major cause of an unsuccessful
project delivery, because the Tenderer deliberately quotes low price
by knowing that they will reduce the quality of work and more over
compensate their profit margin by claims as well. Choi et al (2000)
also advised the same, lowest bid Contractor usually failed to
complete the project due to their financial difficulties and other
common ground. Choi et al (2000) concluded as per their research
to identify the criteria for Contractors selection.
As per the figure above the financial capability, past performance
and past experience is the top in the Contractors selection criteria.
Similarly in UK & Australia, Cooper et al (1999) & Willey et al (2009),
revealed the same from their survey reports that low price bid
shifting to multi criteria selection practice in the selection of a
Contractor. Nowadays, the Clients want the best possible value
from Contractors side and lowest price often doesnt achieve this.
10

Estimation process and Methodology:

Al-Hasan et al (2005) quoted in addition to many other authors, the

technical process or function undertake to assess and predict the

total cost of executing an item(s) of work in a given time using all

available project information and source.
Bajaj et al (1996) suggested that, cost plan (elemental, e.g labour,
plant & material) as one of the method used at estimation and
tendering stage and this process would incorporate and conclude
better understanding of the project complications.
The traditional estimation process has been changed and
construction industry adopted many scientific methods or software
to estimate the unit rate price for tendering process. In this regard,
Akintoye and Fitzgerald (2000) in their study about UK current cost
estimation practices reported that the standard estimation
procedure is a widely used method in construction companies,
followed by comparison of similar project completed by the
company and with the help of personnel experience on similar
projects. This is same as traditional method of estimating, where the
cost of construction items prepared based on (labour, plant,
material, subcontractor, and preliminary) on top of it overhead and
profit added. Even though, Contractor always follows a systematic
process for cost estimating for construction project, but the ratio of
research for the cost estimating practice is very less within
specialized Contractors (Al-Hasan et al,2005).
Al-Harbi et al. (1994) studied about Saudi Arabia and concluded
that, the major problems faced by the cost estimator in preparing
cost estimate are tough competition in the market, time duration,
error in contract drawings, discrepancy in specification, unforseen
change in material price on construction stage, changes in scope of
works, non availability of similar project data and personnel

experience on similar project. The methodology used in the Middle

East construction companies is to keep the past record of estimation
in their tendering department. This data helps the Estimator prior to
starting the work on the estimate for new project, by checking the
data from the records and getting similar project information.
Moreover, by the help of previous data, an Estimator can check the
status of tender result which gives a good idea of the effort require
to do the new work. Al-Hasan et al (2005), states that a Companys
record data is one of the most reliable source of information upon
which estimating can be based.
For estimation process many companies use different software but
the most commonly use in the UAE is Construction Computer
Software which knows as CCS. In contrast, in Saudi Arabia and in
some other Middle East countries, Timberline Orbit software is
widely used.
11

Case Study on the Impact of a Wrong Estimate:

I would like to give a practical example of his current project, to

highlight the effects of wrong cost estimation at Tender stage and its
consequences at construction stage. Note: The names of the
company and the project involved have been changed for
confidentiality purposes.
The concerned Contractor is one of the biggest international
contracting companies, undertaking all kind of civil engineering
works. The Contractor had been working for the last 10 years on
various projects in Middle East. The Contractor was awarded the

works of the construction of reportedly, the biggest interchange in

one of the Gulf Country (at that time).
Although there were many discrepancies in bill of quantities but I
would like to discuss the most important ones.
BOQ part of MEP works
Description: Supply, install, connect, test and commission Fire
resistant modular cable system with connection plug, socket and
spur cable assembly to IP67 for luminare connections, as per
specification.
The Main Contractors estimation department didnt review the
whole description of BOQ or forgot to add the major part of this
activity connection (highlighted above), in their cost estimate in
order to quote a rate. As mentioned above, bear in mind, the
Contractor was basically specialised in Civil engineering projects;
there is possibility that their estimation department were not fully
acquainted about MEP scope of works. A more prudent approach for
the concerned estimators should have been to contact a specialist
MEP Sub-Contractor to get a proper opinion before putting in the
quote. Unfortunately, no such opinion was solicited and the rates
quoted only accounted for cables without considering the
connections. The total price quoted for this works was in Millions.
When the works for the cables commenced and the Contractor tried
to hire a specialised Sub-contractor to undertake these works, the
best price they received from the sub-contractors was even more
than triple of their BOQ price. For this one particular item of BOQ,

