Collaborative Tendering

Latest revision as of 20:10, 17 November 2018

Developed by Rick Kool

[edit] Summary

In recent years projects have become more complex in order to meet the societal demands. Big infrastructural projects require such specific knowledge and skillsets that individual companies, whether consultancy or contractors, are finding it increasingly difficult to fullfill all the requested requirements. Either on the aspect of technical/operational knowledge, or just the not having enough capacity (manpower) to fullfill the required work. In order to secure all the requirements in these complex contracts companies have been producing extensive tender proposals. These require a big initial investment, are labour intensive and require a vast and permanently available knowledge network in the company. All competitors are forced into producing this initial effort, however, only one can win the project.

Therefore it is becoming a more common phenomenon that companies collaborate on writing tenders for projects. By doing so, sharing not only knowledge but also resources. This mitigates the risk of having a high initial investment even though they are not being awarded the contract. Because companies have different areas of expertise, collaboration will not only be beneficial for the project, but will also encourage cross pollination between the companies in terms of knowledge. It also mitigates risks during the project. As resources are shared, the companies have reduced the amount of their resources on an individual project. In case something unforeseen happens during the project, they have to relocate or idle a smaller amount of their resources, therefore decreasing the costs risk.

Of course, each partner has to secure their own interest in these projects. Because the amount of collaboration between competitors is limited, clear guidelines have to be established before even starting on the tender. As each of the companies have their own interest as a priority, there will likely be conflicts. The key to solving or preventing this will be clear communication between the involved parties.

This article will discuss some of the benefits of the Collaborative Tendering from a Project and Program perspective, while at the same time critically reflect on some of the pitfalls of these collaborations. Project examples will be used to illustrate the literature statements, as Collaborative Tendering is a relatively new concept.

[edit] Introduction

As stated in the abstract, Tenders are becoming more extensive as a response to an increase in project and contract complexity. In order to illustrate more on the background there will be an overview of the most used tender types. These are Open Tendering, Selective Tendering and Negotiative Tenders ^[1]. In an Open tender any contractor is allowed to write their bid. However, due to high uncertainty for the bidding company, most bids are higher and not as accurate in order to save resources. Selective tendering introduces the concept of a pre-qualification. This means that companies have to prove themselves eligble for the contracts in terms of experience, financial situation and have the resources in order to fullfill the deliverables. Negotiated tenders, where a company just submits there price, are usually aim at specialized works or small extensions of existing contracts. Selective tendering will be the type of tender where the rest of this article will refer to. Collaborative tendering is a response to the increase in complexity in big contracts. Since Selective tendering is used in big contracts for big infrastructural projects, this type of tendering will be referred to in further discussion.

Before going more into the collaboration aspects, there will be a small introduction into procurement processes. With a distinctive focus on EU procurement strategies. EU procurement regulation starts acting at projects over 5.225 million euros^[2]. Since these are the projects suitable for collaborative tendering these regulations will be the most relevant. Procurements regulations aims at a equal, fair chance for companies to acquire contracts.

Or, This legal framework is designed to ensure that contracts are awarded transparently, without discrimination on ground of nationality, and that all potential bidders are treated equally ^[3]

A good example for these new procurement procedures is a design-build contract. In general terms, with this type of procurement, one party (Consortium) is responsible for the design and implementation of a project. In order to secure all the requirements in these complex contracts companies have been producing extensive tender proposals. These require a big initial investment, are labour intensive and require a vast and permanently available knowledge network in the company. In these situations, a most economically advantageous tender (MEAT) is common. This is because in a economically most advantageous tender the criteria is not only the price, but a quality-to-price method is used^[4]. This results in a more extensive, detailed and complex tender bid. This further confirms the trend that tenders are becoming more complex and collaboration might be mutually benificial.

Therefore it is becoming a more common phenomenon that companies collaborate on writing tenders for projects. By doing so, sharing not only knowledge but also resources. This mitigates the risk of having a high initial investment even though they are not being awarded the contract. Because companies have different areas of expertise, collaboration will not only be beneficial for the project, but will also encourage cross pollination between the companies in terms of knowledge. It also mitigates risks during the project. As resources are shared, the companies have reduced the amount of their resources on an individual project. In case something unforeseen happens during the project, they have to relocate or idle a smaller amount of their resources, therefore decreasing the costs risk.

