Planning the tender
Contract area definition
Tender form – sub-contractors
The tender is governed by the Danish Act on Tender Procedures
Employment of ministerial order on Price and Time
Tender for suppliers
Geo-technical scrutiny note
Contract output and construction process
Drawings / specifications
Technical solutions and construction methods
Risk / responsibility aspects
How building site conditions affect contract performance
Clarification meeting / cancellation letter
Calculation of individual trade contracts
Tender activities / bid schedule
Taking off and time calculation
Wages, material and equipment
Building site costs
Supplier and sub-contractor fees
Contribution margin / contribution ratio
Calculating main contracts
Calculation of trade contracts
Calculation of turnkey contracts
Opening tender bids
Tendering is a vital part of the company’s activities. It is therefore important to plan the tender properly and to carry out a systematic scrutiny of the tender documents – irrespective of project size, contract/tender form and the extend of ‘own production’. The company has developed its own procedures with respect to legal and technical scrutiny as well as risk assessment. Likewise, the procedures for building site inspection in connection with the tender have been established.
It is pertinent to make a clear definition of contract area as early as possible in order to define what parts of the project will be carried out as ’own production’ and, what parts will be carried out by sub-contractors. The main contractor shall also define what common conditions should apply sub-contractors.
Upon reception of the tender documents, the contractor analyses the documents in order to identify any conditions that may not be expedient to the main contractor.
A possible outcome of this scrutiny could be that the contractor asks questions to the client, makes certain reservations in his tender (see later on), or chooses not to participate in the tender at all.
The tender documents should mention that AB92 – (General Conditions of Work and Supply in Building and Construction Work) – AB 18 forms the basis of all agreements in the building project. AB92 /AB 18 defines the rules for the entire building project and describes how rights and obligations are shared between the client and the contractor. In principle AB92 / AB 18 should be employed without modifications because the rules are worked out in such a way that they consider the interest of the client as well as the contractor. Consequently, the contractor should scrutinize the tender documents in order to identify possible deviations from AB92 / AB 18 which may burden him with additional obligations towards the client. Should this be the case, the contractor should seriously consider whether he wants to submit a tender bid.
During the years using AB 92 it has been common for the client to make not only few changes to AB 92 and the contractor needs to attend these changes in his risk assessment. Time will show if the client also choose to make changes to AB 18.
In accordance with AB92 Section 2, subs. 2 / AB 18 section 4 subsection 2 , tender bids submitted shall be based on information in the received tender documents – consequently, it is important to check that the tender documents received corresponds to the documents mentioned in AB92 Section 2, subs. 2/AB 18 section 4 subsection 2.
The contractor should call attention to whatever errors or shortcomings he might find in the tender documents in order to avoid a possible defects and mistakes in the construction works.
In case there is a clause in tender documents allowing for the handing in of alternative bids and in case the tender is ruled by the Danish Act on Tender Procedures or the Public Procurement Act (on public services in the internal market ) minimum requirements for such bids shall be described in the tender documents.
In cases where the contractor submits alternative bids he should be aware that he also takes over the responsibility of designing the alternative solution.
When undertaking a legal scrutiny of a building project, the following aspects shall be clarified:
The tender may take place in accordance with the Danish Act on Tender Procedures (Tilbudsloven) , the Public Procurement Act or simply in accordance with the Danish Contracts Act (Aftaleloven). Guidelines can be obtained from The Danish Competition and Consumer Authority (Konkurrencestyrelsen) . Through the website Retsinformation you can obtain access to all current legislation. The rules to be applied depend on who the client is, and as the rules are different it is imperative to be acquainted with all of them.
- Is the client private or public?
- Is it a private construction work with public subsidy?
- Is part of the agreement based on the Danish Act on Tender Procedures?
- Is the total contract sum above the threshold value?
Also the below issues shall be clarified:
- What type of tender does the client use?
- Selection criteria and requirements for the fulfilment of these criteria, documentation etc.
- Awarding criteria
- Is it possible to make reservations when a tender is handed in – what kind of reservations should be made? What type of information shall be handed in at the same time? And what are the possible consequences of reservations?
In the planning of tenders for sub-contractors it is important to investigate whether such tenders are subject to special legislation. The tender is always governed by The Danish Contracts Act (Aftaleloven). In addition the tender may also be governed by
Danish Act on Tender Procedures (Tilbudsloven).
Next step is to formulate an invitation to tender for the sub-contractors. In this invitation the tender form must be specified to ensure compliance with the above mentioned legislation.
