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Building Research & Information

ISSN: 0961-3218 (Print) 1466-4321 (Online) Journal homepage: http://www.tandfonline.com/loi/rbri20

A conceptual alternative to current tenderingpractice

Gary D. Holt , Paul O. Olomolaiye & Frank C. Harris

To cite this article:Gary D. Holt , Paul O. Olomolaiye & Frank C. Harris (1993) A conceptual

alternative to current tendering practice, Building Research & Information, 21:3, 167-172, DOI:10.1080/09613219308727284

To link to this article: http://dx.doi.org/10.1080/09613219308727284

Published online: 08 May 2007.

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BUILDING RESEARCH

ND

INFORMATION

VOLUME 21 NUMBER 3 1993

A conceptual alternative to current

tendering practice

MAJORITY

OF UK

CONSTRU CTION PROJECTS ASSIGNED

BY

W AYOFSELECTIVE COM PETITION NALTERNATIVE

QUANTITATIVE SELECTION TECHNIQUEH SBEEN

DEVELOPED BY THEAUTHORS WHICH COULD EQUALLY

APPLY ELSEWHERE

Gary

D.

Holt, Pa ul

O.

O lomolaiye

and

Frank

C.

Harris

School

of

Construction Engineering

Technology, University

of

Wolverhampton,

Wulfruna Street, Wolverhampton, West Midlands WV1

1SB, UK

The research

to

date

has

borne

a

fundamental decision

aid

model

to

assist

the

construction owner

in

choosing

a

contractor.

The

model

is

currently being stabilized

and validated. comprehensive surveyhasbe en carriedout toverifythevariables

and their weighting indices. Liaison with construction owners suggests that sucha

selection process developed intoanexpert system w ouldbewelcomedby the UK

construction industry.

Les auteurs parlentdestravaux ayant conduit laralisationd'unmodle fondamental d'aide

la dcision destin

simplifier

la

tche

du

propritaite d'immeuble dans

la

slection d'une

entreprise.Cemodleestactuellementencoursdestabilisationet devalidation.Une

importante tude

a

permis

d'en

vrifier

les

variables

et

leurs fonctions

de

pondration.

Les

contacts pris aveclesprop ritaries d'immeubles font apparatre l'intrt, pour l'industriedu

btiment britannique,

que

susciterait l'intgration

d'un

procd

de

slection

de ce

type dans

un systme expert.

Keywords:

contractor selection technique, evaluation, expert system

Introduction

The majorityofUK construction projectsareassignedby

way

of

sele ctiv e com petition. Differing forms

of

tender ing

procedure abound.

The

subjective appr oach es

in

these

different methodsdo notnecessarily s ervethebest inter-

ests of theconstruction ow ner. Ind eed, most often they

merely identify thelowestbid. Aquantitative selection

technique isbeing d eveloped by the authors. Although

aimed essentially

at

UK construc tion,

the

framework

pre-

sented could equally apply elsewhere.

Background

Tendering practices have been employed within the

construction industry

for

hundreds

of

ye ars [1]. By

the end

of

the 18th

century

the

architect 's role beca me moulded

into moreorlessitspres ent format which timehe was

seen asboththedesigner ofbuildingsand the 'leader '

of the pro ject coalition. The communication betw een

architectandbu ilde r abou t this time playe daleading role

0961-3218 1993E. F. N.Spon

in

the

evolution

of

tendering practice. During

the

early

19th c entur ytheBillofQuantitieswasintroduced, provid -

in gacommon basisfortender ingbydifferent con tracto rs

[2,3].

The initiator of change was the Simon Committeein

1944

[4] who

we re qu ite damning towards

the

hitherto

open tendering process, citing that indiscriminate

methods which allowed goodand badbuildersto com-

peteon'equal term s' tem pted ridiculouslylowbi ds from

unscrupulous operators. Close on its heels came the

Banwell Report of 1964[5] and the BEDC report of

1967 [6]. Both co nfirmed othe r failings

of the

system,

in

particular

the

unnecessary bu rden

of

wasted resou rces

foisted upontheindustry wh erethenumberoftende re r s

taking part is notlimited. Thelatter also establish edto

what extent Simon and Banwell had encouraged the

industry

to

move away from open te nderin g m ethods.

