Unacceptable Business Risks !

The time honoured method of awarding contracts for major construction projects is to invite contractors to submit a quote for the work - and usually the lowest tendered price wins. Unfortunately, the nature of work offering is so big and complex that ever fewer firms are prepared to commit to the cost involved in preparing a tender.   The analysis work to put together a tender for the job can run to many millions of dollars.

Just such a situation arose when tenders were called for the Rozelle interchange on the West Connex Motorway.   This work will be sixty-five metres underground and much of it will involve working around the facilities of other service providers.  All the risks can not be fully estimated and in some cases what is required constitutes pioneering methods that have not been fully tested.

The government was aghast when just a single tender was submitted and this was prepared by a consortium of three giant world class construction companies.   Apparently these individual firms thought the risks of each preparing a separate tender was too costly to be acceptable.   To attract competitive tenders on jobs of this nature the government was forced to offer a form of compensation to help cover the cost of preparing a quote to the unsuccessful bidders.     On the West Connex job, this ran to over twenty million dollars.

It would indeed be a very brave company that was prepared to gamble twenty million of their capital on preparing a quote that might be rejected.  It is quite normal for such work to be padded to cover unseen eventualities and few reach completion without litigation, as evidenced by the combative outcome of the Sydney light rail project.

The only other option is what are termed " Do and Charge " projects where the honesty of the contracting company is trusted to charge a fair price as the project advances.  In such cases, the government has the protection of litigation in the courts if it suspects it is being overcharged, but the very nature of the work makes cost definitions difficult.

Few major projects arrive at a final cost anywhere near the tendered price.   The legalities are couched in terms that suggest the prices given are more estimates than firm prices, very much influenced by the nature of the plans under which the work is price submitted.  Major projects of this nature are subject to revision as difficulties are encountered, and in many instances changes relate to political matters.

The government plans for a project tend to concentrate on the final outcome.   The work of compiling a tender involves a step by step analysis of how that will be achieved, and in many cases it is the contractor who will supply the expertise to overcome obstacles that have no formal engineering solution.  Preparing such a tender requires the expertise of highly skilled operatives who are innovative - and command consequently high salaries.

Awarding compensation for tender costs will draw criticism but it delivers the only method to keep costs down by applying bright minds to devise new methods of overcoming obstacles.   It is often the tender process that delivers ingenuity that result in  industry breakthroughs that modernise construction methods.  Tender compensation is money well spent  !