Construction Tendering 101: All You Need to Know

By 2026, the engineering and construction industry is projected to have 589,435 firms in the United States, thanks to the increased government contracts and large-scale projects. However, achieving these figures can be daunting since the industry is struggling with several challenges like skyrocketing market costs and a shortage of skilled labor.

Construction tendering is one of the processes that can help curb this issue, as it is single-handedly one of the most critical stages for any construction company or supplier. This process is a prime opportunity for firms to make money, especially with the landscape of the construction industry being ever-growing. 

Below, we delve into construction tendering, explaining what it is, the different types and the process employers have to go through before settling for the most qualified contractor.

What Is a Construction Tender?

A construction tender is a formal process through which suppliers, subcontractors and contractors submit bids to win a construction contract for a project.

Project owners or principal contractors are responsible for initiating the tendering process. They usually create a tender document outlining the specifications of the project, the timeline and the requirements. Any interested party can then submit their bid in response to the tender paper and compete with other bidders to win the contract.

The most suitable contractor or supplier will be selected based on the following:

• Completion cost
• Product suitability and availability
• Quality control and KPIs
• Environment and sustainability factors
• Additional requirements like training and recruitment

The government likes using construction tendering processes to procure consultants, suppliers and contractors because they promote competition and help achieve the best value for money in a transparent, fair and consistent manner.

Types of Tendering Methods in Construction

Tendering in construction can be approached in three different ways: open tendering, selective tendering and negotiated tendering. Each tendering method differs from the other and is designed to meet various project requirements.

Open Tendering

An open tender allows the project owner within a firm to submit a tender for the supply of goods, services or work in a construction project. The employer allows as many interested contractors interested to apply for tender documents as possible.

Open tendering is ideal for public sector projects like government contracts for major infrastructure. However, it can also be used in the private sector, especially when offering equal opportunities to suppliers.

Projects funded or procured by federal, state or municipal governments and agencies are legally required to use open tendering to obtain the lowest responsive bid. In the US, owners who post public projects and contractors who bid on them have to meet the requirements laid out in the Federal Acquisition Regulation or any other applicable state and local laws.

Of the three construction tendering types, open tendering is the simplest since it follows a two-step process that results in a buyer procuring goods, works or services from a contractor.

Selective Tendering

With selective tendering, employers advertise their projects and invite only qualified contractors to apply for the placement of a selected list of contractors, who will then be invited to bid for the project. To pre-qualify, contractors are given a list of information they should submit about themselves. The terms to be met vary depending on the project, but they range from WLCAs to closely aligning with the organization’s ethos and beliefs.

Selective tendering is best suited for complex projects. This form of tendering also works best for organizations with a set understanding and requirements to be met since they can target contractors and suppliers that directly meet their expectations.

The main advantage of this form of selective tendering is that employers can select contractors with adequate experience, resources and skills to do the work. Also, since very few contractors are selected, each contractor knows they have a reasonable chance of gaining the contract. This makes each contractor study the tender documents thoroughly and be keen on their price.

Negotiated Tendering

Negotiated tendering involves the employer inviting a contractor of their choice to submit prices for a project. This mostly happens for specialized work or when a specific type of equipment is needed to extend existing work. In some cases, negotiated tendering can occur during an emergency or tight deadline.

The main advantage of the negotiated construction bidding process is that they have a good chance of being satisfactory. This is mainly because the contractors are chosen based on previous positive experiences with the employer.

After being invited by the employer, a contractor will submit their price. If there are any questions, the employer and contractor discuss them to prevent unforeseen troubles.

Construction Tendering Process

Employers and contractors need to follow a certain process before winning a tender or finding the relevant experience. While this process may vary depending on the type of tender and project at hand, here is a rundown of some of the basic steps to be followed.

Invitation to Bid

An invitation to bid or tender is usually the first step of the construction tendering process. This step follows the completion of a pre-qualification questionnaire (PQQ) after a client posts an advert. The pre-qualification questionnaire and pre-tender interview aim to enable the employer to shortlist contractors. This process is crucial since it helps reduce inefficiency and any wasted effort.

