What is 2 Stage Tendering?
2 stage tendering is a procurement route that splits the tendering process into two stages: selection and award. In the first stage, the buyer selects a shortlist of contractors based on their experience, qualifications, and technical capabilities. In the second stage, the buyer invites the shortlisted contractors to submit detailed proposals, including price, design, and delivery plans. The buyer then evaluates the proposals and awards the contract to the most suitable contractor.
If you are involved in construction procurement, you may have heard of 2 stage tendering. This is a procurement method that involves two distinct stages of tendering, with the aim of achieving better project outcomes through collaboration and innovation. In this article, we will explain what 2 stage tendering is, how it works, and how it can benefit your business. We will also discuss the impact of the Procurement Act 2023 on 2 stage tendering and how to prepare for success in this process.
The main difference between 2 stage tendering and traditional single-stage tendering is that the contractor is involved earlier in the project development, often before the design is finalised. This allows the buyer and the contractor to collaborate on the design, scope, and specifications of the project, ensuring that they are aligned and realistic. The contractor can also provide valuable input on the feasibility, cost, and risk management of the project, leading to more efficient and effective solutions.
What are the Benefits of 2 Stage Tendering?
2 stage tendering offers several benefits for both buyers and contractors, such as:
- Improved quality: By involving the contractor early in the project, the buyer can leverage their expertise and experience to optimise the quality of the project. The contractor can also ensure that the project meets the buyer's expectations and requirements, reducing the risk of errors, defects, or disputes.
- Innovation: 2 stage tendering creates a collaborative environment that fosters innovation and creativity. The contractor can propose alternative or innovative solutions that can enhance the project's performance, functionality, or sustainability. The buyer can also benefit from the contractor's knowledge of the latest technologies, materials, and best practices in the industry.
- Cost savings: 2 stage tendering can reduce the overall cost of the project by minimising variations, delays, and rework. The contractor can provide more accurate and competitive pricing, based on a clear and agreed scope of work. The buyer can also achieve better value for money, by selecting the contractor that offers the best combination of quality and price.
- Risk mitigation: 2 stage tendering can help manage and reduce the risks associated with complex projects, by allowing the buyer and the contractor to identify and address potential issues early on. The contractor can also share the risk with the buyer, by taking responsibility for certain aspects of the project, such as design, planning> or delivery.
- Relationship building: 2 stage tendering can strengthen the relationship between the buyer and the contractor, by establishing trust, communication, and collaboration. This can lead to improved satisfaction, loyalty, and repeat business.
What are the Risks of 2 Stage Tendering?
Despite its benefits, 2 stage tendering also involves some risks and challenges, such as:
- Uncertainty: The first stage of 2 stage tendering involves some degree of uncertainty, as the contractor does not have a guaranteed contract and the buyer does not have a fixed price. This can create some ambiguity and insecurity for both parties, especially if the project is subject to changes or delays.
- Resource commitment: 2 stage tendering requires significant time and resources from both the buyer and the contractor in the early stages of the project. The buyer must manage the selection and negotiation process with multiple contractors, while the contractor must invest in preparing detailed proposals and engaging with the buyer. This can be costly and time-consuming, especially if the project is complex or large-scale.
- Competitive pressure: 2 stage tendering involves a high level of competition among the shortlisted contractors, who have to compete on both quality and price. This can create pressure for the contractors to offer low prices or high specifications, which may not be sustainable or realistic. The buyer must balance competitive pricing with risk management, ensuring the contractor can deliver the project within the budget and timeframe.
How Does the Procurement Act 2023 Affect 2 Stage Tendering?
The Procurement Act 2023 is a new legislation that aims to modernise and reform the public procurement system in the UK. The act emphasises transparency, efficiency, and value for money in public procurement, and introduces several changes that impact 2 stage tendering, such as:
- Enhanced transparency: The act mandates documentation and accessibility of all procurement stages, from planning to contract award. This means buyers must publish their procurement documents, evaluation criteria, and contract notices online and make them available to the public. This increases the accountability and visibility of the procurement process and enables greater scrutiny and challenge from stakeholders.
- Improved value for money: The act encourages buyers to consider the broader social, environmental, and economic value of their procurement, rather than just the lowest price. This means that buyers have to define and measure the outcomes and benefits of their projects, and select contractors that can deliver them. This supports the early contractor engagement and collaboration that 2-stage tendering offers, as it allows buyers to optimise the project outcomes and align them with their strategic objectives. This is also why we believe Social Value will keep increasing in importance.
- Innovation and collaboration: The act supports procurement strategies that foster innovation and collaboration, such as 2 stage tendering. The act recognises that some projects may require more flexibility and adaptability than traditional procurement methods can provide and allows buyers to use alternative or innovative solutions that best suit their needs. The act also encourages buyers to work with contractors and other stakeholders to co-create and co-deliver the projects, enhancing the quality and efficiency of the procurement process.
- Risk management: The act aligns with the collaborative nature of 2 stage tendering to manage risks early and effectively. The act requires buyers to conduct market engagement and consultation with potential suppliers and users, to understand their needs, capabilities, and expectations. This helps buyers to define the scope and specifications of the project and identify and mitigate any potential issues or risks. The act also allows buyers to negotiate and amend the contract terms with the selected contractor, to reflect the changing circumstances or requirements of the project.
What is the Competitive Flexible Procedure?
The Procurement Act 2023 introduces a new procurement procedure called the Competitive Flexible Procedure, which provides greater flexibility and simplicity in procurement. This procedure allows buyers to design and tailor their own procurement process, using a mix of negotiation and competitive tendering, depending on the nature and complexity of the project. This flexibility enhances the two-stage tendering process by:
- Allowing more tailored engagement with suppliers: The Competitive Flexible Procedure enables buyers to choose how they engage with potential suppliers, and how they select and evaluate them. Buyers can use different methods and criteria for each stage of the process, such as pre-qualification, selection, shortlisting, invitation to tender, negotiation, or best and final offer. Buyers can also adjust the number and duration of the stages, depending on the project needs and market conditions. Including increasing requirements for preliminary market engagement (PME).
- Facilitating innovation and improved solutions: The Competitive Flexible Procedure supports buyers to seek and encourage innovation and improvement from suppliers, by allowing them to negotiate and co-develop the solutions with them. Buyers can use dialogue, feedback, or testing to refine and optimise the solutions, and to align them with the project objectives and outcomes. Buyers can also reward and incentivise suppliers who offer innovative or value-added solutions, by giving them preferential treatment or additional points in the evaluation.
- Enhancing the ability to negotiate terms that better reflect project complexities: The Competitive Flexible Procedure allows buyers to negotiate and finalise the contract terms with the selected supplier, to ensure that they are suitable and realistic for the project. Buyers can negotiate aspects such as price, scope, quality, delivery, performance, or risk allocation, and make changes or amendments as needed. Buyers can also use outcome-based or incentive-based contracts to ensure that the supplier delivers the expected results and benefits. These post tender negotiations provide a significant change for most bidders.
