Assessment Of Factors Affecting Building Contractors’ Selection

Project and Seminar Material for Quantity Surveying QS

Assessment Of Factors Affecting Building Contractors’ Selection


Abstract


The main aim of this study is to identify the significant factors for contractor selection in Nigeria using factor analysis. The study was also to find the preferred criteria for evaluation and selection of contractors in Nigeria. The selection of the most appropriate project for which to tender is fundamental to the commercial success of building contractors, and the decision to tender is complex, dynamic and often involves many factors. This study examines the factors affecting contractors’ decision to tender for construction projects. Twenty factors affecting contractors’ decision to tender were identified and presented in a structured questionnaire for rating by construction firms. Sixty-four completed and returned questionnaire were used for the analyses. Data were analysed using mean rating and Kendall’s Coefficient of Concordance. The result of the study reveals that availability of resources is the most important factor considered by contractors when taking a decision whether to tender or not for a construction project. Other important factors include project size/contract value, risk involved in the project, contract conditions/details and the type of work. Also, there is agreement among small, medium and large size building contractors on the important factors that affect decision to tender. Contractors are encouraged to select construction work they will tender for from a pool of potential projects primarily based on the availability of resources.


Chapter One


Introduction

1.1 Background to the Study

Construction contracts can be secured in one of these two ways: by direct negotiation with the owner or his representatives, or by competitive tendering (Shash, 1993; Ashworth, 2001). Nomination or negotiation is where only one firm tenders for a work and the element of competition is eliminated (Ramus, 1981). In competitive tendering, an owner invites a selected number of contractors to compete for the construction project. This method of tendering is considered as the most common means by which the contractors obtain works, and the dominant mechanism for allocating construction contracts (Ward, 1979; Yusif and Odeyinka, 2000; Ashworth, 2001; Hiyassat, 2001; Harris and McCaffer, 2001; Shenet al., 2004). Clients and promoters of the construction industry in the public sector rely almost exclusively on competitive tendering to justify the award of contracts.

The major advantage of the competitive tendering system according to Hiyassat (2001) is that it ensures public interest in obtaining suitable quality of construction work at the most reasonable price feasible. It also compels contractors to continually work at reducing their costs through adopting new technologies and managerial techniques, and is believed to be the fairest to all parties concerned (Ashworth, 2001). Contractors tendering process involves two crucial decisions (Shash, 1993). The first is the decision whether or not to tender, the second is associated with the determination of the tender price. The decision to tender is complex, dynamic and involves many factors, and the selection of the most appropriate project for which to tender is fundamental to the commercial success of building contractors. The preparation of a bona fide tender commits the contractor to some expenditure, which is only recovered if the tender is successful (Lowe and Parvar, 2004; Ward, 1979). Construction organizations are therefore encouraged to be selective, choosing which work they will tender for from a continually changing array of potential projects (Lowe and Parvar, 2004). Therefore, contractors carefully select the contracts they tender for from those available to them at an early stage in a bid or no-bid decision.

In Nigeria, the construction industry accounts for sizeable proportion of the Gross Domestic Product. While some construction works are executed through direct labour, the bulk is contracted to independent construction firms. It is generally believed that wrong tendering practice is a major contributor to the construction industry’s inefficiency. Yusif and Odeyinka (2000) remarked that an unguided, non-selective approach to tendering by a contractor inevitably waste precious estimating effort. Improvement in tendering practice in Nigeria therefore has the potential to enhance the industry’s performance and save the nation millions of naira in avoidable waste (Yusif and Odeyinka, 2000) and contribute to the survival and growth of the construction industry (Adegbile, 2004).
Shash (1993) had observed that contractors’ decision to tender has received very little attention from researchers. For over a decade the situation did not change as Lowe and Parvar (2004) reiterated again that there has been comparatively little objective research into contractors’ decision to tender or not to tender for project. Evidence abound that this decision is usually determined by subjective rather than objective information. If the assertion by these notable authors is anything to go by, then the intention of this study to provide information on factors affecting contractors’ decision to tender becomes more imperative. Clients undertake projects for specific targeted objectives. Underlying these objectives is the attainment of value for money. More importantly, regarding obtaining value for money is the public client who must be responsible and accountable for the tax payers’ money. For construction projects, clients undergo a procurement process to select a contractor to carry out the construction using predetermined selection variables.

