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construction industry development

inform practice note

Development through partnership

Issued by the Construction Industry Development Board

construction procurement and delivery

CORRECTING ARITHMETICAL
ERRORS IN TENDERS

Practice Note # 2

Content

August 2006
(Version 1 - August 2006)
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Historical approach to evaluating bills of quantities ....... 2


A uniform approach ..................................................... 2
Commercial risk analysis ............................................. 4
Negotiation of the final contract.................................... 5
Process flows.............................................................. 6

Synopsis:
Bills of quantities are commonly used in engineering and
construction works where the contractor undertakes construction
on the basis of full designs issued by the employer.
The CIDB Standard Conditions of Tender requires that the
competitive position of tenders be based on the total of prices
that is tendered. This practice note sets out the manner in which
arithmetical corrections are to be made in the evaluation of
tenders in accordance with these standard conditions of tender.

Board: Pepi Silinga (Chairperson) Nonhlanhla Mjoli- Mncube (Deputy Chairperson)


Brian Bruce Trueman Goba Carmel Marock Savannah N Maziya-Sandanezwe
Dr Rodney Milford Nazir Alli Mandla Ndlovu Prof Raymond Nkado
Dr Sean Phillips Shaun Webber Michael Wylie CEO: Spencer Hodgson

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1.

Historical approach to evaluating bills of


quantities

Historically the building industry has tendered lump sum tenders


with or without bills of quantities. Bills of quantities, where used,
are required to be completed prior to the award of a contract or
immediately after the award of a contract. The tenderer (or
contractor) may be instructed to adjust prices, which are
considered to be imbalanced or unreasonable, and to eliminate
errors or discrepancies without varying the sum tendered.
The civil engineering industry, on the other hand, has historically
tendered a sum on the understanding that the engineer is
empowered to correct the amount tendered in the event of there
being any errors of extension or addition in the priced bills of
quantities, with the rates being taken as correct. The engineer
establishes the arithmetical correctness of all tenders received
prior to the evaluation of tenders. The preferred tender is then
identified, based on the adjusted tendered sums, and may be
instructed to adjust prices which are considered to be imbalanced
or unreasonable without varying the tendered sum (or the
tendered sum arithmetically corrected by the engineer.)
The industry has for several years debated the merits of having
two systems, particularly in view of the:

A transparent procurement process is


one in which the criteria upon which
decisions are to be made are
publicized. Decisions (award and
intermediate) are made publicly
available together with the reasons for
those decisions. It is possible to verify
that the published criteria were applied
in the tender evaluation process.

2.

narrowing gap between civil engineering and building


practices brought about by changing contracting strategies
and new forms of contract;
confusion brought about by running a dual system amongst
supply chain management personnel who deal with all types
of contracts and the smaller emerging contractors who
tender for both civil and building work;
constitutional imperatives for transparency in the
procurement system;
governments drive for uniformity in procurement
documentation, procedures and practices; and
the abundance of electronic means available to tenderers to
accurately calculate their tender sums.

A uniform approach

The Interministerial Task Team for Construction Industry


Development recommended in 2001 that the sum tendered should
be used to determine the competitive position of tenders received
This recommendation was endorsed by industry in the
development of SANS 294, Procurement processes, methods and
procedures and by the CIDB Procurement Focus Group in 2003.
The General Conditions of Contract for Construction Works (GCC
2004), published by the South African Institution of Civil
Engineering, which replaces the General Conditions of Contract
for Civil Engineering Works (GCC 1990) and the General
Conditions of Contract for Road and Bridge Works for State
Authorities (COLTO 1998), include a form of offer and acceptance
that is consistent with this recommendation.
2

Clause F.3.9 of the CIDB Standard


Conditions of Tender contained in annex
F of the CIDB Standard for Uniformity
deals with the handling of arithmetic
errors during the evaluation of tenders
and sets out how the employer is to make
such corrections when establishing the
competitive position of tenderers. It

requires that the price submitted


(i.e. the offer), which is made
known to interested parties at the
opening of tenders, be used as the
basis
for
establishing
the
competitive position of tenderers in
the interests of transparency;
streamlines the evaluation process
as each and every tender submitted
does not have to be checked for
arithmetic correctness;
removes the responsibility placed
on the employer to manage the
process of the arithmetic scrutiny of
tendered amounts, based on the
rates, without compromising the
integrity of the process;
enables employers to request that
tenderers only submit the tendered
sum with their tender submissions
and complete bills of quantities only
if called upon to do so prior to the
award of the contract (see F.2.18);
and
requires tenderers to take full
responsibility
for
correctly
calculating their tender sums

