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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 tendering


practice
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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Date: 12 June 2016, At: 07:32

BUILDING RESEARCH AND INFORMATION

VOLUME 21 NUMBER 3 1993

A conceptual alternative to current


tendering practice
MAJORITY OF UK CONSTRUCTION PROJECTS ASSIGNED BY
WAY OF SELECTIVE COMPETITION, AN ALTERNATIVE
QUANTITATIVE SELECTION TECHNIQUE HAS BEEN
DEVELOPED BY THE AUTHORS WHICH COULD EQUALLY
APPLY ELSEWHERE

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Gary D. Holt, Paul O. Olomolaiye 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. A comprehensive survey has been carried out to verify the variables
and their weighting indices. Liaison with construction owners suggests that such a
selection process developed into an expert system would be welcomed by the UK
construction industry.
Les auteurs parlent des travaux ayant conduit la ralisation d'un modle fondamental d'aide
la dcision destin simplifier la tche du propritaite d'immeuble dans la slection d'une
entreprise. Ce modle est actuellement en cours de stabilisation et de validation. Une
importante tude a permis d'en vrifier les variables et leurs fonctions de pondration. Les
contacts pris avec les propritaries d'immeubles font apparatre l'intrt, pour l'industrie du
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 majority of UK construction projects are assigned by
way of selective competition. Differing forms of tendering
procedure abound. The subjective approaches in these
different methods do not necessarily serve the best interests of the construction owner. Indeed, most often they
merely identify the lowest bid. A quantitative selection
technique is being developed by the authors. Although
aimed essentially at UK construction, the framework presented could equally apply elsewhere.

Background
Tendering practices have been employed within the
construction industry for hundreds of years [1]. By the end
of the 18th century the architect's role became moulded
into more or less its present form at which time he was
seen as both the designer of buildings and the 'leader'
of the project coalition. The communication between
architect and builder about this time played a leading role
0961-3218 1993 E. & F. N. Spon

in the evolution of tendering practice. During the early


19th century the Bill of Quantities was introduced, providing a common basis for tendering by different contractors
[2,3].
The initiator of change was the Simon Committee in
1944 [4] who were quite damning towards the hitherto
open tendering process, citing that indiscriminate
methods which allowed good and bad builders to compete on 'equal terms' tempted ridiculously low bids from
unscrupulous operators. Close on its heels came the
Banwell Report of 1964 [5] and the BEDC report of
1967 [6]. Both confirmed other failings of the system, in
particular the unnecessary burden of wasted resources
foisted upon the industry where the number of tenderers
taking part is not limited. The latter also established to
what extent Simon and Banwell had encouraged the
industry to move away from open tendering methods.
Their findings were favourable: selective, negotiated and
serial tenders were gradually being 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

168

are guided by their 'own' Codes of Procedure on the


subject, e.g. the NJCC Codes for building [7,8], the
ICE Standing Joint Committee Guide for civil engineering^], and the Federation Internationale Des Ingenieurs Counseils Procedures for the international
scene [10].

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Weaknesses in current practice


As a norm, buildings are purchased before they are
manufactured. Predominantly, the subsequent success or
failure of the construction process determines the level of
satisfaction attained from the overall exercise by the
client [11].
In striving to achieve a successful outcome there are
many variables to be considered, for example procurement route, level of capital investment and allocation of
responsibility. However, one variable that can have the
most obvious effect and yet more often than not relies
upon outmoded procedure is that of selecting the contractor to be entrusted with the job. That traditional tendering
methods are unable to predict a successful project outcome is evidenced by the number of construction owners
now utilizing alternative methods of procurement, such as
Construction Management, Management Contracting, and
Design-Build [12]. Generally, clients believe that these
modern procurement forms allocate more of the risk
(associated with project failure) to the contractor. Financial risk to the client, stemming from choosing the wrong
contractor, is therefore assumed to be reduced. This
trend may relieve the pain but does not cure the illness - after all a method of contractor selection must be
utilized no matter what procurement form or tendering
method is employed.
The specific subject area has hitherto received minimal
research or questioning [13]. A review of existing literature on current contractor selection methods and trends
has identified four main areas of deficiency:
a.
b.
c.
d.

lack of a universal approach,


long term confidence attributed to preselection,
final selection and tender evaluation,
reliance on subjective analysis.

