Procurement: Two-stage tendering | Features

Advantages	Disadvantages
Early appointment of the contractor, potentially bringing forward the completion date of the project.	Provides the client with the temptation to go to the market with incomplete information, potentially resulting in an unenforceable first-stage tender.
Promotes a specific focus during the later stages of design on issues of buildability and economic construction.	Can be used to mask the inadequacy of design development on a project.
Second-stage tender should be based on more complete information and a better understanding of the scope of works, so the final account should be closer to the contract sum.	Additional cost of pre-construction fee.
Opportunity to obtain contractor buy-in to the client’s viability model through agreement of not to exceed costs at end of stage one.	Costs of second-stage tenders tend to be higher because of negotiation premiums and the inclusion of additional risk transfer allowances. The second-stage tender could also provide the opportunity to talk up prices.
Ability to continue the development of the design during the second stage in conjunction with the main contractor and specialist subcontractors.	Use of two-stage tendering does not eliminate many sources of scope change or alter the contractual provisions for dealing with change – as a result, these risks are not eliminated.
Improved identification of project risks within a timescale where action can be undertaken.	Contractors are potentially able to use the second-stage tender to refine their position for post-contract negotiations based upon their improved knowledge of the design.
Reduced main contractor bidding costs.	Not to exceed cost and completion date are not binding prior to the finalisation of the contract.
Open-book approach to subcontractor tendering.	Potential to undermine the scope of agreed first-stage deliverables if design development results in scope changes.
Ability to procure packages ahead of first-stage tender – to be incorporated into second stage via novation.	Risk of contractor including substantial 11th-hour inclusions for risk at end of the second stage, when the client has limited alternative courses of action.
Client has no contractual commitment beyond the PCSA prior to the completion of stage two.	Increased input of client and consultants during second-stage tender.
	Difficulties in verifying that subcontractor costs are net of main contractor allowances.
	Opportunities to transfer costs of main contractor allowances for preliminaries and design development risk to second-stage packages, reducing the transparency of the first-stage competition.
	Potential interface risks and cost premiums associated with novated specialists. Allocation of work to packages may be informed by the contractor’s allocation of risk rather than by the client’s interests in terms of quality and so on.
	The contractor is able to walk away at any time.