Civil Engineering Reference
In-Depth Information
Sub-tier supplier engineering
In order to select the most capable tier 1 contractors, a number of criteria
are assessed as part of the initial pre-qualifi cation tests, including fi nan-
cial capability and capacity, solvency, quality and previous performance
on health, safety and environment issues. These tests and measures are
then followed by a more focused and detailed examination of those sup-
pliers that passed the initial PQQ stage, by further evaluating tenderers'
responses against a project's specifi c requirements and their price for
delivering the contract at the ITT stage.
This process can take many months to reach the point of contract
award. The due diligence of ensuring that the most capable tenderer is
awarded the contract is measured against the client's value-for-money
criteria or most economically advantageous tender (MEAT). These
values in turn form the framework of tests applied during procurement,
with the MEAT and the strongest response, measured according to the
balanced scorecard, being awarded the contract.
The need for due diligence in selecting a contractor is driven by the fact
that the client is making a large capital investment. They therefore have
a responsibility to test their suppliers in advance of awarding contracts.
However, on large construction programmes the client very rarely directly
contracts with the contractors who actually carry out the works. The tier
1 contractor directly contracted by a client procures tier 2 suppliers and
subcontractors to deliver the work under their management.
Although the client may be making an investment using capital
expenditure (CapEx) with a view to earning a long-term return, the tier
1 contractor views the same fi nance as part of their operational expendi-
ture (OpEx). As a result, there is a difference in the manner in which
the expenditure is managed by the client and by the main contractor.
Operating expenditure is spent with due diligence, but that due dili-
gence is not conducted to the same extent as required for capital expend-
iture. For example, during the preparation of a tier 1 tender, tier 2
suppliers may be engaged only to be asked to reduce their prices imme-
diately following a contract award, with a view to enhancing the profi t
margin of the tier 1 contractor.
Moreover, the relationship between tier 1 contractors and their tier 2
subcontractors can change during a construction programme. For
example, in the aftermath of the fi nancial crisis of 2007/8 tier 2 suppli-
ers were squeezed fi nancially from two directions. The banks either