Lack of a universal approach


Notwithstanding available Codes and Procedures, constructor-selection practice remains fragmented. Recommendations, methods, and the extent to which the
process is implemented exhibit much variation [14]. Many
practitioners have developed their own 'pet' system,
subsequently giving rise to individual inclination and
preferences. Selection expertise appears to vary considerably from organization to organization. In a pilot
survey of construction owners, the majority have been
found to be utilizing various bespoke methods, many
facets of which fall outside recognized Codes of Practice.
Many organizations feel satisfied with their in-house system; it is not until a problem occurs that its inherent
weaknesses are realized. This individualistic approach
means that the results of methods employed (whether
good or bad) are not shared to the benefit of all.
The authors' alternative proposal recognizes the need
to consolidate existing ideas and trends into a 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

HOLT, OLOMOLAIYE AND HARRIS


use, this method could constantly be reinforced with the
findings of ongoing research into the subject.

Long-term confidence attributed to


preselection
Another major weakness in current prequalification procedure is the long-term confidence that many owners
place in the corporate stability of contractors. Based upon
successful prequalification, contractors are admitted on
to a select list, or at least afforded the benefit of future
consideration for an invitation to tender. With this in mind
two points are worthy of consideration:
a. The prequalification process may not have been as
comprehensive as it could have been.
b. Any further investigation of the contractor organization
whilst actually on the select list is not often obligatory.
A contractor may have prequalified with excellent
prospect a few months earlier but it is conceivable,
particularly in view of prevalent macroeconomic circumstances, that the firm may have witnessed drastic changes
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
submitted the major discriminating factor in final selection
is cost (bid value) - it follows then that any such reduction
in an organization's performance potential and financial
stability is not necessarily identified under such tender
evaluation procedure.
It is our contention therefore that contractors on standing lists should in all cases be subjected to a prequalification review on a strict predetermined cyclic basis, to
remove those unfortunate enough to have suffered such
decline. The alternative technique presented in this
paper integrates prequalification as part of the overall
contractor selection process. Performed as near as possible to the tender invitation stage it furnishes the owner
with up-to-date information on the current standing of any
potential tenderer.

Final selection and tender evaluation


Tender evaluation techniques rely predominantly on
tender sum. Previous investigation [14] of bid evaluation
in the public sector has found that clients use systems
which conform to several guidelines but exhibit considerable individual variation. Nevertheless each system is
dominated by the principle of acceptance of the lowest
price.
Reliance on the cost element as the major discriminating factor is somewhat risky and shortsighted, as summed
up by Ruskin in the 19th century [15]:
It is 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 little you sometimes 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-it can't be done. If
you deal with the lowest bidder it's as well to add
something for the risk you run, and if you do that you
will have enough to pay for something better.
It follows that the lowest bid is not necessarily the most
economic choice in the long term. The construction client
is faced with the predicament of:

A CONCEPTUAL ALTERNATIVE TO CURRENT TENDERING PRACTICE


a. accepting 'lowest bid' as the criterion for selection of
the contractor, and
b. running the risk of poor performance by that
contractor during the project life.

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Contractual damages may somewhat alleviate the owner's


situation but they do not remove the risk stemming from
inadequate performance by the contractor during construction [15].
What is required is a broader evaluation technique.
Perhaps the building sector should look to the civil
engineering scene-the latter, 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
cost to a client of employing a particular contractor is an
unsatisfactory basis for selection, even where that contractor has undergone proper up-to-date preselection.
Evaluation should include a secondary investigative element which should be in the context of the contractor's
potential in relation to the specific project.