Their findings were favourable: selective, negotiated

and

ser ia l tenders were gradual ly be ing adopted.

Nowadays the majority of construction contracts

are awarded via one form or another of the selective

tendering method.

The

various sectors

of the

industry

Downloadedby[Heriot-WattUniversity]at07:3212June2016


3/7

168

HOLT, OLOMOLAIYE AND HARRIS

are guided by their 'own' Codes ofProcedure on the

subject,

e.g. the

NJCC Codes

for

building [7,8],

the

ICE Standing Joint Committee Guide for civil engin-

e e r i n g ^ ] ,

and the Federation Internationale Des Inge-

nieurs Counseils Procedures

for the

international

scene[10].

Weaknesses in current practice

As a norm, buildings are purc hased before they are

manufactured. Predominantly,thesubsequent successor

failure

of the

construction pr ocess determin es

the

level

of

satisfaction attained from the overall exercise by the

client[11].

In striving to achieve a successful outcome thereare

many variablesto be considered, for example procure-

ment route, level of capital investment andallocationof

responsibility. However, one variable thatcanhavethe

most obvious effect and yet m or e often than not relies

upon outmoded procedureisthatofselectingthecontrac-

to rto beentrusted withthe job.That traditional ten der ing

methods are unable topredic t a successful projectout-

comeisevidencedby thenumberof construction owners

now utilizing alternative metho ds

of

procurem ent, such

as

Construction Management, Management Contracting,and

Design-Build [12]. Generally, clients believ e that these

modern procurement forms allocate more

of the

risk

(associated with project failure)to the contractor. Finan-

cial riskto theclient, stemm ing from choosingthewrong

contractor, is therefore assumed to be reduced. This

t rend may relieve the pain but does not cure the ill-

ness-after all a method of contractor selection mustbe

utilized no matter what procurement form or tender ing

method is employed.

The specific subject a reahashitherto rece ive d m inimal

researchorquestioning [13].Areviewofexisting litera-

tureon current contractor selection m ethodsand trends

has identified four main areas of deficiency:

a. lackof a universal approach,

b . long term confidence attributedto preselection,

c. final selection

and

tender evaluation,

d. reliance on subjective analysis.

Lack

of a

universal approach

Notwithstanding available Codes and Procedures ,con-

structor-selection practice remains fragmented. Rec-

ommendations, methods, and the extent to which the

processisimp lemen ted exhibit much v ariation [14]. Many

practitioners have developed their own 'pet' system,

subsequently giving rise to individual inclination and

preferences. Selection expertise appears to vary con-

siderably from organization

to

organization.

In a

pilot

survey of construction owners, the majority ha ve b een

found to be utilizing various bespoke methods, many

facets

of

which fall outside recognized Codes

of

Practice.

Many organizations feel satisfied with their in-housesys-

tem; it is not until a problem occurs that its inherent

weaknesses are realized. This individualistic approach

means that the results of methods employ ed (whether

good

or bad) are not

shared

to the

benefit

of all.

The authors ' alternative proposal recognizesthe need

to consolidate existing ideas and trends intoa common

quantitative technique, capable

of

universal adoption

by

the industry. Based upon time-proven fundamentals and

utilizing the best of the bespoke systems presently in

use, this method could constantlybe reinforced withthe

findings of ongoing research intothe subject.

Long-term confidence attributed

to

preselection

Another major weakness

in

current prequalification

pro-

cedure is the long-term confidence that many owners

placein thecorp orate stabilityofcontractors. Based upon

successful prequalification, contractors

are

admitted

on

toa select list,or at least afforded the benefit of future

consideration for aninvitationtotender. With thisinmind

two points

are

worthy

of

consideration:

a. The prequalification process may not have been as

comprehensive as it could have been.

b . Anyfurther investigationof thecontractor organization

whilst actuallyon theselect listis notoften obligatory .

