The Tender Process For Residential Construction In Australia

What it is

A tender is a formal offer to carry out construction work for a stated price under stated conditions. In residential construction the tender process is the period between a homeowner or developer issuing tender documents and a contract being signed with one of the responding builders. For custom or larger residential work, especially anything above 500,000 dollars or with architectural input, tendering is the norm.

Residential tendering differs from commercial. There is rarely a probity officer, the documents are usually thinner, and the homeowner is often making the decision themselves with help from an architect or building consultant. That informality does not change the legal weight of what a builder writes on the tender form.

The stages of a residential tender

Invitation to tender

The owner or their architect issues an invitation pack. A complete pack contains the plans, the specifications, the soil report, any council conditions, the proposed contract template (often HIA or MBA), a schedule of finishes or a PC and PS allowance schedule, and a return date. An incomplete pack is the most common cause of dispute downstream because the builder is pricing assumptions, not scope.

The invitation can be open (advertised) or selective (a short list of three to six builders). In residential work, selective tendering is the norm. Builders who appear on multiple invitations from the same architect or designer build up a relationship that rolls into price negotiation later.

Site inspection and pre-tender questions

A serious tenderer visits the site. Access, slope, neighbouring structures and tree protection all change the price. Tenderers also send written requests for information back to the principal. Answers should be issued to all tenderers in writing so that the pricing playing field stays level. This is called an addendum and it is treated as part of the tender documents.

Submission

The builder returns the tender document by the deadline. The submission contains the price (or pricing schedule), the qualifications and exclusions, the proposed construction program, the list of nominated subcontractors and any departures from the contract template. Late submissions can be rejected at the principal's discretion.

Evaluation

The principal evaluates price, qualifications, program and the builder's background (insurance, financial standing, past work, licensing under the relevant state Act such as the Home Building Act 1989 (NSW) or the Domestic Building Contracts Act 1995 (Vic)). Lowest price does not have to win and rarely does in good residential practice.

Negotiation and award

The principal usually selects a preferred tenderer and works through scope clarifications, qualifications and program detail before signing the contract. The signed contract is the legally binding document, not the tender.

Lump sum versus schedule of rates

Residential tenders are priced one of two ways and the choice drives risk allocation.

Lump sum

The builder gives a single fixed price for the entire scope. Variations are added at agreed rates. The builder carries the risk that the scope priced is the scope actually required. If the plans show three coats of plaster and the standard for the room is four, the builder absorbs the fourth coat unless they qualified it.

Lump sum suits projects where documentation is complete and the scope will not change much. Most new home builds tender lump sum.

Schedule of rates

The builder prices each line item by unit (square metres of brickwork, linear metres of cornice, hours of labourer). Final cost is unit rate multiplied by actual quantity. The owner carries the quantity risk and the builder carries only the rate risk.

Schedule of rates suits renovations, heritage work and demolitions where the actual quantities cannot be known until work starts. It is also common where a quantity surveyor has prepared a bill of quantities under Australian Standard Method of Measurement principles maintained by AIQS.

A residential tender can be mixed: lump sum for the main contract works, schedule of rates for specified provisional items.

Qualifications and exclusions

This is where residential builders get hurt. A qualification is a written condition the builder attaches to the price. Common ones include:

Pricing excludes contaminated soil removal beyond the soil report.

Pricing excludes underpinning of any structure not identified on the plans.

Pricing assumes the existing stormwater connection can be reused.

Pricing assumes the slab design provided is the structural engineer's final design.

Pricing assumes 60 mm class N concrete for the driveway.

Qualifications are part of the offer. If the principal accepts the tender without rejecting the qualifications, they form part of the contract. Builders who do not write qualifications carefully end up funding the difference later. The reverse is also true: a long list of qualifications signals to the principal that scope is incomplete or risk is being passed back. A good qualification is narrow, specific and tied to a document reference.

Provisional sums and prime cost items

A prime cost (PC) item is an allowance for an item the owner will select later, like tapware. A provisional sum (PS) is an allowance for work that cannot be fully scoped yet, like landscaping. Both flow through to a variation when the actual cost is known. Section 5 of the Home Building Act 1989 (NSW) and the Victorian template contracts require clear disclosure of PC and PS items and how they are adjusted.

Withdrawing a tender

Until acceptance, a tender is an offer. Under standard contract law principles applied in Australian courts (see commentary in AustLII collected decisions), an offer can be withdrawn at any time before acceptance, provided the withdrawal reaches the principal before the acceptance is communicated back. After acceptance the offer becomes a contract and withdrawal is repudiation.

Two practical points. First, if the tender form says it remains open for 30 days, that does not stop the builder withdrawing, but it may give the principal grounds to recover costs of re-tendering if a court treated the period as supported by consideration. Second, a builder who withdraws after acceptance is exposed to damages for the cost of replacement, which in residential work is usually the price difference between the withdrawn tender and the next acceptable tender.

Counting the cost

Tendering is not free. A residential builder typically spends 1 to 3 percent of the project value preparing a tender, mostly in staff time and quantity take off. A 1 in 5 win rate on tendered work means each won job carries the loaded cost of four lost tenders. Builders who tender everything that lands on the desk burn that cost without building a strategy. Builders who pick the invitations they pursue, qualify carefully and walk away from incomplete documents protect their margins long before site work begins.