Collaborative Tendering usually has the aim at a joint venture, or joint organisation, from a program perspective. These are an array of projects under the same integrated plan, e.g. London Olympics, Dutch Delta Plan. In the construction sector, partnering between companies is increasingly becoming a priority at construction companies^[5]. According to this recent paper however^[6], results differ at each project on different levels. According to this article, it is not uncommon that collaboration is limited to a project basis, and after the project does not expand to a strategic level.

This article will work towards a 'guideline' for best practices in Collaborative tendering, based on literary and case studies.

[edit] Analysis

The aim of this chapter is to identify some examples of tendering in different parts of the world and their different levels of collaboration. This article will work towards a 'guideline' for best practices in Collaborative tendering, based on literary and case studies. This article emphasizes the need for increased collaboration, Increasingly, complex and extensive civil engineering and construction projects resemble megaprojects, as they too set up an integrated project organization combining different organization skills, designs and constructs^[7]. Another article adds to the complexity of requirement for modern contracts as companies have to prove they have a positive effect on the communities in which they build. ^[8] With these megaprojects, different levels of cooperation can be distinguished.

Collaboration on a program level, structural partnership (e.g. olympic games), partnership surpassing project basis, raises the question, what factors are crucial for long term (program level) collaboration^[9]Because the amount of collaboration between competitors is limited, clear guidelines have to be established before even starting on the tender. As each of the companies have their own interest as a priority, long term collaboration is a difficult subject. The key to solving this will be clear communication between the involved parties. Different levels of partnership have been defined while reflecting on pilot projects in Germany^[10]

-First generation partnering, project partnering

-Second generation partnering, strategic partnering

-Third generation partnering, System partnering

As trust and communication are key in these collaborations, it depends heavily on the company which type of partnering they choose. In Mega Structure projects, strategic partnering is more beneficial as companies can divide their resources over a number of project in the program. Allocating resources is easier and cheaper due to shared risk and multiple projects. Therefore it is often possible to either offer extra services or a better price while collaborating in these strategic partnerships.

The next chapter will look into different collaborative tendering projects.

[edit] Collaborative Tendering, a Global Introduction

A recent study described partnering as the following: Partnering is defined as a collaborative procurement form, focusing on integration of the project design and delivery by weighting collaboration and coordination between involved parties^[11]. Hasanzadeh et al brings up the problems that develop with collaborative tendering like Difficulty in Resolving claims, Cost overruns, Litigation and a Win-Lose Climate^[12]. Furthermore, the study suggests that key success factors rely on a strategic, organizational and cultural match.

This article concludess that after the introduction of pilot projects in Germany, the following benefits are showing^[10]

-Less adversarial relationships between companies

-Increased customer satisfaction and better understanding of each other

-Improved timescales, quality and reduced costs

-Risk sharing

During Mega projects in international collaborative tendering is becoming more popular. An excellent example is the the Suez canal. Issued in 2014, the project had to be finished within one year. Due to the enormous amount of resources needed a consortium of the already biggest dredging companies in the world was needed to pull together the amount of machinery. In order to keep all parties satisfied, the 1.5 billion contract was split equally between the contractors. In this case, all foreign contractors performed the same amount of work and received an equal share of this money ^[13]. The size and limited timeframe of this project 'forced' the market into a collaborative tender process.

Another example of a project with a collaborative tender is the project to build a tunnel connecting Germany and Denmark, the Fehmarn Belt Link. Apart from the management consortium, the project was split into four different construction projects, each with their own specialized consortium, with a value close to four billion euros^[14]. Due to the complexity of the project, the mixture of wet infrastructure work, dredging and concrete technology different partners were involved in the tender to make the most competitive bid.

