Contractor Tenders for Development Finance: How Many Quotes Do You Need

The standard requirement across the UK development finance market is a minimum of two competitive contractor tenders. However, in practice, three tenders are increasingly expected, particularly for schemes above £1,000,000 in total build cost. Some lenders will accept a single tender if it is accompanied by an independent quantity surveyor cost plan that validates the pricing, but this is the exception rather than the rule. If you are a first-time developer, presenting three tenders rather than two is an easy way to strengthen your application and demonstrate thoroughness.

The rationale behind requiring multiple tenders is straightforward. A single quote provides no basis for comparison and no assurance that the price is competitive. Two quotes give the lender some comfort that the pricing is reasonable, but there is always the possibility that both contractors have priced high. Three quotes provide a triangulation point that gives the lender genuine confidence in the cost estimate. If all three tenders fall within a 10-15% range of each other, the lender can be confident that the market price for the works is within that band.

It is worth noting that lenders do not necessarily expect you to appoint the cheapest contractor. What they want is evidence that you have tested the market and made an informed decision. If you choose a contractor whose tender is 8% above the lowest, but they have a stronger track record, better insurance coverage, or a more realistic programme, most lenders will accept that decision provided you can articulate the reasoning. The tender process is about demonstrating due diligence, not simply about finding the lowest price.

For the tender process to be meaningful, all contractors must be pricing the same scope of works. This requires you to prepare a comprehensive set of tender documents before approaching any contractors. At a minimum, the tender package should include full architectural drawings to at least RIBA Stage 4 level, a detailed specification document covering materials, finishes, and performance requirements, a schedule of works listing all items to be priced, any relevant structural engineer’s drawings and calculations, mechanical and electrical specifications, and a draft programme showing the expected construction timeline.

The specification document is particularly important because it eliminates ambiguity. If you specify “kitchen” without further detail, one contractor might price a basic builder’s range at £2,000 per unit while another prices a premium brand at £6,000 per unit. Both are valid interpretations, but the comparison is meaningless. Specify the manufacturer, range, and approximate configuration for all significant items, including kitchens, bathrooms, flooring, windows, and external cladding. This ensures you receive like-for-like prices that can be fairly compared and that the lender can rely upon as accurate representations of the actual cost.

Include a covering letter setting out the tender terms: the deadline for submissions, the format required, the basis of the tender such as a fixed price or a cost-plus arrangement, and any specific conditions such as a requirement for the contractor to provide a detailed construction programme or evidence of insurance. We recommend allowing at least three to four weeks for contractors to prepare their tenders, as rushing the process leads to less accurate pricing and may discourage better contractors from participating. A well-run tender process reflects well on you as a developer and sets the tone for a professional working relationship during construction.

Beyond the total price, lenders assess several aspects of each contractor tender. The level of detail in the pricing breakdown is important. A tender that provides a single lump sum of £950,000 for all construction works is less useful to the lender than one that breaks this down into ten or more categories with quantities, unit rates, and sub-totals. Detailed pricing allows the monitoring surveyor to track progress against specific work packages and verify that drawdown requests are proportionate to the work completed. The build cost estimates guide covers the expected categories in detail.

The construction programme is another key element. Lenders need to understand how long the build will take because the duration directly affects the total finance cost. A tender that promises to complete in eight months when comparable schemes typically take twelve will raise concerns about realism. Conversely, a programme that allows eighteen months for a straightforward six-unit scheme may suggest the contractor is not fully committed. The programme should be presented as a Gantt chart or bar chart showing the sequence of works, key milestones, and any external dependencies such as utility connections or highway works.

Lenders also consider the contractor’s financial standing and track record. Some lenders request contractor accounts, particularly for larger schemes where the contractor’s insolvency would represent a significant risk. Others look at the contractor’s capacity, questioning whether a firm with turnover of £500,000 is credible pricing a £2,000,000 contract. We advise clients to select contractors whose annual turnover is at least two to three times the contract value, ensuring they have the financial capacity to resource the project without overextending themselves. Insurance coverage, including public liability of at least £5,000,000 and appropriate employer’s liability, should be confirmed in the tender submission.