Private clients are not affected by the Danish Act on Tender Procedures but may choose to comply with the act.
In case the client chooses not to comply with the Danish Act on Tender Procedures no specific demands from this act will apply when the main contractor invites tenders. In this case the tender and accept of tender will be governed by the Danish Contracts Act.
In cases where the client is the State, a municipality, a region or a similar public entity the main contractor must use the Danish Act on Tender Procedures when inviting tenders from subcontractors – cf. guidelines (Danish Competition and Consumer Authority) for the Danish Act on Tender Procedures and the Act itself.
In case the client is the State the governmental order on Price and Time is employed guided by the ‘ABC- guidelines’ (published by the Danish National Housing and Construction Agency in order to help the interpretation of the Governmental order).
The standard reservations issued by the Danish Construction Association (Dansk Byggeri) contain a clause stating that the Governmental order on Price and Time shall apply to the building project. Consequently, it is natural to include the governmental order in the sub-contractor’s tender documents.
AB 18 includes a section 34 about index-regulation and a section 35 about extraordinary regulation of the price – both almost similar to the governmental order on Price and time
Tenders for suppliers are not governed by the provisions in the Danish Act on Tender Procedures (Tilbudsloven) and tenders from suppliers are in most cases governed by provisions in The Danish Contracts Act (Aftaleloven).
Supplies take place in accordance with AB92 or in accordance with the Danish Sale of Goods Act (Købeloven).
In order to secure a uniform set of rules throughout the entire project we recommend that all supplies take place in accordance with the rules set out in AB92.
This recommendation applies to tenders from sub-contractors as well as tenders from suppliers
Tender conditions shall be coordinated in relation to tender conditions in the main contract in such a way that the main contractor does not get into a jam between the the client on one side and the sub-contractor/supplier on the other side. This may apply to issues such as payment conditions, consequences of delay, price adjustments, bid acceptance period etc.
In case the client’s tender documents contain demands with respect to subcontractors, such demands must also be included in the tender documents submitted to the subcontractor, cf. for example:
AB 92 § 5 / AB 18 § 7 concerning limitation on the rights to transfer obligations
AB 92 § 5 / AB 18 § 8 concerning the client’s right to put forward a claim directly against the contractor’s subcontractors and suppliers
The subsequent section covers the contents of the technical scrutiny, including pre-investigations, geo-technical report etc.
From the tenderer’s point of view the objective of the scrutiny is to create the best possible conditions in order to be able to hand in a precise and complete tender bid on the day of the tender.
To begin with you must check that you have received all the tender documents mentioned in the request for tenders.
During the scrutiny process you may come across conditions which are not adequately defined. Questions relating to such conditions should be brought up at the clarification meeting in order to shed light on the problem. There will, however, always exist a small fraction of not sufficiently clarified issues which shall be included in the risk assessment to be carried out later.
It is recommended that the tenderer visits the future building site at an early stage in the scrutiny in order to assess access conditions, parking possibilities, neighbouring conditions, the construction area etc. This is important in order to take into account possible limitations/ obstacles that might influence the tender bid.
A geo-technical report is prepared in most building projects and constitutes part of the tender documents. An environmental report is quite often prepared as well.
Information in the geo-technical report shall be worked into the tender bid because soil conditions greatly influence price, time and risk.
The main conclusions in the geo-technical report are most often summarized in it’s first section, but it is advisable to read the entire report and make notes of the information found in a so-called ‘scrutiny note’ to be used as the tender phase progresses.
The list below describes some of the geo-technical aspects to consider in order to be well prepared for the calculation of the tender bid. The answers to to the geo-technical questions raised will influence the tender bid directly as well as the risk assessment.
- Scrutiny of levels:
- Present ground level
- Future ground level
- Level of topsoil excavation
- Top level of the stable stratum
- Bottom level of foundation
- Top level of the solid stratum
- Water table)
This information should be noted in a detailed cross section.
- Soil carrying capacity
- Soil strength parameters and carrying capacity
- Water table
- Lowering of the water table?
- Draining of surface water
- Drainage needs, collecting wells and pumping
- Slope inclination, temporary bunging, conditions on neighbouring plots. Is soil suitable for backfilling?
- Building site
- Temporary roads, substructures for storage sheds and site huts
- Environmental problems
- Handling polluted soil, pollution degrees
An overall assessment shall be carried out in order to find out whether the expected output of the assignment in question matches company competencies.
In order to assess whether sufficient competencies are present, the company produces an overall plan showing the construction process for the entire building project.