This article has done a research on collaborative tendering in Iran^[12]. The research concludes that there is a positive trend in collaborative partnering. According to the interviewed companies, the main motivations for collaboration were Improvement in quality, Reduction in costs, Opportunities in gaining market advantages, Knowledge sharing and innovation, and a shared risk between the partners in the consortium. However, they also argue that an enlarged project organization, differences in company culture and mainly a lack of experience in collaborative projects can be a challenge. For example, risks and benefits are not being shared equally as a result of a win-lose attitude. It therefore suggests a shift towards a win-win attitude by informing the involved parties by involving them in training.

These international examples show that although not always with complete success, benefits of collaborative tendering are starting to show due to more experienced companies.

[edit] Collaborative Tendering in the Netherlands

Collaborative Tendering is becoming a more common phenomenon in the Netherlands. Especially in the context of the new procurement laws from the EU that were implemented in 2013 ^[15]. Over the last decade, collaborative tendering has become increasingly popular due to the advantages it brings in large infrastructure projects. The first push however was the implementation of Design & Build (& Maintain) Contracts. The new contracts rely on the contractor to take more tasks, instead of having a third party check constantly if the works are being implemented properly, it is now up to the contractor to prove that they have fullfilled all project requirements. For example, with the Maasvlakte 2, the consortium PUMA recalls the following: ‘’During tender Stage PUMA has spent more than two years on design. The Design, Construct & Maintenance responsibility gives PUMA a certain amount of latitude in how it carries out the project’’^[16]. This introduces a new way of management, which forces the contractor to rethink their strategy to make money during a project. Instead of focussing on implementing the contract aimed at a more short term aim, in order to pass the ‘test or check’ by a consultant, they have to provide a long term plan to ensure quality. By forcing the contractor into securing Long term quality instead of a short term quality check they will not only have to change there implementation method, but also the aspects on which they assess their project.

This increased complexity in deliverables and increased demand on the resources of the contractor have been a incentive to collaborate on these projects. By doing so, sharing not only knowledge but also resources. This mitigates the risk of having a high initial investment even though they are not being awarded the contract. Another incentive for collaborative tendering is the introduction of sustainable scoring into the procurement procedure. This allows the client to assess on sustainability, but also the company to come up with a perhaps more expensive approach that would score higher on sustainability. Collaboration, and combining expertise, is in these situation an advantage in the bidding process. The method of assessing the sustainability is called the MEAT method (EMVI in the Netherlands). Different strategies and scoring methods are used, however, the guidelines for the sustainability part are based on the ISO 20400 requirements. By implementing ISO20400, your organization will contribute positively to society and the economy through making sustainable purchasing decisions and encouraging suppliers and other stakeholders to do the same^[17].

In recent years there has been a client driven push from Rijkswaterstaat for the implementation and pushing collaboration with DBFM - contracts^[18]. This is the latest development in the Public-Private Partnership projects. Rijkswaterstaat defines it as the following: ‘’A company or consortium takes -within the preconditions and limits- the responsibility for the entire project. Depending on the contract, the consortium is after the design, construction and financing around 20 or 30 years responsible for maintenance^[19]. This puts an increased effort on the companies knowledge and resources, making a consortium the most logical approach. First example being the Tweede Coentunnel in 2005^[19]. These are usually big infrastructure projects where a consortium of partners is responsible for the full process of the project. Since then, Rijkswaterstaat has been pushing for more collaborative based project work. Some successes include the tender for the IJmuiden harbour lock , while some projects like the A15 road expansion contractors had difficulties adjusting to this new way of working, having large financial consequences for the consortium. Because contractors are getting more familiar in working in these consortiums, the risk of mistakes in assessing these contracts becomes smaller.

A success story of these new collaborative approaches is the new Ijmuiden harbour lock. Issued by Rijkswaterstaat, the consortium was responsible for the Design, Construction, Finance and Maintenance for a period of 26 years. The bid was under the expected price due to smart implementation and design^[20]. Due to the experience of the partnering companies. Contract for approximately 500 million euro with a reserved budget of 819 million euro. A consortium of BAM,Volkerwessels and DIF. Due to the collaboration, good contact with the client (rijkswaterstaat), and technically innovative design integrating the new lock with the coastal defence the actual bid, after a long and extensive tender period, was lower than anticipated^[21].