When comparing tenders, price is important but not the only factor. Create a standardised comparison matrix that lists each work package and the price from each contractor side by side. This immediately highlights any significant discrepancies at a category level, which may indicate that one contractor has misunderstood the scope, made an error, or is pricing a different specification. Where individual category prices differ by more than 20%, seek clarification from the relevant contractor before reaching conclusions about which tender represents better value.

Assess the risk profile of each tender. A fixed-price tender provides cost certainty, which lenders prefer, but the contractor will have priced in risk that may not materialise. A cost-plus tender transfers cost risk to you and provides less certainty, which lenders generally find less comfortable. Design-and-build contracts, where the contractor takes responsibility for both design and construction, can simplify the process and provide a single point of accountability, which is attractive to lenders. However, the contractor’s margin on a design-and-build contract is typically higher, reflecting the additional responsibility they assume.

Consider the contractor’s proposed programme alongside their price. A contractor quoting £1,100,000 with a ten-month programme may represent better value than one quoting £1,050,000 with a fourteen-month programme, because the shorter programme reduces finance costs by approximately £30,000 to £50,000 depending on the facility size and interest rate. Present this analysis to the lender when explaining your contractor selection, as it demonstrates financial sophistication and a thorough approach to cost management. Submitting your comparative analysis through our deal room alongside your formal finance application strengthens the overall presentation.

The procurement route you choose affects both the tender process and the lender’s assessment of construction risk. Under traditional procurement, you appoint an architect and other design consultants to prepare detailed drawings and specifications, and the contractor prices and builds to those designs. The advantage is competitive pricing based on a fully detailed scope. The disadvantage is that any design errors or omissions become your responsibility and can lead to cost overruns and disputes.

Under design-and-build procurement, the contractor takes on responsibility for both the design development and the construction. You provide a set of employer’s requirements that define the scope, specification, and performance standards, and the contractor develops the detailed design and delivers the finished product. This is the preferred route for many development finance lenders because it provides a single point of responsibility, which simplifies the monitoring process and reduces the risk of design-related disputes during construction. The JCT Design and Build Contract 2024 is the most commonly used form of contract for this procurement route.

For first-time developers, we generally recommend the design-and-build route with an experienced contractor. This transfers a significant portion of the construction risk from you to the contractor, which is exactly what lenders want to see. The additional cost, typically 5-10% above traditional procurement, is often offset by the risk reduction and the potentially faster programme that comes from integrated design and construction. If you choose this route, ensure your employer’s requirements are sufficiently detailed to define the quality standards you expect, as the contractor will have commercial incentive to minimise costs within the boundaries of what is specified.

The most common mistake is rushing the tender process. Developers under time pressure to complete a site purchase or meet a planning condition deadline often invite tenders with unrealistic response times, provide incomplete tender documents, or accept the first prices they receive without proper evaluation. This almost always leads to problems later, either during the finance application when the lender identifies gaps in the cost evidence, or during construction when the true cost of ambiguities in the tender becomes apparent through variation orders and cost overruns.

Another frequent error is comparing tenders that are not on a like-for-like basis. If Contractor A has included external works and utility connections in their price but Contractor B has excluded them, a simple total-price comparison is misleading. Before comparing prices, ensure all tenders are adjusted to the same basis. Where items are excluded by one or more contractors, obtain separate prices for those items so you can make a fair comparison. This reconciliation exercise should be documented and included in your finance application alongside the tenders themselves.

Finally, do not dismiss the highest tender without investigation. Sometimes the highest price reflects the most thorough understanding of the scope. A contractor who has identified works that others have missed or underpriced is actually providing you with valuable information about the true cost of the project. If the highest tender includes line items that the others do not, ask the lower-priced contractors whether they have allowed for those items. This process often reveals hidden costs that would otherwise emerge during construction as expensive variations. For a complete overview of the application process, see our application checklist guide.