Tim Barrett, chair, Construction Alliance North East, examines the hurdles of traditional tendering and asks how SMEs can overcome them
After a lifetime in the industry, I still see us doing things the same way when it comes to tendering and procuring work, with single stage tendering still the most popular option. So, is it time for a change, or should we try something more radical and, if so, what could clients do to help move this forward.
When we look at traditional tendering processes these can be very challenging for SME building contractors. The system, whilst designed to ensure fairness and transparency, often favours larger firms with more resources to prepare tenders.
Here’s why SMEs may struggle with traditional tendering:
High administrative burden
Tendering, including PQQs, can often require extensive documentation, including detailed financial records, programmes, risk assessments/method statements and details around the proposed delivery team. For SMEs, assembling these can be time-consuming and costly, especially when they lack dedicated administrative teams. Being small also means they have to be agile around procurement and items around programming and delivery teams may need to change at short notice, therefore, can create duplicate working
Competitive disadvantage
Larger construction firms will often have specialist bid teams that tailor proposals to meet tender requirements, precisely. SMEs will not have that resource or time, they may not have the expertise or resources to craft polished submissions, putting them at a disadvantage in competitive bidding. Also, SMEs often lack the buying power of larger contractors.
Financial challenges
Traditional tendering usually demands financial stability and guarantees. SMEs might struggle to meet stringent financial criteria, such as providing performance bonds or demonstrating sufficient cash flow. This can limit their ability to bid for projects, even if they have the expertise to deliver them. Although they may be able to procure bonds etc for projects, this will come at higher cost than larger companies and put added risk on the management by requiring personal guarantees
Lengthy and costly process
The tender process can be long and expensive. SMEs may spend significant time preparing bids without any guarantee of winning, making it an inefficient use of resources compared to larger firms that can absorb such costs.
Preference for established suppliers
Many clients prefer working with firms that have an extensive track record on similar projects. This makes it difficult for smaller, newer contractors to break into established networks, even if their pricing and expertise are competitive.
Complex Compliance Requirements
Government and Institutional tenders often require adherence to strict regulatory standards, including environmental policies, safety measures and diversity criteria. While important, these requirements can be overwhelming for SMEs that may lack the infrastructure to comply fully.
So, what are the alternatives to help SMEs and will they really be able to comply with anything different?
- Framework Agreements: Allow SMEs to be pre-approved for work without going through repeated bidding processes.
- Direct Negotiations: Some clients prefer direct engagement with trusted contractors instead of formal tendering.
- Digital Procurement Platforms: New technologies are streamlining tender submissions, making the process more accessible to smaller firms.
So, could clients and design teams help by engaging with SMEs early? It has been proven that by bringing on board the contractor at the earliest opportunity you can save money and make for a smoother delivery. However, clients need to be reminded to spread the projects and not create a higher risk profile by using just the same contractor over and over.
Will the above be taken up to help SMEs deliver a wider and more diverse range of projects for clients? It may come, but very slowly, as clients are still driven by costs and they only see traditional tendering as the best way to achieve this. So, we need to change the client mindset as to how they get projects completed and that they are missing out on high quality work if they do not utilise the SME sector.
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