F.3.9

Arithmetical errors

F.3.9.1 Check responsive tender offers for arithmetical errors,


correcting them in the following manner:
a)
b)

c)

Where there is a discrepancy between the amounts in


figures and in words, the amount in words shall govern.
If bills of quantities (or schedule of quantities or schedule
of rates) apply and there is an error in the line item total
resulting from the product of the unit rate and the
quantity, the line item total shall govern and the rate
shall be corrected. Where there is an obviously gross
misplacement of the decimal point in the unit rate, the
line item total as quoted shall govern, and the unit rate
shall be corrected.
Where there is an error in the total of the prices either as
a result of other corrections required by this checking
process or in the tenderer's addition of prices, the total of
the prices shall govern and the tenderer will be asked to
revise selected item prices (and their rates if bills of
quantities apply) to achieve the tendered total of the
prices.

F.3.9.2 Consider the rejection of a tender offer if the tenderer does


not correct or accept the correction of his arithmetical errors in the
manner described in F.3.9.1.

CIDB Standard Conditions of tender Tenderers obligations


F.2.18 Provide other material
F.2.18.1 Provide, on request by the employer, any other material
that has a bearing on the tender offer, the tenderers commercial
position (including notarized joint venture agreements), preferencing
arrangements, or samples of materials, considered necessary by the
employer for the purpose of a full and fair risk assessment. Should
the tenderer not provide the material, or a satisfactory reason as to
why it cannot be provided, by the time for submission stated in the
employers request, the employer may regard the tender offer as
non-responsive.

Allowing the competitive position of


tenderers to be determined on the basis of the correction of rates
has the potential to undermine transparency in the procurement
process.
F.3.9.1 deals only with how errors are to be viewed in the
evaluation of tenders. All it does is to identify the point of
departure when evaluating tender offers and the entering into
discussions around what adjustments need to be made to arrive
at a solution that is acceptable to both parties, failing which the
tender may be overlooked in terms of commercial risk
management criteria. It does not deal with how tender offers are
to be evaluated or how to make them acceptable from a
commercial risk management point of view.
F.3.9.2 requires the employer to notify the tenderer of the
arithmetic correction. This affords the tenderer the opportunity to
3

comment on the impact of the error on his or her ability to perform


the contract.
F.3.9 does not deal with the re-measurement of the works, based
on the rates provided for in the Bills of Quantities. This is dealt
with in the Contract Data and Pricing Data, and is particular to the
form of contract and contracting strategy used.

3.

Commercial risk analysis

There are two issues that need to be addressed in the evaluation


of tenders:
1)

What is offered by the tenderer.

2)

What is accepted by the employer.

F.3.9 merely determines what is offered by the tenderer. What still


needs to be addressed is what is accepted by the employer?
F. 3.11.1 requires that the tenderer with the highest number of
tender evaluation points (or highest ranked tender if price only is
considered) be recommended for the award of the contract,
unless there are compelling and justifiable reasons not to do so.
Such reasons may include non-compliance with legislative
requirements, a lack of demonstrated capability or capacity to
perform the contract, or the tender offer presents an unacceptable
commercial risk to the employer.
Accordingly, a risk analysis needs to be performed on the
tenderer having the highest ranking / number of points (i.e. the
preferred tenderer) to ascertain if any of the following might
present an unacceptable commercial risk to the employer:
a)
b)
c)
d)

unduly low tendered sums;


unduly low or high rates;
contract or pricing data provided by the contractor; or
the contents of any of the tender returnables which are
to be included in the contract.