A contractor may have preq ualified with excellent

prospec t a few months earlier but it is conceivable,

particularlyinviewofprevalent m acroeconomic circum-

stances, that

the

firm

may

have witnessed drastic ch anges

within

its

structure over

a

relatively short space

of

time

(liquidity, management resource etc.). More often than

not under current procedure , once tenders have been

submittedthemajor discriminating factorinfinal selection

is cost(bidvalue)- itfollows then thatanysuch reduction

inan organization's perform ance potential andfinancial

stabilityis not necessarily identified und er such tend er

evaluation procedure.

Itis our contention therefore that contractorsonstand-

ing lists shouldin allcasesbesubjected to a prequalifi-

cation review

on a

strict predetermined cyclic basis,

to

remove those unfortunate enoughtohave suffered such

decline. The alternative technique presented in this

paper integrates prequalification

as

part

of the

overall

contractor selection p rocess. P erformed asnearasposs-

ibleto the tender invitation stageit furnishes the owner

with up-to-date informationon thecurrent standingof any

potential tenderer.

Final selection

and

tender evaluation

Tender evaluation techniques rely predominantly on

tender sum.Previo us investigation[14] of bidevaluation

in the public sector has found that clients use systems

which conformtoseveral guidelinesbutexhibit consider-

able individual variation. Nevertheless each system is

dominated

by the

principle

of

acceptance

of the

lowest

pr ice .

Relianceon the cost elementas themajor discriminat-

ing factorissomew hat riskyandshortsighted,assummed

upbyRuskinin the 19thcentury[15]:

Itis unwise to pay too much but it is worse to pay

too little. When you pay too much you lose a little

money, that's all.When you pay too littleyou some-

times lose everything because the thing you bought

was incapable of doing the things it was bought to

do.

The common law of business balance prohibits

paying

a

little

and

getting

a

lot- i t can ' t

be

done .

If

you deal with

the

lowest bidder

it's as

well

to add

somethingfor theriskyou run, and if you dothatyou

will have enough

to pay for

something better.

It follows thatthelowestbid is notnecessarilythe most

economic choicein thelong term.Theconstruction client

is faced withthepredicament of:



4/7

A C ONC E P T UAL AL T E R NAT I VE TO CURRENT TENDERING PRAC TICE 169

a. accepting 'lowestbid' as thecriterionforselectionof

the contractor,and

b . running the risk of poor performance by that

contractor duringthe project life.

Contractual damage smaysomew hat alleviatetheowner ' s

situationbuttheydo notremovethe risk stemming from

inadequate performance by the contractor duringcon-

struction

[15].

What

is

requi red

is a

broader evaluation technique.

Perhaps the building sector should look to the civil

engineering scene-the la t ter , being the recipient of

qualified tenders, generally has to adopt an evaluation

method encompassing many more facets. Dependency

on tender sum as a means of predicting the monetary

costto aclientofemployinga particular contractoris an

unsatisfactory basis for selection, even where thatcon-

tractor has und ergon e pro pe r up-to-date preselection.

Evaluation should include a secondary investigative el-

ement which shouldbe in thecontextof theco ntractor's

potentialinrelationto thespecific p rojec t.

Relianceon subjective analysis

Traditional selection techniques often relyon subjective

information whichis notquantifiable. Tend er evaluators

are therefore left withnoalternativetosubjective j udg e-

ment bas ed upon expe rience [16]. In some instances,

practitioners attach subjective weightingsas anattemptat

quantification [17,18].