Reliance on subjective analysis


Traditional selection techniques often rely on subjective
information which is not quantifiable. Tender evaluators
are therefore left with no alternative to subjective judgement based upon experience [16]. In some instances,
practitioners attach subjective weightings as an attempt at
quantification [17,18].
A major survey of owners, currently under way as part
of this research, aims not only to establish the discriminating factors which ought to be considered in contractor
selection but furthermore to develop for such factors,
weighting indices based on data analysis. Although absolute quantitative analysis is desirable it may be unattainable, because by nature decision-making is dependent
upon human variance; most often the final decision will
still be influenced by people. Secondly the cost to the user
of obtaining 'perfect' information is too high and would
render the process impractical, leading to rejection of its
acceptance by those it is intended to help.
In the final analysis, any model designed 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 alternative framework, there appears to be no strong reason to
suggest a major shift from the underlying (prequalification/selection) pattern now in use, as the principle
has proved its timelessness. The greater the difference
between any proposed change and 'accepted' practice,
the harder will be its acceptance. The proposed framework is therefore initially a modification of the present
pattern with quantifiable indices.
The proposal consists of a three-stage process requiring the calculation of 'probability' ratings aptly described
as PI, P2 and P3 respectively. PI and P2 will be calculated via analysis of factors such as organization, financial
and management resource. Each factor consists of variables attributable to that subject, for example type of
ownership/origin, ratio analysis/bank reference, qualification/number of years with firm, for each of the above
factors respectively.

PI score
This is the prequalification element. It is the first step in
the process and investigates the more general areas
surrounding potential tenderers. Some may suggest
that PI analysis need not be performed because such
assessment has been done previously by clients, prior
to contractors being accepted on to a tender list. As
highlighted, present prequalification procedure is performed by different client organizations with many subjective measures. PI score is not subjective but a
quantitative measure of the up-to-date performance potential of a constructor. Theoretically any number of
constructors can be assessed and duly awarded a PI
score.

Table 1. Potential PI factors


Factor
Contractor organization

Financial
Management resource
Past experience
Past performance

169

Variables
Size
Age
Quality control
Health and 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
Type of projects completed
Size of projects completed
National or local
Failure to have completed a contract
Contracts overrun: time and cost
Actual quality achieved

HOLT, OLOMOLAIYE AND HARRIS

170

Table 2. Potential P2 Factors


Factor
Project specific

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Other Specific

Variables
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 industry 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 under PI
and P2 analysis is theoretically limitless. Research to date
points towards the factors in Table 1 as having most
potential for inclusion in PI analysis. Initially those
confirmed from the survey outlined earlier will be integrated 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.

An example of the proposed framework


The PI Element
Assume n contractors are to be assessed for invitation to
tender. This will be done using PI via the formula;
2;

PI =

(Zl = Z score attained under PI analysis)


(Zl Max = maximum attainable Z score
ZiMax under PI analysis)

where
Z score = F, W, + F2WZ + -FnWB

F , . . .Fn = factors constituting PI analysis


W,.. . Wn = statistical weightings assigned to discriminating factors.
The factors F , . . .Fn will be calculated

where

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.
P2 further assesses the contractor in the light of more
specific factors, see Table 2. It may seem reasonable that
P2 factors should be considered at the pre-tender 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 prospects are irrelevant. The PI process
aims to highlight those organizations who are stable
and fertile enough to be considered for subsequent P2
analysis.

P3 score
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 than P2 score. This is proposed as 60% tender
sum, 40% P2 score, as proportions in work done elsewhere associated with tender analysis [20], However, it is
clear that individual clients would necessarily wish to
determine this balance for themselves. A full explanation
of P3 calculation is shown in the example below.

Vl.. .VB = variables constituting a given factor.