By analysing the the construction process plan of the project in question (imagining the building process) the management can assess whether the assignment matches company competencies.
Drawings and specifications are thoroughly scrutinized. During this process it is advisable to ask the following questions: Are project documents adequate? Are some areas muddled – leaving it up to the contractor to find solutions? Will it be necessary to carry out additional design? Are the materials chosen common and are they immediately available? Could there be supply problems?
The buildability of the project is scrutinized with the object of assessing whether alternative construction methods are obvious. Areas suitable for own production are identified and areas suitable for sub-contracting will be tendered to subcontractors and suppliers. It is important to clearly define and delimit such areas.
Risk management is a relatively new discipline within building construction and it is at present being systematically introduced.
Risk assessment and risk management are areas to be worked in through all phases of the building activity.
Starting in the tender phase it is required to assess structures, construction techniques and such external factors that might imply a risk in order to get an overview of whatever financial implications this may result in and consequently include a risk allowance in the tender bid. .
During the starting up phase it is recommended to get acquainted with individual work processes and to work out risk analyses for all dangerous work.
During the construction phase the individual foremen shall take part in an examination of risk analyses and assess how to act in order to minimize the risk.
For more information on methods and diagrams: Risk management in the building and construction industry
(Risikostyring i bygge- og anlægssektoren)
The building site arrangement is an important aspect of the contractor’s work. The arrangement affects work progress, safety conditions, construction logistics and the surrounding environment. The great variety of construction work takes place in very different surroundings. It is therefore important to carry out a thorough inspection of the building site conditions, conditions on neighbouring plots, access conditions and access possibilities for equipment etc.
The client’s/ consultant’s proposal for building site arrangement shall be included in the tender documents.
We recommend the use of BAR-Ba`s tools for the registration of existing conditions and for the monitoring of future conditions during construction.
Whatever questions may arise during the scrutiny should be brought up at the clarification meeting. A cancellation letter will subsequently be issued and becomes a tender document equally important to the the other tender documents
Questions that cannot be answered shall be appraised on the basis of a risk assessment or it must be defined exactly what output can be expected – it may be necessary to make reservations.
The timeline is a planning tool which first of all helps to ensure that such milestones as the day of tender is reached without too many obstacles and secondly to ensure that the subsequent project phases are implemented according to time schedule.
The timeline is elaborated on the basis of the tender time schedule, which provides information about key dates defined by the employer and which must be observed.
Usually these dates are: tender date, time limit for clarification / clarification meeting, day of tender, expected date of construction commencement and handing- over date.
These dates are the skeleton over which the timeline is built and the contractor supplements with dates for additional activities deemed necessary for the successful completion of individual project phases .
In a specific building project, an effective tool to use would be a timeline showing the legal aspects to be considered during the course of the building project in question
In addition it may be a good idea for the company to work out a time line showing all ongoing building projects and tender bid calculations as well as upcoming projects.
According to AB 18 § 4 subsection 4 the main time plan has to include: dates for start and finishing of the project, possible interval, number of waste days, possible restrictions in the use of the building site, date for signing the contract, limits for the contractors work plan, time limits for project review, limits for mobilization, coordination of safety and pre-evaluation of the work.
Very often the tender/bid phase is short and hectic and for that reason a tight management is important.
In parallel with project scrutiny and the definition of construction methods the contractor starts the calculation. The calculation is carried out as shown on the calculation sheet.
The calculation is subdivided into 3 cost categories:
Category 1: Direct costs
Category 2: Indirect costs
Category 3: Other costs
Before the actual quantity surveying of materials and time estimation begins it is required to subdivide the calculation into sections. Each section refers to the building components / items as stated in the bid schedules being part of the tender documents. Final prices will be added to the bid schedules at a later stage.
In case the tender documents do not contain bid schedules it will be appropriate to subdivide the calculation of direct costs into activities clearly indicating a structural demarcation (for example: Substructure, primary elements, completions etc.)
Within each activity the different work processes, which shall be carried out in order to complete the said activity, should be stated.
Direct costs include expenses in connection with own production, i.e. labour costs for tradesmen purchase of materials – with a deduction of discounts – but adding the cost of waste, hire of equipment, transport, and building site expenses.
Taking off and estimating time consumption are very important parts of the contractor’s tender bid. In order to be able to estimate the time consumption required in relation to the quantities taken off, it is important that the contractor keeps focus on process quantities, methods applied and waste.
On the basis of the measured quantities and methods applied the time consumption is determined by the use of price lists elaborated by the various trades and by the use of the contractor’s own price catalogue (experience cost).