A major su rvey

of

owners, currently un der

way as

part

of this resear ch, aimsnotonlytoestablishthediscriminat-

ing factors which oughtto be considered in contractor

selection but furthermore to develop for such factors,

weighting indices base dondata analysis. Although a bsol-

ute quantitative analysis

is

desirable

it may be

unattain-

able, because by nature decision-making is dependen t

upon human variance; most often the final decision will

stillbeinfluencedbypeople. Secondlythecostto theuser

of obtaining 'perfect' information is toohigh and would

rendertheprocess impractical, leadingtorejectionof its

acceptance bythoseit isintended tohelp.

In the final analysis, any model d esigned to enrich

the series of actions that are compounded to produce

contractor selection will be 'hybrid' , in the context of

quantitative and qualitative composition. Nevertheless,

any such proposal will,as far as is practically possible,

be objective in its inherent make-up.

The conceptual framework

The above weaknesses highlight

the

need

for

some

revision of current practice. In presenting the alterna-

tive framework, there appearsto be nostrong reasonto

suggest a major shift from the unde rlying (prequalifi-

cation/selection) pattern

now in use, as the

principle

has proved its timelessness. Thegreater the difference

be tweenanypropo sed change and 'accepted' practice,

the harder willbe itsacceptance. Thepro pos ed frame-

work is therefore initiallya modification of the present

pattern with quantifiable indices.

The proposal consistsof athree-stage proces s req uir-

in gthecalculationof'probability ' ratings aptly des cribe d

asPI, P2andP3respectively. PIandP2willbe calcu-

lated

via

analysis

of

factors such

as

organization, financial

and management resource. Each factor consists ofvari-

ables attributable to that subject, for example typeof

ownership/origin, ratio analysis/bank reference, qualifi-

cation/number of years with firm, for eachof the above

factors respectively.

PI score

Thisis the prequalification element. It is the first stepin

the process and investigates the more general areas

surrounding potential tenderers. Some may suggest

that

PI

analysis need not be performed beca use such

assessment

has

bee n don e previously

by

clients, prior

to contractors being accepted on to a tender list. As

highlighted, present prequalification procedure is per-

formed by different client organizations with manysub-

jective measures.

PI

score is not subjective but a

quantitative measure of the up-to-date performance po-

tential of a constructor. Theoretically any number of

constructors can be assessed and duly awarded aPI

score .

Table

1.

Potential

PI

factors

Factor Variables

Contractor organization

Financial

Management resource

Past experience

Past performance

Size

Age

Quality control

Healthand safety

Litigation tendency

Maximum workload capacity

Ratio analysis accounts

Credit references

Turnover history

Qualification: owners/key personnel

Key persons' years with firm

Formal training regime

Typeofprojects completed

Sizeofprojects completed

Nationalor local

Failureto have completed a contract

Contracts overrun: timeand cost

Actual quality achieved

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5/7

170

HOLT, OLOMOLAIYE AND HARRIS

Table 2. Potential P2 Factors

Factor Variables

Project specific

Other Specific

Experience within project geographic area

Experience of similar construction to project

Plant resource available for project

Key persons available for project

Qualification of these key persons

Current workload

Prior relationship with client/owner

Home office location to project

Form of contract

The variables constituting

PI

factors are to be indus-

try wide and far more reaching than the ' in-house '

assessments presently performed by the majority of

clients. Information required for

PI

score analysis should

be relatively accessible in order to make the process

viable and effective.

The range of variables available for inclusion underP I

and

P2

analysis is theoretically limitless. Research to d ate

points tow ards the factors in Table 1 as having most

potential for inclusion in PI analysis. Initially those

confirmed from the survey outlined earlier will be inte-

grated into the model; however, there is scope for further

variation as the programme progresses to accommodate

specific procurement forms, project types, geographic

location etc.

Other considerations such as clients ' knowledge,

experience and previous professional relationships

are to be encouraged.

PI

aims to complement such

traditional wisdom in the selection process, not

supersede it entirely.

P2

score

Whilst those invited to tender from the results of Pi

analysis are compiling their bids,

P2

scores can be

simultaneously calculated by the construction owner.