Contractor selection is one of the main activities and decisions made by the clients. Without a proper and accurate method for selecting the most appropriate contractor, the performance of the project will be affected (Cheng and Heng, 2004), thereby denying the client value for money.In order to ensure that the project can be completed successfully, the client must select the most appropriate contractor. This involves a procurement system that comprises five common process elements; project packaging, invitation, prequalification, short-listing and bid evaluation (Hatush, 1996; Hatush and Skitmore, 1997). Competitive tenders are to ensure that clients obtain the benefits of the lowest building cost (James, 1990).

Of utmost importance is the selection of the most suitable contractor to avert project implementation failure due to the contractor’s inability to undertake or complete the work. Therefore, a uniform set of guideline in selecting a contractor is essential to ensure that pricing and background of the bidder is thoroughly assessed and the best selected for award to ensure the successful implementation of the project (Faridah, 2007).

In Nigeria, the Public Procurement Act, 2003 (Act 663) was enacted with the overall objective of providing the best value for money by ensuring that public funds are spent in transparent, efficient and fair manner (clause 16). The act provides for public procurement, establish the Public Procurement Authority, make administrative and institutional arrangements for procurement, stipulate tendering procedures and provide for purposes connected with these. Procurement is complex and therefore requires that its complicated series of interactions be completed in a logical and pre-determined sequence. “The object of the Public Procurement Board is to harmonize the process of public procurement in the public service to secure a judicious, economic and efficient use of state resources in public procurement and ensure that public procurement is carried out in a fair, transparent and non-discriminatory manner” (Act 663, Section 2).

“In order to have a successful project, it should be guaranteed by some means that all participants are experienced and trained to do the project: it matters what kind of network is conducting the work. To improve the present situation, authors suggest different kinds of improvement to the contracts incentive for good quality and awarding capabilities more than just the price” (Odeh and Battaineh, 2002).


1.2 Statement of the Problem

In the last two decades, there has been a steady increase in the range of methods used for the procurement of construction work. However, there has been no commensurate improvement in the ‘success’ rate of construction projects (Latham, 1994). Instead, there have been extensive delays in the planned schedule, cost overruns, serious problems in quality and an increased number of claims and litigation (Latham, 1994).

Quite often construction projects behind schedule, price changes and inappropriate quality are a direct outcome of the selection of an inadequate contractor(Nerija and Audrius, 2006).

Contractor selection process is based on the lowest evaluated price and this methods exhibit an inherent weakness (Faridah, 2007). Researchers and practitioners have realized that lowest-price is not the promising approach to attain the overall lowest project cost upon project completion (Wong et al., 2001). Therefore, it is important to adopt an approach that will include all the criteria that are important in selecting a contractor.


1.3 Objectives of the Study

  1. To identify from the literature and other sources the variables which have been determined to be used for contractor selection.
  2. To identify and evaluate the factors that affect contractors’ decision to tender
  3. To determine if any agreement exists among small, medium and large size construction contractors on the important factors considered in contractors’ decision to tender.
  4. To recommend the factors to be considered in the selection of contractors in Nigeria.

1.4 Research Questions

  1. What are the factors that affect contractors’ decision to tender
  2. Does any agreement exists among small, medium and large size construction contractors on the important factors considered in contractors’ decision to tender.
  3. What are the recommended factors to be considered in the selection of contractors in Nigeria.

1.5 Scope of Study

Given the constraints of time and resources, the actors involved, the spatial coverage of a research have to be clearly defined. For that matter, this research was done on clients and consultants from the various professional bodies involved in construction in Lagos. Registered consulting firms with the Nigeria Institute of Architects, Nigeria Institution of Engineers and Lagos Institution of Surveyors (Quantity Surveying Division) were surveyed because they are directly involved in contractor evaluation and selection for construction projects.


1.6 Limitation of Study

Study was done in Only one region of Nigeria because of limited time available for study.


