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Construction Law/Setting the annual construction turnover requirement for Bidders

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Question
Dear Dr. Femi Alofe,

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,

Answer
Dear Hawwa,

Thanks for your question.

The subject of procurement strategies and modalities is subjective and depend upon few factors.
In particular, developing a criteria for prequalifying Contractors is also unique considering the type of contracts and the procurement routes under consideration and also the size, value (from its cost plan) and particular nature of technical / specialised components of the project to be contracted.

I believe you must have consider all these while developing the criteria for prequalification. If yes, no need to compromise it. If you are not getting more contractors to bid, or who meet the prequalification criteria, you may need to extend the duration to allow for more bidders. You may also consider a further wider publication of the intended project to be contracted. You could as well consider "selected tendering / prequalification" by inviting some list of contractors, which in your opinion, appear to meet the criteria to submit prequalification documents. Except the criteria is not right or "is over-bloated" and publication is right, a sizeable number of contractors should submit. Other hindrance could be limitation of contractors (of the class required) within the locality of your publication / procurement and to overcome this limitation, selected option may help.

On the turnover requirement / criteria, it should not be unnecessarily high when compared with the estimated cost of the project. Usually, my basis would be to ensure that, the Contractor has capacity to take such amount of the project along others in his company comfortably at every given year without having to abandon or delay on any. For example, there may not be a golden rule to establish what turnover to ask for, but, in my opinion, a criteria of minimum of turnover of 5 times the estimated cost of the project and maximum of 10 times (in a given year - for the past three years or at least for average of any given 3 years past) will appear to communicate that, the contractor is quite able to handle and deliver. Now, the turnover required is not to be taken in isolation, it is to be used for analysis to determine also the viability and continuity of the Contractor in business (forecasting possibility of abandonment or non-performance due to liquidity issue)- The analysis would be to weigh the turnover against the company overheads; and against the profit level...etc. It will also show, if the turnover increases per year, that, the company is gaining clients confidence for patronage...and so on...

I hope i have been able to help...

Regards

Femi

Construction Law

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Femi Alofe

Expertise

I can answer all questions relating to the followings: 1. Contract Administration - variations, contract clauses interpretation, all post contract procedures, valuations and certificates questions, extension of time issues and prolongation cost matters. 2. Contract Practice - Any questions regarding forms of contract like JCT, FIDIC & other Bespoke forms. 3. Quantification, measurements and Estimating questions 4. Contracts and construction law questions and dispute resolutions problems. 5. All FIDIC Conditions of contracts

Experience

Out of my 24 years experience in construction industry, i have the following specific experience: 1. Contract Administration - 15 years in contract administration with over 10yrs in Managerial positions covering africa and the middleeast. 2. Contract Practice - 15 years experience with over 10yrs in Managerial and expert positions covering africa, north america and the middleeast. 3. All pre-contract procedures, Tendering, Quantification, measurements and Estimating questions - 20 years experience. 4. Contracts and construction law questions and dispute resolutions problems - 15 years experience with over 10yrs in Managerial and expert positions and 5 years expert witness and active practice in arbitration proceedings covering africa and the middleeast.

Organizations
1. FAIQS - Fellow, Australian Institute of Quantity Surveyors, Australia 2. FRICS - Fellow, Royal Institution of Chartered Surveyors, UK 3. CCP - Certified Cost Professional AACEI, USA 4. PQS - CIQS, CANADA 5. ACIArb. - CIArb, UK 6. MNIQS - NIQS, NIGERIA 7. RQS - QSRBN, NIGERIA

Publications
1. AACEI RP on Estimating, 2010

Education/Credentials
1. B.Tech (QS) 2. RICS professional course, CEM - UK 3. MSc , UK NARIC 4. Professional Doctorate ( to commence 2016)

Past/Present Clients
1. Larsen & Toubro Ltd, Dubai UAE 2. Larsen & Toubro (oman) LLC 3. Archi + Web consortium, Abuja Nigeria 4. George Dike & Associates, Minna Nigeria 5. Public works Authority (Ashghal), Doha Qatar

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