A tendered sum may be


regarded as being unduly low
should it be considered to
compromise the ability of a
contractor to complete the
Use of cost estimates as benchmarks
contract.
A
professional
estimate
may
be
used
as an
Deviation by more than a predetermined percentage from the cost estimates for
indicator (benchmark of market
the project / commodity cannot be regarded as being a justifiable reason for the
prices) of this, but not as an
rejection of a bid, and has therefore not been approved by the National Treasury
absolute criterion by which a
as an evaluation norm or criteria
tender
offer
may
be
overlooked. Any decision reached in this regard must be
established on a case-by-case basis. An analysis of the
fundamental components of construction, namely equipment,
materials, labour and supervision may indicate that it is highly
improbable that the works can be executed for the tendered
amount. Alternatively, the tenderer may have to be called upon to
National Treasury
Practice Note Number SCM 2 of 2006 issued in terms of the Public Finance
Management Act

demonstrate his or her ability to complete the contract for the sum
tendered in terms of clause F2.18 (1).
Unduly high rates may expose the employer to disproportionate
increases in construction costs should quantities increase or
should the rates contained in the bills of quantities serve as the
basis for determination of variation orders. On the other hand,
unduly low rates may cause the contractor to fail to complete the
works. This exposes the employer to considerable risk and
increased project costs should the contractor fail to complete the
contract.

4.

Negotiation of the final contract

Clauses F.2.17 and F.3.10 deal with the clarification


of tender offers after the submission of the tender.
F.2.17 does not preclude the negotiation of the final
terms of the contract with a preferred tenderer
following a competitive selection process, should the
employer elect to do so.
In a competitive selection process the negotiation of
the final contract with the preferred tenderer (i.e. the
tenderer with the highest number of tender evaluation
points or highest ranked tender) must be confined to
the final terms of the contract and must not under any
circumstances lead to a change in the competitive
position of tenderers.
Any of the rates may be amended and adjusted in
order to manage commercial risk provided that the
tendered sum is not increased. There are three
exceptions to this, namely where:
1)
2)

3)

it is believed that the total of prices is


considered to be excessive;
the total of prices is above the budget available
for the project and the scope of work needs to
be trimmed to reduce the total of prices; or
it is considered that the failure to increase the
sum tendered to compensate for arithmetical
errors will compromise the ability of the
tenderer to perform the contract..

Where it is believed that the tendered sum is


excessive, the employer may request the tenderer to
adjust his tendered sum downward.
Should a
tenderer not elect to do so, the employer may
consider the cancellation of the tender, revise the
scope of work and call for fresh tenders. (See
F.1.5.2).
Where it is believed that the failure to amend the
tendered sum will compromise the ability of the
tenderer to complete the contract, consideration
should be given to correcting arithmetical errors in
the bills of quantities to achieve what was clearly
intended to be the tendered amount, provided that
5

CIDB Standard conditions of tender


Employers undertakings: F.3.10 Clarification of a
tender offer
Obtain clarification from a tenderer on any matter that
could give rise to ambiguity in a contract arising from
the tender offer.
Tenderers obligations: F.2.17 Clarification
tender offer after submission

of

Provide clarification of a tender offer in response to a


request to do so from the employer during the
evaluation of tender offers. This may include providing
a breakdown of rates or prices and correction of
arithmetical errors by the adjustment of certain rates or
item prices (or both). No change in the competitive
position of tenderers or substance of the tender offer is
sought, offered, or permitted.

Supply Chain Management Regulations issued in


terms of the Local Government: Municipal Finance
Management Act, 2003:
Negotiations with preferred bidders
24. (1) A supply chain management policy may allow
the accounting officer to negotiate the final
terms of a contract with bidders identified
through a competitive bidding process as
preferred bidders,
provided that such
negotiation
(a)
does not allow any preferred bidder a second or
unfair opportunity;
(b)
is not to the detriment of any other bidder; and
(c)
does not lead to a higher price than the bid as
submitted.
(2) Minutes of such negotiations must be kept for
record purposes.
F.1.5.2 The employer may not subsequent to the
cancellation or abandonment of a tender process or
the rejection of all responsive tender offers re-issue a
tender covering substantially the same scope of work
within a period of six months unless only one tender
was received and such tender was returned unopened
to the tenderer.

such correction does not change the competitive position of


tenderers. Where it is decided to make the arithmetic corrections,
all such corrections should be made and not just selected errors..
It is in the best interests of the employer to amend an error which
will cause the tender to be rejected on the basis of it presenting an
unacceptable commercial risk and result in the contract being
awarded to a more expensive tenderer.