Special forms, so-called man-hour calculation forms are used when defining the time required to carry out specific tasks. The time required is determined on the basis of the agreement (guiding timetable), ‘Anlægs Teknik 2’ or ‘collected data on time/costs’.
Materials and equipment costs are priced either through tender bids or prices are found on the internet.
Concealed quantities, material waste and piece rate pay should be taken into account.
Once the production figures are entered into the calculation, quantities shall be measured at the building site. Building site expenses are divided into two parts. One part refers to costs related to the establishment and dismantling of equipment and the other part relates to operating costs.
Upon determination of wages for each activity the social costs are added. Social costs are paid in accordance with the legislation and in accordance with agreements in addition to the expenditure the company has had during the past year.
Social costs are incorporated in the company budget.
Building site costs include expenditure which is necessary for company staff in order to perform their trade contracts. Such expenditures could be: site huts, storage sheds, field workshops including machinery, waste removal, distribution boards and working lights, health and safety precautions, special tools, tower crane, scaffolding and hoists/lifts, vehicles for horizontal transport and cutting and bending machine.
In Denmark, indirect costs are sometimes referred to as ’capacity costs’ because this type of costs is directly linked to a certain capacity. In this context it is important to define capacity in its broadest meaning i.e. production, stores, distribution, marketing, administration etc. Indirect costs also cover costs related to for example contract managers, foremen with fixed salary, site accommodation, mileage allowances, tests, security, unpredictable costs and risk.
In cases where a supplier and a subcontractor make part of a given activity, an additional fee will be added to their (accepted) tender bids. This fee covers administration and profit.
Finally, the accepted tender + fee is added to the calculated gross price for the activity, and may hereafter be entered in the bid schedule.
The contribution margin expresses in per cent how much profit the contractor wishes to make on the building project. If the contractor wishes to make 15% profit on the building project then the direct and social costs will correspond to 85% of the final tender bid.
Once the calculation is finished the contractor should make a note of the relevant key figures.
Key figures may represent average prices on elements in relevant structures.
The key figures may be entered into a database with a built-in price indexing. By doing so prices may be re-used in future projects. Key figures based on experience may be re-used in the following instances:
- Rough estimates
- As a control measure in new price calculations.
- Analyzing the choice of new types of construction.
Once the calculation of own production is terminated and tender bids from sub-contractors and suppliers have been received and accepted it is possible to begin the final calculation of the main contract. Like it was the case with the individual trade contract this calculation is also broken down according to the costs required in the bid schedule and according to requirements stated in the building project specifications.
The breakdown may be carried out as follows:
- Tender bids from sub-contractors with contracts constituting part of the main contract.
- Costs related to the building site arrangement and operation
- Costs related to managing the main contract.
- Costs related to site accommodation – including furnishings, IT, telephone, heating etc.
- Costs related to security / guarantees
- Costs related to seasonal winter precautions.
- Costs related to estimated risks.
- Any other expenses mentioned in the tender documents
Cf 1: Tender bids from the selected sub-contractors (SC) are entered into the form. The next column contains a percentage indicating the desired administration fee and profit. Once this is calculated it is possible to determine the amount which must be entered into the bid schedule (the price we present as ‘our price’ to the client).
Cf 2: Costs related to building site arrangement and operation may be entered in a separate form where the possibility of carrying out a detailed calculation exists. In case the building project specifications state that the different SCs shall include costs related to building site arrangement in their tender bid, such costs will not be added here since they are already included in the SC’s tender bid. Examples of costs to be listed here could be: Electricity consumption at the building site, water, fencing, roads, establishing site accommodation and the like.
Cf 3: Costs related to site management can only be calculated after an organization chart has been elaborated, clearly stating how many staff will be required in order to carry out the main contract and for how long they will be stationed at the building site.
Cf 4: Calculation of costs related to site management accommodation and site hut may also be carried out in a separate form, and the sum subsequently transferred to the the main contract summary sheet.
Cf 5: Costs related to security often amount to a considerable sum – this of course depends on the magnitude of the main contract.
Cf 6: Seasonal winter precautions are calculated and added.
Cf 7: Risks identified during the scrutiny are calculated/estimated and the amount(s) entered into the calculation such that the funds will be available in case the identified risks are realized.
Cf 8: Other costs relating to the main contract are entered here.
Cf 9: Depending on the competitive situation it is decided how much should be charged as administration fee and how much as profit on the main contract.
