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Topics: Construction, Outsourcing, Procurement Management
Procurement in Construction Projects: how to?
Hi everyone.

As a deputy p.m. in a major infrastructure project I have been questioning myself over the traditional method of requesting for proposals from the suppliers and subcontractors.

The project that I am working on is based in the FIDIC red book form of contracts, and so far so good.
When we are looking for a physical resource such as major component for the project, or when we are procuring a service to be provided by a subcontractor, we usually consult a list of designated suppliers/service providers and invite them to send us a cost proposal based in a set of requirements. We contact them individually.

In this project we are a subcontractor under the umbrella of a project management and consultancy general contractor, but our scope is to supply and install the majority of the project items and in that regard we end up being the stakeholderin charge for the greatest chunk of the procurement and project execution.

When we engage in negotiation with the potential subcons we always discuss their proposals with each subcon one at a time and do not open the procurement process to active competition between those selected subcons. What usually happens is the subcons study their proposals based only on the requirements that we shared with them, and do not know who are their competitors nor do they have any clue of how far they should go in their proposals to be awarded the job.
The subcontractors prepare their proposals in a blind environment and are usually afraid of strengthening either their technical or cost solution.
As far as I have seen in my international career, this is the traditional way of requesting for proposals in the construction industry within the private sector.

Now, I wanted to ask my peers if you ever considered and/or experimented opening the procurement process in the same way the bidding process is conducted for the public sector, iwhere the bidders know exactly who they are, where they know the evaluation rules (or at least what are the evaluation criteria), and are all given the same amount of information.

At a first glance this seems more fair from the point of view of the subcontractors because they will be more informed and confident. In the other hand they will either show more interest in the project (or less if they arent really interested) and thus provide us with more competitive and complete proposals.

What are your thoughts on these two procurement methods and their advantages and disadvantages?

Thank you in advance,

B. Fonseca
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HI Bruno,
I have read the interesting proposal that you expose in this post.
As a site manager in construction works, the hiring of services or subcontractors is one of my tasks in the process of managing the contracted work, and as Project manager also.
My experience has shown me that the best way to do a good hiring is to provide the "bidders" with the best and widest possible information about the job to be hired and obviously provide everyone with the same information. If this is not done in this way, it is most likely that a large range of economic / technical proposals will be produced, and for me the analysis and comparison of all the economic proposals is more complicated.because each of the suppliers will "assume" their option and probably the one that leaves more doors open to changes or project modifications.
My experience has shown me that the more work is done in the hiring process and the better the details are defined in the contract, the more the service provider is involved and does not give rise to unforeseen events.
Therefore, we can consider that a bidding process is already being carried out, but in a simple way.
The work prior to requesting offers is very important and it is necessary to write down the basic points that must be included in the contract, and this balances the inconvenience of being a longer process in time.
Therefore, for me the selection of subcontractors or suppliers is already in a certain way a bidding.
If you need a procedure, which is normally established by the company itself, but not a specific bidding process, which would extend the deadlines and increase the deadlines.

In addition, direct negotiation with a supplier, once the feasibility of the offer has been analyzed, is necessary if the companies involved in the process are small or medium-sized.

In short, I agree with you that the contracting process should be similar to a bidding, but with simple and short procedures so as not to delay the whole of the project.I hope I have contributed to your good proposal.

best regards
Monserrat, absolutely.
I thank your comment and subscribe in general.

It is fundamental and ethically correct to share the same information with all the potential suppliers while simultaneously sharing as much information as possible (and available).

On the other hand I wonder how positive it would be if those potential suppliers would be aware of each other in the bidding, i.e. if everyone is formally informed about who is preparing proposals, and also, what would be the evaluation criteria (if there's any criteria other than cost).
Overall I would like to understand if such openess would result in better proposal economically and technically.
Thank you for your comments,
In response to the two points,The ideas that I would like to share in this discussion are the following:
1.- In a first thought I conclude that it is important that everyone knows the competing companies (ethics, balance between companies to promote competitiveness, etc). But analyzing it more deeply I have certain doubts, which I would like to share with you and with other colleagues, to know their opinion. For example, if this information could lead to losing opportunities to get a better contract, or if there may be companies that do not want to bid because they know that they have fewer opportunities ... More in detail, within their sector, companies must know the financial status of "opponents" (or at least intuit it), the possible portfolio of contracts at the time of the bidding, and so on. that could make the offers were not sufficiently worked.
2.- About the criteria to be evaluated in the opening of the envelopes, my contribution is that they must be the same as those applied in the selection of any subcontractor, in the following order of importance:
Economic proposal of the offer
Planning of the contracted work with a description of the allocation of human and material resources.
Company experience in the type of work to be awarded.
Human and technical resources of the company

