International Construction Law Review
THE RISE AND RISE OF TWO-STAGE TENDERING
CECILY DAVIS
Partner, D L A Piper, London
PETER DORNAN
Solicitor (Australian Qualified), D L A Piper, London
1. Introduction
For the past couple of years, the construction market in the United Kingdom has been a contractor’s market. Of course, the long term impact of the recent “credit crunch” and the general slowdown of the UK economy may be expected to swing the pendulum back, but, at least until recently, the strong market of the growth years prior to 2008 has resulted in the use of two-stage tendering becoming commonplace for procurement of construction projects. The reasons for the popularity of two-stage tendering with contractors in a seller’s market are explained below. However, there are also advantages for employers, particularly as enthusiasm for design and build procurements has waned in recent times, largely as a result of the potential for cost overruns. Two-stage tendering certainly offers employers the potential for greater cost certainty, particularly by comparison with design and build procurements awarded under a single tender process.
2. Two-stage tendering—what is it?
Two-stage tendering is a method of procurement which is designed to achieve the early appointment of a contractor on the basis of an agreement to undertake pre-construction services, the intention being that the parties enter into a lump-sum contract or cost-reimbursable contract with a target price, after further negotiation. The aim is to appoint a contractor at a much earlier stage of the procurement process than would otherwise be the case.
The first stage consists of a competitive tender on the basis of a limited amount of outline information. Tenderers will generally submit a construction programme, price for preliminaries and percentage for overheads and profit offered for the life of the project. The employer decides between the tenderers on the basis of this information, and the relative skills, experience and resource which each can bring to the project. In selecting a tenderer, the weight given to each of these factors will change depending on the nature of the project and (often) the interests of investors.
The successful bidder (who is then usually referred to as a “preferred contractor”) is then appointed to provide pre-construction services under
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The International Construction Law Review
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