Costs that cannot / should not be directly entered in the bid schedule such as expenses related to security /guarantee, risks, profit and maybe construction management can be distributed evenly across the amounts that must be entered in the bid schedule. In this way all costs will be reflected in the total tender bid that must appear in the bid schedule.
In case the tender documents do not contain a bid schedule, you simply add up all costs and hand in the tender bid.
It is important that the contribution margin corresponds to company demands regarding earnings.
The principles used for the calculation of trade contracts are similar to those used in the calculation of main contracts.
The trade contractor has own production and employs subcontractors.
The calculation of turnkey contracts is similar to the calculation of main contracts. The calculation does, however, include more costs because it contains all expenditure in relation to the completely finished building whereas the main contractor’s tender bid only contains the costs of the items mentioned in the tender documents.
In addition to costs already mentioned in ’Calculating main contracts’ (above) the turnkey contract calculation also includes the below listed additional costs:
- Printing drawings
- Service charges (sewer, water, electricity, district heating etc.)
- Planning permission
- Other expenditures related to the building project in question.
Cf 1: Design expenditure (fees for architect, engineer, landscape architect etc.) shall be included in the tender bid. The client may have an agreement with an architect in formulating the project brief and may demand that the turnkey contractor accepts that final design will be carried out by the same architect but paid by the turnkey contractor. If this is not the case, the turnkey contractor sets his own team of professionals with whom he wants work and signs an agreement concerning fees. In most cases the professionals do not receive any payment in case the contract is not awarded to the turnkey contractor (no cure no pay).
Cf 2: The printing of drawings is quite often a considerable cost and should be included. In most cases the contractor knows by experience how much the printing will amount to.
Cf 3 Service charges may be considerable and should be investigated before the calculation is terminated.
Cf 4: The municipality demands payment for the issuing of a planning permission. The fee is calculated on the basis of the gross floor area multiplied by a square meter factor fixed by the municipality.
Cf 5: Other costs related to the project in question are entered here.
Working out the tender bid summary and the filling in of bid schedules (if they exist) are carried out in the same way as specified in ‘Calculation of main contract’ (see above).
Once the main contractor / the individual trade contractor has collected all information needed in order to work out the tender bid, he may complete his bid.
Completion of the bid takes place primarily by filling in the bid schedules and by drawing up a covering letter to the client.
This information must be included in the covering letter
- The basis for tender bid
- Invitation to tender
- Minutes from clarification meetings
- Cancellation letters related to tender documents
- Relevant legislation
- Assumptions constituting the basis for the tender bid
- Reservations – if any
It is important that the contractor seriously contemplates the need to make reservations because he may risk that his bid with the reservations are considered ineligible (not acceptable). In case reservations are made it is recommended to use the standard reservations issued by the Danish Construction Association – minus whatever reservations that may conflict with the tender documents. See further in the section below.
It is very important that the contractor double checks his bid before it is handed in.
According to the Danish Contracts Act a bid is binding upon the tenderer once it has been ‘revealed to the client’. In principle the tenderer cannot revoke the bid after it has been communicated to the client.
On the opening date, tender bids are formally opened and read out loud in order to give the contractors who are present an impression of which tender best meets the criteria set out by the client. Subsequently, the client may use a period analysing the bids. During this phase he capitalizes whatever reservations the bidders have made – if the reservation is accepted – trying to fix a value of the said reservations .
In case the contractor has made reservations concerning fundamental issues in the tender documents, the bid is considered ineligible and will not be accepted. For details on reservations reference is made to The Danish Construction Association
The tenderer uses reservations to inform the employer that he cannot accept given outputs the way they are specified in the tender documents. The reservations may refer to legal or financial aspects of the tender project (for example terms of payment, liability, insurance etc.).
Basically, it should be taken into consideration that reservations made by the tenderer may deem the tender bid ineligible. In case the tender documents explicitly dismiss he right to make reservations, all reservations will – no matter how insignificant they may seem – result in the dismissal of the the bid as ineligible, i.e. the bid is not in agreement with the tender documents. In case the tender documents do not dismiss the right to make reservations and in case reservations made only refer to non-essential aspects of the tender documents, the client may still reject the tender bid as ineligible, but in case he chooses not to do so, he is obliged to capitalize the value of the reservation before he compares the bids. Reservations made need not necessarily be named ’reservations’. Any deviation from the tender documents is considered to be a reservation.
A tender bid is considered ineligible when it does not conform with the formal demands set out in the tender documents. This may happen when required documentation is not enclosed or when the enclosed documentation is incomplete.
In AB18 § 5 it is stated that possible reservation has to be stated clear and combined in the tender bid.