1.7 Definition of Terms

  • A Procurement Entity is an organization or person that has legal or administrative mandate for procurement purposes.
  • Procurement is the amalgam of activities undertaken by the client to obtain a building, (James, 1990).
  • Procurement is defined as the act of obtaining by care or effort, acquiring or bringing out. In building and civil engineering works, it is generally understood to involve all the processes of acquiring, from the design through the construction, financing and sometimes operation until the client acquires what is required (Hibberd et al., 1991).
  • Contractor evaluation is the process of investigating or measuring project-specific attributes (Faridah, 2007).
  • Contractor selection refers to the process of aggregating the results of evaluation to identify optimum choice (Faridah, 2007).
  • Bid evaluation is used to denote the procedure for strategic assessment to tender bids submitted by contractors (Hardy, 1978).
  • Works means work associated with the construction, reconstruction, demolition, repair or renovation of a building or structure or surface and includes site preparation, excavation, erection, assembly, installation of plant, fixing of equipment and laying out of materials, decoration and finishing, and any incidental activity under a procurement contract [PPA Act 663 (2003): Manual(5.1)].

1.8 Organization of study

  • Chapter One: Introduction into Contractor Selection and Evaluation in Nigeria, introduce the existing problem in the industry.
  • Chapter Two: Literature Review on Contractor Selection and Evaluation.
  • Chapter Three: Discusses research methodology, type of data used and how it was collected.
  • Chapter Four: Presents analysis of survey results and deductions made from survey.
  • Chapter Five: Presents findings, conclusions and recommendations of study.

Chapter Five


Conclusion and Recommendation

5.1 Conclusion

Clients and promoters of the construction industry in the public sector rely almost exclusively on competitive tendering to justify the award of contracts. Clients from private sector also tend to follow the practice of public sector and also largely employ competitive tendering procedures.

Tendering decision for a construction project is a complex one due to many influencing factors and the uncertainty in the outcome of the decision. The complexity is the source of the difficulty faced by many contractors in determining appropriate tendering decisions. The decision to tender is very important, as the success or failure of a contractor’s business lies in the outcomes derived from this decision. Contractors’ tendering decisions have received very little attention from researchers and evidence abound that this decisions are usually determined by subjective rather than objective approach.

Findings from this study show that availability of resources is the most important factor considered by contractors when taking a decision whether to tender or not for a construction project. Resource availability is an important factor in determining contractors’ capacity and competence and provides contractors with confidence to tender for a construction projects. Also the result of the study provides an insight into the influence of contractors’ size on tendering decision. It reveals that an agreement exist among small, medium and large size building contractors on the important factors that affect contractors’ decision to tender for construction projects. In order words, the size and category of building contractors do not have significant effects on the important factors considered during mark-up size decisions.

The sampling approach imposes some limitations on the study. It should be stated that the findings of this study are most reflective of tendering decisions of construction contractors operating in Lagos . Therefore generalizing on the population would require a more representative sample of contractors across Nigeria. Future work should consider covering additional states in Nigeria, increasing the sample size and listing additional factors, especially country-specific factors, in the research questionnaire.

The study sets the foundation upon which researchers can develop a realistic bidding model for Nigerian construction contractors and provides a springboard upon which future studies can be conducted. Despite the limitations of the sampling approach, the findings of this paper provide an interesting profile of the factors affecting decision to tender of contractors in Lagos , Nigeria. They also provide an indication of, or insight into, the possible tendering practices of contractors in other parts of the country. In any case, further development of this study is required to confirm these conclusions.


5.2 Recommendations

From the analysis and discussions in the preceding chapter, the following recommendation is made for consideration:

The few professionals that knew about the multi-criteria selection methods used it. This suggest that if the selection methods are known by construction professionals they will apply the methods. These multi-criteria selection methods should therefore be made known to construction professionals to help select ‘best’ contractors for clients to achieve project objectives through seminars and conferences by stakeholders.


5.3 Further Research

With the government of Nigeria being a major player in the Nigerian construction industry, it should take the initiative and encourage other stakeholders to study into the multi-criteria selection methods and determine which is/are suitable for any type of contract and type of client or stakeholder involved.


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