5.

Process flows

Award process where lump sums is tendered and no bills of


quantities are included in the pricing data
Receive tenders

Evaluate tenders and


identify tenderer with the
highest ranking / score
Reject tender offer and
repeat process with the
highest ranked / scoring
tenderer after
recalculation of scores

Is the tendered sum unduly


low?
no
Is the tenderer:
under restrictions for any
reason to do business with the
public sector;
capable of, and has the
capacity to, execute the
contract; and
has no conflicts of interest that
might compromise the
outcomes of the contract.

yes

no

no

Is the tendered sum


considered to be too high?
yes

yes

Is tenderer prepared to
reduce the tendered amount
to an acceptable amount?
no

Recommend award
of contract

Recommend calling
for fresh tenders
subject to clause
F.1.5.2 of the Standard
Conditions of Tender

Award process where bills of quantities are submitted


together with tender offers
Receive tenders

Evaluate tenders and identify


tenderer with the highest ranking /
score

no

Are there any


arithmetical errors in the
bills of quantities?
yes
Correct arithmetical errors
in accordance with F.3.9.1
and notify tenderer of
errors.
yes
Is the tenderer prepared to
undertake the work for the
sum tendered without any
adjustment for arithmetical
errors?
Reject tender
offer and
repeat
process with
the highest
ranked /
scoring
tenderer after
recalculation
of scores

yes

yes
Is the tendered sum unduly low?

no
Is the tenderer:
under restrictions for any
reason to do business with
the public sector;
capable of, and has the
capacity to, execute the
contract; and
has no conflicts of interest
that might compromise the
outcomes of the contract.

no
Will the
amendment
of all the
arithmetic
corrections
result in a
change in the
competitive
position of the
tenderer?

no

Recommend calling for fresh


tenders subject to clause
F.1.5.2 of the Standard
Conditions of Tender

no
yes
Is tenderer prepared to reduce the
tendered amount to an acceptable
amount?

no
yes
Are there any unduly low
or unduly high rates?

no

yes

Recommend award of contract

no

Negotiate changes in rates


so that the total of the bills
of quantities equals the
tendered sum
no

Reject tender offer and


repeat process with the
highest ranked / scoring
tenderer after
recalculation of scores

yes

Is the tendered sum considered to


be too high?

Correct tendered
sum taking
account of all
arithmetical
corrections

Reject tender offer and repeat


process with the highest
ranked / scoring tenderer after
recalculation of scores

yes
Both parties agree to the
changes in rates

Award process where bills of quantities are included in the


pricing data but are not submitted together with tender offers

inform

construction industry development

practice note

Receive tenders

Practice note 2 - August 2006


We would like to hear from you about
your progress, challenges and ideas.

Evaluate tenders and identify


tenderer with the highest ranking /
score

Contact us:
E-mail:
Fax:

infocus@cidb.org.za
012 343 7153

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CIDB Post:

yes
Is the tendered sum unduly low?

Reject tender offer and repeat


process with the highest
ranked / scoring tenderer after
recalculation of scores

no
Is the tenderer:
under restrictions for any
reason to do business with
the public sector;
capable of, and has the
capacity to, execute the
contract; and
has no conflicts of interest
that might compromise the
outcomes of the contract.

yes

Recommend calling for fresh


tenders subject to clause
F.1.5.2 of the Standard
Conditions of Tender

no

no

yes
Is tenderer prepared to reduce
the tendered amount to an
acceptable amount?

Is the tendered sum considered to


be too high?

no
no
yes

Request tenderer to
submit priced bills of
quantities within a
specified time period
yes

Tenderer submits priced


bills of quantities within
specified time period
yes
Are there any arithmetical
errors?

Note: It is preferable to
finalise the bills of
quantities before the
award of the contract.

Revise bills of quantities


with tenderer so that total
of bills of quantities equals
tendered sum

no
Are there any unduly low
or unduly high rates?
yes

Recommend award of contract

Revise bills of quantities


with tenderer so that total
of bills of quantities equals
tendered sum

Development through partnership

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