Say four factors (F, to F4) are established as constituting
a PI score and that after analysis of their relevant variables a contractor scores: F^O.75, F2 = 0.60, F3 = 0.30
and F4 = 0.80. (A 'perfect' factor score is 1.) Assuming
each factor has discriminant weightings: Wl = 0.9,
W2 = 0.8, W3 = 0.7 and W4 = 0.9, we can then assign these
weightings to each factor:
Fi(0.75)
F2(0.60)
F3(0.30)
F4(0.80)

x
x
x
x

W^O.90) = 0.675
VK2(0.80) = 0.480
W3(0.70) = 0.210
W4(0.90) = 0.720
2.085 = Zl score

To complete the PI equation Zl Max is introduced: the


sum of the maximum possible factor scores (1) times
the maximum possible weightings (1), so ZiMax = 4.
Therefore
2.085
= PI =0.52
4.000

which could be expressed as 52% probability of the


contractor being a good prospect for the project. Remember, 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.

171

A CONCEPTUAL ALTERNATIVE TO CURRENT TENDERING PRACTICE

The P2 element

The P2 constituent

Those contractors invited to tender are subjected to P2


assessment via the formula:

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


60% weight to the cost constituent and 40% to P2. Assume
that the six contractors above have the following P2
scores: Bid 1 = 0.56, bid 2 = 0.78, bid 3 = 0.76, bid
4 = 0.49, bid 5 = 0.8 and bid 6 = 0.64. P3 would then be:

P2 =

(Z2 = Z score attained under P2 assessment)


(Z2Max = maximum attainable Z score
Z2Uax under P2 analysis)

and where

Tenderer

Z s c o r e = F , V^tf, + FZW2U2 +...

FnWnUn

Fl... Fn = factors constituting P2 analysis


Wj... Wn = statistical weightings assigned to discriminating factors

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Ul. .. Un = utility weightings [21] in accordance


with client's perception of importance
Factors are calculated as for PI analysis.
Say five factors (F[ to F5) are established as constituting
P2 analysis. After calculation of their relevant variables 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
F2(0.65) x
F3(0.90) x
F4(0.74) x
F5(0.88) x

14^(0.98) x
W2(0.92) x
W3(0.78) x
W4(0.86) x
W5(0.60) x

U^l.00) = 0.6860
t72(0.90) = 0.5382
C/3(0.88) = 0.6177
/4(0.75) = 0.4773
L75(0.95) = 0.5016
2.8208 = ZZ score

Z2 Max = 5, so:
2.8208
= P2 = 0.56 which could be expressed as 56%
5.0000 probability

The P3 element
The cost constituent
Assume that six tenders are to be considered. They are
ranked below in order of probability of being acceptable
to the owner, based on the one criterion of cost:
Bid
1
2
3
4
5
6

Rank

Value ()

1
2
3
4
5
6

100000
105000
107500
108000
110000
120000

P2

P3

Component

Score

Rank

4
1.00x0.6 + 0.56x0.4 = 0.824
1
0.95 x 0.6 + 0.78x0.4 = 0.882
3
0.93x0.6 + 0.76 x 0.4 = 0.862
0.92x0.6 + 0.49x0.4 = 0.748 6
2
0.91 x0.6 + 0.80x0.4 = 0.866
5
0.83 x 0.6 + 0.64x0.4 = 0.754
Thus it can be deduced from the above results that the
lowest bid is now ranked 4th with a P3 score of 82.4%.
The most viable tender under this proposal then would be
the second lowest bid with a P3 score of 88.2%.
Most forms of evaluation can be made more discriminatory by the introduction of musts, or cut-off points [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 a P2score greater than 50%. We would then
have to exclude bid 6, (120K>118K) and bid 4 (P2:
49% < 50%). This may lead to exclusion 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
some criterion other than cost - therefore the P2 assessment has served its purpose.
1
2
3
4
5
6

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 comprehensive survey is presently under
way to verify the variables and their weighting indices.
Liaison with owners to date suggests that such a selection
process developed into an expert system would be accepted 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

A 'datum' worth 100% is required; this could be based on


the client's own 'in-house' estimate plus, say, an allowable
mark-up or in the absence of such, by taking the lowest
bid as having a 100% probability of acceptance (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

Cost
component

Formula

Probability
of acceptance

100000/100000
100000/105000
100000/107500
100000/108000
100000/110000
100000/120000

0.95
0.93
0.92
0.91
0.83

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.

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172

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