the main Contractor had to face loss of millions in local currency,

because of wrongly quoted BOQ rates by their Estimators. Although
the project was one of the biggest projects in one of the Gulf country
but due to wrong estimation process main contractor couldnt get
any profit and whole project was closed on significant loss. So this
was an classic example which to demonstrate that even in
prestigious project where the contractor is expected to make a
decent profit, the contractor faces the risk of incurring loos due to
indifference shown while preparing tender bid.
12

Tender related Clauses under FIDIC 4th ed. 1987

Clause 5.2 Priority of Contract Documents: Under the 4th Edition,

the Tender has been accorded the 3rd priority (following the
Contract Agreement and Letter of Acceptance), over the other
Contract documents which are to be taken as mutually self
explanatory. The sequence specified in the Clause 5.2 of the FIDIC
General Conditions of Contract 4th Edition, is as follows:
(1) The Contract Agreement (if completed);
(2) The Letter of Acceptance;
(3) The Tender;
(4) Part II of these Conditions;
(5) Part I of these Conditions; and
(6) Any other document forming part of the Contract.
Usually the Tender is the basis of which the Letter of Acceptance is
drafted which further culminates into a proper Contract Agreement.
Clause 11.1 Inspection of Site: In accordance with this Clause, the
Employer has to make available to the Contractor at the Tender
stage, all the information regarding the site that the Employer may

have in his possession at that time. This information may include

data pertaining to hydrological and sub surface conditions, that has
been obtained by investigations carried out by the Employer or on
his behalf. However, the Contractor is responsible for the
interpretation of this data. The Contractor has to carry out his own
investigations regarding the site and its surroundings and he shall
be deemed to have satisfied himself before submitting the tender;
the form and nature of site including sub-surface conditions, the
hydrological and climatic conditions at the site, the extent and
nature of work and materials necessary for execution and
completion of works and the means of access to site and the
accommodation he may require. In other words, this Clause places
the responsibility on the Contractor to ascertain all the risks
involved in carrying out the works and make suitable provisions for
contingencies and all other circumstances that may affect his
tender.
Clause 12.1 Sufficiency of Tender: In accordance with this clause,
the Contractor shall be taken to have satisfied himself, regarding the
correctness and sufficiency of the Tender. The rates and prices that
the Contractor quotes in his submitted BOQ shall be deemed to
cover all his costs to fulfil his obligations under the Contract. Once
tender awarded and the Contract price has been accepted by the
Client, then the Contractor will not be able to request for a review.
Clause 36.2 & 36.3 Cost of samples and Cost of Test: This clause
pertains to the costs of the collection of material samples and their
tests in private laboratory, if required by the Engineer. This expected
cost should be considered at tendering stage.

Clause 52.4 Day Work: Any time before the issuance of taking over
certificate the Engineer has the authority to instruct any varied
works to the Contractor that are to be executed on a Day-Works
basis. So Contractor should always be keep good margin in these
rates while preparing estimation for rendering.
13

E-Tendering:

As discussed above, the traditional method for the Estimation and

Tendering processes is still being followed in many Middle East
countries. However, a more advanced technique has already been
introduced by Royal Institute of Chartered Surveyor (RICS) called ETendering. According the news from RICS by Al-Lawati & Abinu
(2008), the Electronic system is most growing and important tool in
the project procurement process. In Oman, the neighbouring country
of UAE, the government has adopted and introduced e-tendering
procedure in their tendering department. As per RICS e-tendering
guide notes (2005), there are many benefits in adopting the etendering process for instance, simplification of tender process, and
reduction in tender cost, avoidance of multiple entries of the same
information and ultimately acceptable and fair assessment among
the Tenderers. All the voluminous tender documents are shared
through the electronic copies rather than hardcopies. (Betts el
al, 2006 & Karim, 2009) informs that in e-tendering, a Tenderer can
easily exchange the information through

MS Word, spreadsheet MS Excel

Auto CAD and Micro station drawings

Adobe Acrobat

other formats e.g, XML, CITE etc.

