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Construction Law/Setting the annual construction turnover requirement for Bidders


Dear Mr. Peter Elliot,

I am currently working on some procurement works pertaining to Tendering works for a Construction Project.

with regard to the Annual Construction Turn over requirement, i would like to know is there specific way to determine the value of turnover required, if we know the estimated contract price. Many a times, we set this requirement quite high and its difficult to get enough contractors to bid. Would there be any disadvantage in lowering this requirement.

Also, with regard to Pre-qualifying contractors,  we have managed to prequalify only two contractors as a result of other contractors not fulfilling the requirements. In this case, would you recommend to go ahead with tendering process with the two shortlisted contractors?

Thank you,

Dear Hawwa,

You do not state the basis of your Annual Construction Turnover requirement.  

Usually, I recommend that the annual turnover should be 10 times the average annual cash flow for the project.  This requirement means that on average only 10% of the bidders financial, and other, resources will be used on the project, allowing plenty of slack if things go wrong.  Also I suggest that bidders should have cash resources equivalent to a minimum of 6 times the average cash flow.  This value is based on the fact that maximum monthly IPC is likely to be twice the average and that it will take three months (28 days to certify and 56 days to pay) to receive the IPC.  Often, I ask the bidder to submit a projected net cashflow to highlight this requirement.  If you lower this requirement, then you increase the risk of the Contractor running short of funds and delaying the project, or going bankrupt.  An alternative is to reduce the size of the contracts to allow more companies to bid.  It will increase your supervision costs slightly, but it will give you a more robust procedure.  I arranged a tender procedure for 50M of construction work.  It was unlikely that one company would bid for the work so I split it into 25 contracts of about 2M each, which allowed more local (smaller) companies to bid. A single company supervised all contracts.

I would verify that the requirements are not too harsh or complicated.  The unsuccessful companies may not have understood the requirements.  You may wish to ask questions to reveal missing information.  That said, the EC Practical Guide allows tendering to proceed if there is only one successful company who has prequalified.  The logic is that there has been on open competition for prequalifying and thus the procedure is transparent.  I would ensure that there were no challenges from unsuccessful bidders.  

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Peter M. Elliott


First response to queries regarding extensions of time, variations orders, site instructions and payment using FIDIC and other forms of Conditions of Contract, based on English Law, and derivatives only. Anyone who needs advice about EoT should download and study the SCL Delay & Disruption Protocol before submitting a question.


Value . . .
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Institution of Civil Engineers, Association of Chartered and Certified Accountants, Society of Construction Law, Dispute Resolution Board Foundation

B Sc(Hons) in Civil Engineering

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