Bidding for glory

Use of electronic tendering is increasing and will continue to gain momentum as the process becomes more developed. Is this something to fear? For the most part, it is not. It should speed up the transfer of data during bid preparation and allow quick appraisal once tenders are submitted. The part that does cause concern is the optional use of electronic auctions (eAuctions) or reverse auction bidding.

Online bidding

eAuctions involve bids being displayed on screen and tenderers bidding against each other during the time allocated for the auction. There are a number of influential clients using eAuctions, including the Royal Bank of Scotland, GlaxoSmithKline and the Royal Mail. They use them to procure commodities such as paper clips, computers and vehicles, plus consultancy and construction services.

So far government has been coy about using electronic bidding for construction work, but European public procurement law has recognised the use of eAuctions by amending legislation to accommodate the procedure for goods and services that have a clearly defined specification.

While the process is usually quite simple, its operation needs considerable IT capability, as commercial security becomes a major issue. By transferring documents electronically, clearly the tendering process is speeded up and allows issues, other than price, to be included as part of a best value offer.

For example, tenderers may be invited to offer design proposals for an element of a project and the merits of these can be taken into account when evaluating the tenders; the bureaucratic jargon for this being ‘most economically advantageous tender’ (MEAT).

There are three models for conducting an eAuction. The first requires submission of a totally inclusive tender. This means all aspects of the tender proposal are included as part of the bid, often where price is the only award criterion, although non-price aspects expressed as price equivalents by the tenderer can be included where MEAT is to apply. Tenderers will know immediately where their tender is ranked and can submit revised offers until the end of the auction period.

Other models include for proposals in addition to price, that is, where MEAT criteria are used. This can happen before, during or after the auction. If it happens before or during the auction, such proposals are scored and converted into a price equivalent by the client and tenderers will know immediately how their bid compares to others. When MEAT proposals are considered after the auction, the tenderer will not know the final outcome of its submission until these have been evaluated.

Conducting an auction

Usually eAuctions allow for downward bids only. There may be a stated starting price to bid against, and some clients will have an unstated figure below which they won’t consider bids.

Some clients will not reveal the value of bids submitted, merely showing where they rank against others. This means bidders will not know the margin between each bid and can only speculate as to whether this is minimal or significant. There are usually rules regarding the lowest bid being submitted at the very end of the auction period, which will trigger further time being given to other tenderers to reconsider their submissions.

The Construction Industry Council (CIC) produced a briefing note regarding online bidding to which the ECA, through the SEC Group, contributed. It recommended:

• online bidding should be used only for the supply of commodities, not building engineering services;
• it should be used where technical and design specifications are clear and defined;
• it should be part of an e-procurement process that has extensive consideration for value, quality and performance criteria besides price;
• guidance should be obtained on best practice and implementation plans;
• the client and bidder need to recognise the dangers to long-term relationships, project performance and contractor sustainability that eAuctions can bring.

eAuctioning is only one component of electronic tendering and is generally unsuitable for the construction industry. The transfer of data is much more palatable and the Joint Contracts Tribunal (JCT) has just launched a new suite of contracts that includes its digital service, allowing electronic exchange between subscribers.

As the JCT Standard Building Subcontract Agreement gains acceptance within the industry, having superseded the DOM1 series of documents, electronic exchange between contracting parties will become more common.