Before issuing an Invitation to tender, employers have to carry out some market research and identify potential contractors with the relevant experience and qualifications. Online platforms like job boards are resourceful during this process.

Also, employers need to prequalify contractors by reviewing their past performance, technical capabilities, and adherence to safety standards. This stage is very important because it ensures only the competent contractors are invited to bid, hence enhancing the likelihood of successful project execution.

An invitation to tender document includes:

• A letter of invitation to tender
• The form of tender
• Preliminaries like site waste management plan
• Form of contract, contract conditions and amendments
• Employer's information requirements
• A tender pricing document
• A drawing schedule
• Design drawings

Construction bid documents should be broken down into packages with design drawings and specifications that the main contractor should issue. This makes the tender process easier to price for the contractor.

Clarification

Employers can arrange mid-tender interviews to clarify issues that could otherwise lead to the submission of an inaccurate tender. The clarification stage in the tender process also gives employers insight into potential opportunities or problems in the project.

Some of the questions raised during this tendering process stage can lead to an amendment of the bid documentation, which can also affect the length of the tender. Employers should allocate enough time for the tender process to investigate opportunities and clarify problems.

Any changes or additional information on the tenders should be circulated to all the tenderers to ensure a level playing field in the construction industry.

Submission

After being invited to tender, contractors and suppliers will submit their tender, including the price for supplying goods and services.

The content of the submission will vary depending on the procurement route. However, the basics are:

• Tender return slip with details of the contract
• Completed tender pricing document
• Schedule of rates
• Initial construction phase plan
• Design proposals or method statements that have been requested
• Program
• Procedures to be adopted
• Demonstration of capability
• BIM execution plan
• Key project personnel
• Variant Bids

Interested contractors or suppliers may offer alternative or non-compliant bids, also known as ‘variant bids,’ if they think whatever they are offering is of better value. However, these proposals should only be submitted if the employer requests them. Also, they should be accompanied by a compliant proposal.

Qualified Tenders

Qualified construction tenders are tenders which include reservations or statements made to limit liabilities. A qualification is a clear statement regarding an item in the tender.

Settlement

After the employer has identified the preferred contractor, they will hold a tender settlement meeting to get into negotiations. This may lead to further adjustments of the tender documents and the submission of a revised tender.

Contract Engrossment and Execution

Contract engrossment is the process of preparing the final agreed form of contract, its schedules and appendices to execute it.

Contract execution is signing an agreed contract, after which its terms become binding on the parties to the contract.

Two-Stage Tendering

Two-stage tendering is used to allow the early appointment of a supplier prior to the completion of all the information required to enable them to provide fixed project costs.

A limited appointment is agreed upon in the first stage, allowing the supplier to begin work. In the second stage, a fixed price is negotiated for the contract. This price can be used to choose the main contractor early or, more commonly, as a mechanism for the early appointment of a specialist supplier.

A two-stage tendering process can also be adopted on a design and build project where the employer’s requirements are not fully developed. In such a case, the contractor will tender a fee for designing the building along with a schedule of rates that can be used to establish the construction price for the second stage tender.

The main benefit of two-stage tendering is the certainty achieved since the scope of work will be well-defined and communicated. Also, since the contractor will be involved during the process, they can easily identify potential risks during the construction process.

However, the bid price for two-stage tenders is usually higher since they involve pre-tender discussions. The process can also be time-consuming and may not be ideal for employers with a tight development program. Lastly, the increased contractor involvement in the initial planning stage can play a negative role in the design plan if the contractor had hidden agendas.

Final Thoughts

At its core, proper construction tendering helps all parties arrive at the best contractual terms that benefit all parties. Tendering is essential in construction since it helps select contractors and suppliers for a project.

Employers and clients can choose open tendering, selective tendering and negotiated tendering methods depending on the nature of the construction project and the expertise needed. Proper tendering helps foster good client relationships and improve project quality.