P2further a ssess es the con tractor in the light of mo re

specific factors, see Table 2. It may seem reasonable that

P2factors should b e con sidered at the pre-tend er stage,

since the more factors considered the greater reliability

can be placed on the outcome. PI analysis concentrates

in the main on organizational aspects of the constructor;

therefore if the firm is failing on such important

PI)

factors as financial stability or a lack of resources, then

excellent P2 prosp ects ar e irrelevant. The PI process

aims to highlight those organizations who are stable

and fertile enough to be considered for subsequent P2

analysis.

P3score

Previous research [19] has shown that both construction

owners and contractors rate cost as the most important

factor in the awarding and winning of contracts, it would

seem reasonable therefore to afford greater weight to

tender bid thanP 2score. This is pro po sed as 60 tend er

sum, 40 P2score, as proportion s in work do ne else -

wh ere associated with tend er an alysis [20], How ever, it is

clear that individual clients would necessarily wish to

determine this balance for themselves. A full explanation

of P3calculation is shown in the exa mp le b elow .

An example of the proposed framework

ThePI Element

Assume n contractors are to be assessed for invitation to

tender. This will be done using PI via the formula;

2;

Zl = Z

score attained under

PI

analysis)

PI =

Zl

Max = maximum attainable

Z

score

ZiMax

u n d e rP Ianalysis)

whe re

Z

sco re = F , W,

+

F

2

W

Z

+ -F

n

W

B

F , . . .F

n

=factors constituting PI analysis

W, . . .

W

n

= statistical w eighting s assig ned to dis-

criminating factors.

The factors F,. .

.F

n

will be calculated

where

V

l

.. .V

B

=

varia bles constituting a g iven factor.

Say four factors (F, to F

4

) are established as constituting

a PI score and that after analysis of their relevant vari-

ables a contrac tor scores : F^O.75, F

2

= 0.60, F

3

= 0.30

and F

4

= 0.80. (A 'p erfec t' factor s co re is 1.) A ssum ing

each factor has discriminant weightings: W

l

=0.9,

W

2

=0.8, W

3

=0.7 and W

4

= 0.9, we can then assign these

weightings to each factor:

Fi(0.75) x W^O.90) = 0.675

F

2

(0.60) x VK

2

(0.80) = 0.480

F

3

(0.30) x W

3

(0.70) = 0.210

F

4

(0.80) x W

4

(0.90) = 0.720

2.085 =

Z l

score

To complete the PI equation ZlMax is introd uced : the

sum of the maximum possible factor scores (1) times

the m aximum pos sible weigh tings (1), so Z iMax = 4.

Therefore

2 85

4

=

P I

=0.52

which could be exp resse d as 52 probability of the

contractor bein g a good pro spect for the project. Remem-

be r ,

PI

scores for each contractor can be regularly

updated and monitored. It would be wise for the client to

generate a history of

PI

scores, maybe the last four or

five, as a retrospective reference to monitor the overall

stability of a contractor.



6/7

A CON CEPTU AL ALTERNATIVE TO CURRENT TENDERING PRAC TICE

171

The P2

element

Those contractors invited to tender are subjected to P2

assessment via the formula:

P =

Z2Uax

and where

Z2 = Z

s c o r e a t t ai n e d u n d e r

P2

a s s e s s m e n t )

Z2Max = ma x imu m a t t a i n a b l e Z s c o r e

u n d e r

P2

ana lys is )

Z

s c o r e

=

F, V^tf ,

+

F

Z

W

2

U

2

+...

F

n

W

n

U

n

F

l

... F

n

=

factors constituting

P2

analysis

W j . . . W

n

= statistical w eightings assign ed to dis-

criminating factors

U

l

. .. U

n

=

utility weigh tings [21] in acco rdan ce

with client's perception of importance

Factors are calculated as for

PI

analysis.