Where in the Ijmuiden project the consortium made use of their opportunities during the tender phase to communicate and collaborate closely with the client, during the A15 road expansion project the contractor held on to traditional tactics, not realizing the extent of their responsibilities for the errors in the design. The consequences for this company, Ballast Nedam, are so far reaching that they did win any tenders in 2015 issued by Rijkswaterstaat^[22], and have balanced on the edge of bankruptcy for the past years^[23] .

After reviewing these cases in the context of collaborative Tendering, it is clear that there are some limitations involved during the collaborative process, which will be discussed in the last chapter.

[edit] To Polder or not to Polder

In recent years projects have become more complex in order to meet the societal demands. Big infrastructural projects require such specific knowledge and skillsets that individual companies, whether consultancy or contractors, are finding it increasingly difficult to fullfill all the requested requirements. Therefore it is becoming a more common phenomenon that companies collaborate on writing tenders for projects. By doing so, sharing not only knowledge but also resources. This increased complexity in deliverables and increased demand on the resources of the contractor have been a incentive to collaborate on these projects. This mitigates the risk of having a high initial investment even though they are not being awarded the contract.

This article discussed some of the benefits of the Collaborative Tendering from a Project and Program perspective, while at the same time reflected on some of the pitfalls of these collaborations. Because companies have different areas of expertise, collaboration will not only be beneficial for the project, but will also encourage cross pollination between the companies in terms of knowledge. It also mitigates risks during the project. As resources are shared, the companies have reduced the amount of their resources on an individual project. In case something unforeseen happens during the project, they have to relocate or idle a smaller amount of their resources, therefore decreasing the costs risk. Due to the collaboration, good contact with the client and technically innovative designs while using DBFM contracts can help bidding companies achieve better quality bids, for less.

[edit] Limitations

There are enough examples of collaborative tendering that show both sides of the story. Although there are different opinions in literature, in recent years the obvious advantages of partnerships in the tendering process have started to emerge. There are of course some limitations to this method. The main limitation being the collaborating parties. If there is not mutual trust, or if one of the parties seeks to take advantage of the other party to create a win-lose situation, the collaborative process will have little benefits. In this case it is very unlikely to exceed a project-based collaboration.

Experience is important in these collaborations. In the Netherlands these collaborations are becoming an irreversible trend due to the possibilities they offer for complex projects. When looking at the example of Ballast-Nedam, the consequences of not adjusting to these new types of collaborations can be devastating for the company. As illustrated by the case studies however, the collaborative tenders by the consortia, and DBFM contracts as a whole, are starting to deliver more consistent results in big infrastructural projects and most companies are adjusting accordingly.

In order to make collaborative tendering work, it is therefore key that companies learn to work together and strive for a win-win situation, based on mutual trust, embedded and ensured by the experience of both parties in collaborating on these projects.

[edit] Annotated Bibliography

1. [Rijksoverheid] Wat is DBFM of DBMFO?, https://www.rijksoverheid.nl/onderwerpen/publiek-private-samenwerking-pps-bij-het-rijk/wat-is-dbfmo-of-dbfmo

This is the official website of Rijkswaterstaat, the ministry of infrastructure in the Netherlands. Since they have been the client pushing the DBFM(O) contracts, the description and uses of these contracts have been referenced to their official explanation

2. [ Hasanzadeh, Sogand Mohammad; Hosseinalipour, Mujtaba; Hafezi, Mohammad Reza; 2014 ] Collaborate procurement in construction projects performance measures, Case Study: Partnering in Iranian construction industry

This article described some of the problems in collaborative procurement in an effective usable way. In order to describe the usually associated problems this provided a helpfull overview.

3. [BAM, 2015] Uitgekiend ontwerp zeesluis IJmuiden, http://www.bam.com/nl/blog/uitgekiend-ontwerp-zeesluis-ijmuiden

Since the IJmuiden project was one of the recent big successes of collaborative tendering, where the lower bidding price has a direct relation with the collaborative tendering procedure. This article provides a good overview on some of the used in the article.

