Chapter 3 competition and price

• In open bidding , customer requests are publicized, all interested bidders are invited.• When all contract design requirements have been specified, bidders are evaluated solely through

Dr Tran Duc HocFaculty of Civil Engineering

PRINCIPLES OF CONSTRUCTION ECONOMICS AND

MANAGEMENT

CHAPTER 3: COMPETITION AND PRICE IN CONSTRUCTION

• In construction industry, there are some differences from the model of the competitive market:

o Construction market is segmented strongly

o Construction products can not be the same They vary

greatly in size, quality, material, traditional, nation, location, climate of the region …

o Construction contracts are very complex so few companies can satisfy the requirements to join

construction market.

• When a product is unique and specific, the only way to achieve that direct competition is BIDDING

• There are two types of bidding:

o Open bidding (competitive bidding or public bidding)

o Limited bidding

Or

o Direct appointment of contractor/ Direct contracting

• In open bidding , customer requests are publicized, all interested bidders are invited.

• When all contract design requirements have been specified, bidders are evaluated solely through bids and contract design specifications are not

considered.

• Open bidding is close to perfect competition.

• Customers can compare prices and feel comfortable with the value of their payment

• However, there is no guarantee that contractors

compete fairly

• The bidding process is costly , but most of the

competitions will fail.

• Document preparation cost is high.

retaining competitiveness.

• Quality issues are controlled better.

• Reduce the preparing cost for contract design

documents.

• Limited bidding is selecting the tender from a limited list of

potential contractors

• The list of bidders must be reviewed regularly, and unqualified bidders will be eliminated

• Bidders must compete for QUALITY and PRESTIGE before

being invited to participate in bidding - at which point prices

will be considered

• There is a risk that contractors can collude together to raise bids

• Coercive practice (hành vi cưỡng ép)

• Fraudulent practice (hành vi gian lận)

• Corrupt practice (hành vi tham nhũng)

• Collusive practice (hành vi thông đồng)

• EXAMPLE:

– Understanding collusive practices in Chinese

construction projects

• Discussion:

– Collusive practices in Vietnam construction projects

– Collusion network in Construction projects

• Design - Bid - Build : Bidding is intended to ensure a highly

competitive price, but it also separates the cost between

design and build Design must be completed before bidding

• Design - Build: The design and construction separation will

be ignored if the contractor is allowed to provide the service package with a single bid

• Construction Management: The contractor (construction

management) agrees to manage the contract with a fixed

price and becomes a professional consultant to the owner

request the contractor to join a negotiation contract.

o If many contractors are interested and able to meet the requirements

of the project, detailed design specifications will be provided for all so that they can be priced.

o Contractor selection should be based on two-stage bidding

( prequalification and contractor selection ) with a combination of some selected criteria rather than the lowest price.

Criteria for

contractor

selection

o This case is often applied when choosing a design is limited.

o The advantages of this option are that it saves time and can anticipate prices from the beginning.

o For contractors, design-build contract allows them to work with their capabilities.

o Competition not only base on price but also base on design and construction methods.

o The construction project is no longer an opportunity to make a

profit on the cost of the owner The contractor still acts on behalf

of the owner in negotiating with subcontractors, but they do not own the resources for the construction works.

o Subcontractors are now employed by the management contractor

or contracted with the owner but still managed by the

professional construction manager.

o “Planning, design, construction, and commissioning of a

construction project Make sure the project is completed on time, budget, and quality assurance” is the main job that the

management contractor have to complete.

beginning of the project.

o A new technique called fast track can be used to shorten project time by integrating the design and construction

stages together

• Depending on the specific circumstances of the

• Bidding in Vietnam is governed by Law on

Tendering No.43/2013/QH13, Construction Law, in conjunction with Decree No.63/2014/NÐ-CP The

scope of regulation of these legal documents is the projects with the public capital of 30% or more

• For projects using private capital will be governed

by the Construction Law.

o Selecting contractors in construction are done for jobs,

workgroups or the whole work: detailed construction

planning, formulation of projects investment, survey,

construction, consultant and other construction activities

o The main contractor or general contractor may assign part

of the contract work to the subcontractor

o Subcontractors are not allowed to assign all or main part of their contractual work to other subcontractors

• Investment deciders, owners may decide on the

form of contractor's selection to satisfy the

following requirements:

o Meet the investment efficiency of the project

o Select qualified bidders who are capable of construction

activity, appropriate construction practice and have a

reasonable bid price

o Objective, open, fair and transparent

• Depending on the scale, nature, capital sources for the construction project, investment deciders or

owners shall select contractors in the following

• Open bidding:

o Open bidding is form of selection of contractors, investors

in which the number of participating tenders, investors

shall be unrestricted

o The bid solicitor must widely announce on the mass media the conditions, time for submission of bids, the bid

evaluation result and winning bid price

o Bidders are only allowed to participate if they have enough

capacity for construction activities and capability for

construction practice appropriate to the type and level of works in accordance with the notice of the bid solicitor

o Limited bidding shall apply in case where

a bidding package has highly technical

requirements or technical peculiarities for which only a limited number of tenderers can satisfy the requirements of the

bidding package.

–Direct appointment of contractor:

o Investment deciders or owners shall be entitled to

designate directly an organization or individual that fully

meets the conditions for construction activity capability or capability for construction practice to perform work at a

reasonable price

o The decision maker is responsible for the selection of

contractors who have the capacity for construction

activities, the capability to practice construction

–Bid solicitor have the following rights :

o Request bidders to provide necessary information for the selection of contractors;

o Select the winning bidder or cancel the contractor selection results in accordance with the Law on Bidding;

o Other rights as stipulated by law

–Bid solicitor have the following obligations:

o To compile the bidding dossier and the bidding plan in line with the contents of the approved investment project;

o Check the eligibility of the selected bidders for the

performance of the construction activities, the capability of the contractor and the financial status of the bidders;

o Satisfy sufficient and timely capital to carry out the work according to schedule;

o Notification of requirements for bidders and compliance

with the notified contents;

– Bid solicitor have the following obligations:

construction works after the results of selection of contractors are available;

event of their fault;

selling bids, disclosing information when considering bids or collusion with contractors and other acts in violation of the

Law on Bidding;

–Bidders have the following rights :

o Participate in independent biddings or partnership with

other bidders to bid;

o Request for information and field survey to prepare bids;

o Complaints and denunciations when detecting acts of

violating the regulations on selection of contractors;

o Other rights as provided by law

–Bidders have the following obligations:

o To compile bids honestly and accurately, ensuring the

requirements of bidding dossiers;

o To be responsible for the breach as required in the bidding

o Compensation for damage caused by their violations leads

to prolonged bidding or re-bidding;

o To perform the bid security according to regulations;

o Other obligations as prescribed by law