Say five factors (F[ to F

5

)are established as constituting

P2analys is. After calcu lation of their re lev ant va ria ble s a

contractor scores as below and these are multiplied out

by the statistical and utility weightings to achieve a Z2

score:

F^O.70) x 14^(0.98) x

U^l.00

=0.6860

F

2

(0.65) x W

2

(0.92) x t7

2

(0.90) = 0.5382

F

3

(0.90) x W

3

(0.78) x C/

3

(0.88) = 0.6177

F

4

(0.74) x W

4

(0.86) x /

4

(0.75) = 0.4773

F

5

(0.88) x W

5

(0.60) x L7

5

(0.95)= 0.5016

2.8208 =ZZ score

Z2 Max = 5, so:

2.8208

5.0000

= P2 =

0.56 which could be ex pre sse d a s 56

probability

The P3

element

The cost constituent

Assume that six tenders are to be considered. They are

ranked below in order of probability of bein g acceptable

to the owner, based on the one criterion of cost:

Bid Rank Value

()

1

2

3

4

5

6

1

2

3

4

5

6

100000

105000

107500

108000

110000

120000

A 'datum' worth 100 is req uire d; this could be ba se d on

the client's own 'in-house' estim ate plus, say, an allowable

mark-up or in the absence of such, by taking the lowest

bid as having a 100 proba bility of accep tance (on cost

alone).

The remaining bids are assigned a probability of

being accepted (based on the same criterion) in relation

to this 'datum' via the formula: datum divided by next

lowest bid, for all given bids, i.e.:

Bid

1

2

3

4

5

6

Formula

100000/100000

100000/105000

100000/107500

100000/108000

100000/110000

100000/120000

Probability

of acceptance

1

0.95

0.93

0.92

0.91

0.83

The P2 constituent

Following the 60/40 rule mentioned earlier, let us assign

60 weigh t to the cost constituent and 40 to

P2.

Assume

that the six contractors above have the following P2

sco res : Bid 1 = 0.56, bid 2 = 0.78, bid 3 = 0.76, bid

4 = 0.49, bi d 5 = 0.8 and bid 6 = 0.64.

P3

would then b e:

Tenderer

1

2

3

4

5

6

Cost

component

1.00x0.6

0.95 x 0.6

0 .93x0 .6

0 .92x0 .6

0.91 x0.6

0.83 x 0.6

P2

Component

+ 0.56x0 .4

+ 0.78x0.4

+ 0.76 x 0.4

+ 0.49x0.4

+ 0.80x0.4

+ 0 .64x0 .4

P3

Score

= 0.824

= 0.882

= 0.862

= 0.748

= 0.866

= 0.754

Rank

4

1

3

6

2

5

Thus it can be deduced from the above results that the

lowest bid is now ranked 4th with a

P3

sco re of 82.4 .

The most viable ten der u nder this proposal then would b e

the second lowest bid with a P3sco re of 88.2 .

Most forms of evaluation can be m ade m ore discrimina-

tory b y the introdu ction of mus ts, or cut-off point s [17, 22];

the proposed technique is no exception to this. Say in the

above evaluation it is deemed that for a firm to be

considered the tenderer must have a bid less than

118000 and aP2score gr eat er than 50 . W e would then

have to exclude bid 6, (120K>118K) and bid 4 P2 :

49 < 50 ). This may lead to exclusio n of a low if not the

lowest bid but, with a P2 score below an acceptable

standard, this means that the contractor has a failing in

som e criterion o ther than cost - therefore the P2 assess-

ment has served its purpose.

Conclusion

The research to date has borne a fundamental decision

aid model to assist the construction owner in choosing a

constructor. The model is currently being stabilized and

validated. A com prehensive survey is presently unde r

way to verify the variables and their weighting indices.

Liaison with owner s to date su gge sts that such a selection

process developed into an expert system would be ac-

cepted with open arms by the industry. As one major

owner put it, 'for too long the process has been a lottery

relying on subjective judgment and past experience' .

Acknowledgements

The authors are most grateful to The Leverhulme Trust for

funding this research and a host of Local Authorities and

Client Groups for their collaboration.

References

1.

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