Finally, and hoping we can hear more opinions on the subject that can contribute with new ideas, I would like to share that the hiring must always be a "small bidding" regardless of the formal aspect of the opening of envelopes or the non-existence of the same.
Interesting post.
Some comments from my side.
I see from your profiles that you are all from Europe and it seems you have a quite formalized process of receiving and opening bids for your sub contractors and looks quite similar to how I've witnessed it in South America, in particular, Argentina. Given this it would seem most important that the subs you plan to use would be pre-qualified to bid. In this respect you as the buyer would only send RFQ's to those that meet or exceed your qualification criteria i.e. they are financially able to complete the work, have the required quality and safety standards/processes in place, have demonstrable experience of the work scope and have the experienced workforce available at the time required by the project plan. Once they have been qualified, which typically means you have conducted projects they have completed and you have visited their back office to demonstrate they have the processes and procedures to accomplish the work, then you can send a formal RFQ package. In order to get the most complete bid, the more information you include the better. Most times, in my experience, the design is not complete at this stage and this may determine which type of contract you want to pursue i.e. lump sum or remeasure or a combination of the two. There will be many questions coming from the bidders and these should be answered and provided to all the bidders so that they are all aware and not just the ones that asked the question.

I think it is also a good idea to highlight the criteria that they will be measured on; schedule, price, experience, constructability, responsiveness, contract T&C's, exclusions etc

To your other point, I don't see a problem communicating who the bidders are, typically they already know who's bidding so the concern of losing bidders is there but if a sub is going to not bid because of the competition then it may be telling of their abilities to compete the work anyway.

There are many other points to consider but open and fair communication is critical.
Martin thank you for your contribution to this discussion.

Other project managers in my company share yours and Montserrat's point of view.

Overall the suppliers/subcontractors would be engaged in this manner:

1. The request for proposal / quotation is prepared and individually forwarded to the pre-selected companies (of course those that meet the finantial capacity, safety policies, technical expertise and which have a portfolio of similar work delivered);

2. The evaluation criteria may or may not be communicated and this would depende mainly on the complexity of the work in the package. For a package containing clearly defined activities or products the evaluation criteria would make no sense since the cost would certainly prevail. For a more complex package with a dosis of uncertainty then the criteria you mentioned would make total sense and should indeed be clearly refered to when inviting the subcontractors to quote;

3. The potential subcontractors raise questions which, if particular to their solution are then replied individually. Otherwise the reply is shared with other subcons in case those questions pertain the general project specifications - but in this case the information is shared between other subcons but maintaining the subcontractor who raised the RFI undisclosed;

4. There is a private negotiation process between the selected few and the process ends with an award to the proposal with the highest value.

Now, regarding the topic of undisclosing the competitor subcontractors and let them know who is it they are bidding against the opinions diverge and I feel the outcome would have more drawbacks then advantages.
One voice raised the issue related to the possibility of the competitors starting communicating between themselves towards achieving and presenting a similar price and or increase the number of exclusions, while shielding themselves from the GC or owner trying to negotiate better conditions for the subcontract.
In the meanwhile other peers I consulted believe that sharing the competitors ID with the potential few subcontractors being sorted out in an advanced stage of the negotiation, would pressure them into lowering the cost or decreasing the number of exclusions, or even improving the payment conditions in the agreement.

Still, in regard to your mention of our cultural philosophy of business which is a very important factor being us european I would like to add that I also worked with international stakeholders and project teams in countries like India, Mozambique, the Philippines, Brazil, and indeed the way the subcontractors are addressed is quite different from place to place.
In some cultures whatever is communicated with a potential subcontractor aims at a longer lasting relationship despite the approach being somewhat aggressive in terms of technical and financial capacity of the subcontractor.
To other culturesa the approach is more aggressive in terms of cost and the negotiation is less transparent to some degree.

When I raised this topic I remembered a time when a peer of mine shared the names of the companies bidding against the supplier who was selected afterwards and this particular subcon ended up lowering is proposal to such an extent that he left the project after a few months due to lack of profit.
I have also seen a campaign of RFP resulting in the most disparate proposals because the subcontractors were not aware of each other and each of them sent a very different technical solution from the other because they thought they were isolated and did not think through their proposals adequately.

So this is a very sensitive subject and it is quite unclear whether disclosing or not the competition delivers positive results.

I thank you again for your comments as they are adding a lot to this subject whilst increasing our knowledge of the practices kept elsewhere.

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