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Procurement Strategies and Tendering (2020 – 2021)Summary of the lectures and literature
Procurement Strategies and Tendering
Summary of the lectures and literature Procurement Strategies and Tendering
Lecture 1: Introduction Procurement Strategies and Tendering
The term procurement strategy (inkoopstrategie) refers to a long-term plan to cost-effectively acquire
the necessary supplies from a list of efficient vendors who will deliver quality goods on time, abiding
by the purchasing terms. Typically, a procurement strategy depends on several factors like purchase
timeline, the available budget, the total cost of ownership, and possible risks. Or in other words,
procurement is the complete process of outsourcing and choosing the type of tender.
Tendering (aanbesteding) refers to the process whereby governments and financial institutions invite
bids for large projects that must be submitted within a finite deadline ((government) projects are put
on the market). A tender is an invitation to bid for a project or accept a formal offer such as a takeover
bid.
The costs of tendering are very high, (cost) calculations and drawings must be made to participate in a
tender process. With large tenders many people work for a long time on the project, while only one
party wins the tender and the other parties walk away empty-handed. These costs that are made in
advance are most of the time for the other parties not compensated.
Since a few years it is mandatory to award based on best price/quality balance, the so-called EMAT
(Economically Most Advantageous Tender), also known as MEAT (Most Economically Advantageous
Tender), and in Dutch known as BPKV (beste prijs-kwaliteitverhouding), or EMVI (Economisch Meest
Voordelige Inschrijving). Via the tendering it is possible to stimulate builders to build circular, reduce
CO2 emissions, or built nitrogen free. The ability to avoid nuisance or hinderance often leads to being
awarded the contract.
In the construction industry there are different ways of
executing projects. It is not always necessary to tender a
project, it is also possible to do the design (and execution)
in-house. There are four main ways that clients have
found to procure construction services:
- In- house capability (maintain an in‐ house
capability).
- Appointment (appoint a supplier).
- Concours (launch a concours).
- Competitive tendering (issue an invitation to
competitive tender).
The coalition must be formed at the start of a project. A coalition is defined as an interaction of two or
more members who follow a common strategy to achieve a common goal. The type of coalition is
closely linked to the corresponding contract. There are four basic types of project coalition structures:
- Separated project coalitions (traditional) are characterised by the appointment or use of
concours for the selection of suppliers of design resources, and competitive tendering for on-
site execution resources. (The separated project coalition can be divided in a trades
contracting; the architect takes the lead and is responsible for selecting the trade contractors.
Page 1 of 27
,Procurement Strategies and Tendering (2020 – 2021)
Summary of the lectures and literature
And general contracting; a main contractor enters into an agreement with the client. The main
contractor will find subcontractors.)
- Integrated project coalitions are characterised by the letting of a single contract for both the
design and execution of the project on a competitive tender basis.
- Mediated project coalitions are characterised by the appointment of design and project
management resources, coupled with competitive tendering by trade package for execution.
- Unmediated project coalition are typically used by private sector clients with in- house project
management skills to gain much greater leverage over their suppliers moving towards
explicitly supply- chain management approaches.
The use of appointment for the procurement of design services, and competitive tendering for the
procurement of execution services became the predominant means of selecting the project coalition
in most countries. However, there are limitations to the use of competitive tendering. Therefore, there
are four different ways for selecting resource bases:
- Best value procurement
- Competitive dialogue
- Two- stage tendering
- Framework agreements
The client, choses the contract format and choses increasingly for formats where added collaboration
is stimulated, such as an alliance, construction team or other “two-phase contracts”. Common
contract-forms are:
- Design, Build, Finance & Maintain (DBFM): the client is not only responsible for the design
and construction of the project, but also for the financing and total maintenance.
- Design & Construct: the client is responsible for the design of infrastructure and the
implementation of the construction of it.
- Performance-contracts: the contractor is throughout several years responsible for the fixed
maintenance of (a part of) the network.
- Two-phase-contract: the design-phase is separated from the construction-phase. Only once
the design is finished, the pricing is being determined, such as with the construction-team or
an alliance.
- Traditional contract-formats: the classical specifications such as the RAW-systematic or
STABU-systematic (RAW is for civil works and STABU for utility construction).
If the level of information available at contract formation is not sufficient, this means that simple
contracting is not viable, then a choice of three basic types of complex contract is available:
Fee- based contracts
o Cost reimbursable
o Percentage fee
Incentive contracts
o Guaranteed maximum liability
o Pure incentive contract
o Guaranteed maximum price
Fixed- price contracts
o Unit rate
o Lump sum
Page 2 of 27
, Procurement Strategies and Tendering (2020 – 2021)
Summary of the lectures and literature
Lecture 2: Introduction Public Procurement and Construction Contract Law
If a public entity wants to realise a project or get a service executed, they need to approach (most of
the times) the market and follow a procedure. The reason therefore is that there is competition and
no favouritism, or discrimination.
Public procurement:
- Public entity has a need.
- Creates an ad hoc market.
- Possibility to pursue societal goals.
- Companies compete for the contract.
Public procurement law:
- Award of the contract.
- Execution of the contract.
Prerequisites of procurement:
1. A contracting authority.
2. Awards a contract for works, supplies or services.
a. Works --> design and/or execution of building civil engineering work.
b. Supplies --> purchase, rent, lease etc. of products.
c. Services --> the rest.
3. With a calculated value above the threshold.
There are some EU level procedures that are always available, and some where certain conditions
apply. Procedures that are always available are for example: the open procedure, restricted procedure
(early selection), and the design contest (e.g., architecture). Procedures where conditions apply are for
example: competitive dialogue, competitive procedure with negotiation, and innovation partnership.
Negotiations during the procurement procedure can be useful for discussion. Negotiations are the best
way to discuss about who is responsible for which risks. However, the danger with negotiations is that
one party can get an advantage over another party.
Three hurdles:
1. Specifications (scope)
o Technical and legal.
2. Exclusion and selection (bidder)
o Exclusions: crimes and misdemeanours.
o Selection: sufficient qualifications.
3. Award criteria (bid)
o Quality and price.
Technical specifications:
- What does the project need to achieve?
- From functional to detailed specifications.
- Reference to EU norms or “equivalent”.
- In principle no trademark names or “equivalent”.
Legal specifications:
- In principle defined at the start.
- Special requirements (e.g., social and environmental).
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