[edit] Reference List

1. ↑ [ Twort, Alan C.; Rees, J. Gordon, 2004 ] Civil Engineering Project Management Fourth Edition
2. ↑ [ Pianoo, 2016 ] Drempelwaarden Europees Aanbesteden, https://www.pianoo.nl/regelgeving/drempelwaarden-europees-aanbesteden
3. ↑ [ Achilles, 2016 ] Brief guide to public sector EU procurement legislation
4. ↑ [ Bergman, Mats ; Lundberg, Sofia, 2013 ] Tender evaluation and supplier methods in public procurement
5. ↑ [ Bresnen, Mike; Marshall, Nick, 2000 ] Partnering in construction: a critical review of issues, problems and dilemmas
6. ↑ [ Gadde, Lars-Erik; Dubois, Anna, 2010 ] Partnering in the construction industry-Problems and opportunities
7. ↑ [ Marrewijk, Alfons van; Clegg, Stewart R.; Pitsis, Tyrone S.; Veenswijk, Marcel, 2007 ] Managing public-private megaprojects: Paradoxes, complexity and project design
8. ↑ [ Loosemore, Martin, 2015 ] Social procurement in UK construction projects
9. ↑ [ Beach, R.; Webster, M.; Campbell, K.M., 2005 ] An evaluation of partnership development in the construction industry
10. ↑ ^{10.0 10.1} [ Spang, Konrad; Riemann, Stefan, 2014 ] Partnering in infrastructure projects in Germany
11. ↑ [ Hosseini, Ali; Wondimu, Paulos Abebe; Bellini, Alesia; Tune, Henrik; Haugseth, Nikolai; Anderson, Bjorn; Laedre, Ola, 2016 ] Project partnering in Norwegian construction industry
12. ↑ ^{12.0 12.1} [ Hasanzadeh, Sogand Mohammad; Hosseinalipour, Mujtaba; Hafezi, Mohammad Reza; 2014 ] Collaborate procurement in construction projects performance measures, Case Study: Partnering in Iranian construction industry
13. ↑ [ Bemmelen, Bas van; Dhont, Wim; Eid, Osama Farouk; Nagel, Menno; Willems, Kenneth, 2016 ] Challenge in logistics: New Suez Canal Project
14. ↑ [ Construction News, 2017 ] Germany-Denmark tunnel sees innovations run deep, https://www.constructionnews.co.uk/markets/special-reports/germany-denmark-tunnel-sees-innovations-run-deep/10017906.article
15. ↑ [European Commission, 2016] Public procurement-Study on administrative capacity in the EU, The Netherlands Country Profile
16. ↑ [Boskalis, 2013] Project Sheet Maasvlakte 2, The Netherlands. The largest dutch hydraulic engineering project since the Delta works.
17. ↑ [ISO, 2017] ISO 20400, Sustainable procurement
18. ↑ [Rijksoverheid] Wat is DBFM of DBMFO?, https://www.rijksoverheid.nl/onderwerpen/publiek-private-samenwerking-pps-bij-het-rijk/wat-is-dbfmo-of-dbfmo
19. ↑ ^{19.0 19.1} [Rijkswaterstaat] DBFM Rijkswaterstaat, https://www.rijkswaterstaat.nl/zakelijk/zakendoen-met-rijkswaterstaat/werkwijzen/werkwijze-in-gww/contracten-gww/dbfm.aspx
20. ↑ [BAM, 2015] Uitgekiend ontwerp zeesluis Ijmuiden, http://www.bam.com/nl/blog/uitgekiend-ontwerp-zeesluis-ijmuiden
21. ↑ [Cobouw, 2015] Inschrijfprijs Zeesluis IJmuiden verraste ons, https://www.cobouw.nl/infra/nieuws/2015/10/inschrijfprijs-zeesluis-ijmuiden-verraste-ons-101169207
22. ↑ [Cobouw, 2016] Ballast Nedam krijgt niets gegund van Rijkswaterstaat, https://www.cobouw.nl/infra/nieuws/2016/3/ballast-nedam-krijgt-niets-gegund-van-rijkswaterstaat-101122280
23. ↑ [Volkskrant, 2015] Bouwbedrijf Ballast Nedam bijna bankroet, https://www.volkskrant.nl/economie/bouwbedrijf-ballast-nedam-bijna-bankroet~a3980217/