Another most useful advantage of E-Tendering has been explained
by Martin (2008) in the news section of RICS website. He explains
that in E-tendering, not only the all parties would be able to check
any revisions or change in drawings, the moment Designers or
Employer post them on the net, all relevant parties will also receive
a confirmation regarding the entities that have viewed the changes.
Due to this, there would be lesser chances of denial by any
Tenderers or Client, regarding the receipt or issuance of any
addendum or revision of any part of works. This would benefit all
entities who are involved in the tendering process. Further, the
tender documents normally consist of voluminous amount of paper
documents due to the complex requirements of tender, and printing
all these documents and sending them to all Tenderers individually
is totally wasteful (Martin, 2008). E-Tendering results in massive
saving to the Employer in terms of reduced usage of paper.
Furthermore, there is also a saving for the Tenderers as substantial
travelling costs and time, required to pick the documents from the
Employers office and to submit the tender document, are avoided in
E-Tendering.
Notwithstanding, Betts et al (2006) reports that the demands of
various governments and the Construction Industry to do
paperless business has generated various commercial e-tendering
systems around the world, but these systems were launched without
considering and fulfilment of legal and security perspective. This

paper further informs that in shifting to an electronic environment,

there are legal hurdles still to be faced. However, as the UNICITRAL
Model law on Electronic Commerce has been implemented in many
countries (either complete or partially in 25 national jurisdictions), it
can be used as a guide if any legal issue may arise.
According to Martin (2008), the majority of related individuals agree
that e-tendering has substantially reduced the administration cost.
Karim (2009) reports that, like European countries the countries in
the Middle East have started the electronic procedure to requesting
tenders for construction projects. He further explains that, through
extranet Client or Consultant upload the documents from their
offices and the same can be downloaded by the Tenderer upon
obtaining requisite permissions. Selection of the medium of
exchange of information depends on the size and complexity of
project. The medium of technology implemented between projects
size and complexity.
According to current survey report by BCIS in 2009; BCIS seems to
be convinced that web based e-tendering reduced administrative
overheads related to the whole tendering processes. It also makes
the documentation process more efficient, expedites the tender
process, reduces the demand of manpower resources, provides
better security and makes it easier to comply with best practice
recommendation.
15

Summary:

The first part of this review discusses the estimation process and
comments on the importance of proper estimate for different
entities involved in the bid process. Through this review, we can
understand that for the Client, a proper estimate helps determine
the feasibility of project and facilitates the procurement procedure
for the project. It also helps him in planning the finance required for
proper successful completion of the project. From the Contractors
perspective a proper estimate helps in preparing a proper bid for the
works and facilitates arrangement of resources for proper execution
of works.
The second part of the review discusses the Tendering process.
Different types of Tendering procedures are discussed and through
this review we can notice that a careful consideration needs to be
given regarding the nature of project before deciding upon the type
of tendering process that needs to be undertaken for any contract.
Most of the authors and writers conversant with the subject of
estimation and tendering inform us that the Contractors usually
utilize the information available in their data bank acquired from
experiences of previously tendered projects, to use for the bidding
for a new project by modifying and updating the collected
information. In this review, the importance of BOQ description and
subsequent effects from incorrect interpretation has been
highlighted through a project example. The review also discusses
the use of E-tendering and based on the views of different writers,
the review highlights the importance and need of e-tendering in
Middle East construction industry and its benefits.

References/Sources: Various books/articles/journals available on

request.
Declaration: I Laeeq Hassan confirm that this article is my own
work and expressed in my own words. I acknowledge all the source
of information which have been used in this article.