Derek S. Drew

The effect of contract type and size on competitiveness in bidding

Multiple regression is used to construct a prediction equation relating bidder competitiveness (the dependent variable) to the independent variables of bidder, contract type and contract size. The regression model shows that differences in contractor competitiveness are greater for different contract sizes than for different contract types. The most competitive contractors appear to be those with a preferred contract size range. Such a model can be used as part of a more systematic approach in prequalifying contractors. It may also be used by contractors as a basis for assessing bidding performance.

A theoretical framework for determining the minimum number of bidders in construction bidding competitions

A theoretical framework is proposed for determining the minimum number of bidders in competition for projects in the construction industry. This is based on the neo-classical micro-economic theory for price determination in construction and the assumption of random contractor-selection. Empirical analysis of the Hong Kong data set not only illustrates the applicability of the framework, but also supports the relevance of the microeconomic model for construction price determination. The main implication for clients is that, in order to obtain the most competitive bids for projects in the most cost-efficient way, they should vary the minimum number of bidders in competition according to market conditions.

The effect of client and type and size of construction work on a contractor's bidding strategy

Abstract This paper offers a bidding strategy model for use by contractors as part of a more informed approach in selecting which contracts to bid for, and as a basis for determining the most appropriate mark-up level for various types and sizes of construction work and client types. Regression analysis is used in measuring a contractor’s competitiveness between bids (by using the lowest bid/own bid ratio) and within bids (by using the lowest bid/cost estimate ratio) according to type and size of construction work and client type. The model was tested on a large and reputable Hong Kong contractor. This particular contractor’s bidding behaviour was found to be largely unaffected by the type of construction work, but significantly affected by the client type and the size of the construction work. Three quadratic models (regressing lowest bid/cost estimate on the size of the construction work) are also successfully developed for projects from the private sector, the Hong Kong Government and the Hong Kong Housing Authority, respectively.

Competitor analysis in construction bidding

Bidding strategies vary from contractor to contractor, each of which will have different degrees of sensitivity towards the factors affecting their bidding decisions. A competitor analysis using a linear mixed model is proposed for use by contractors as part of a more informed approach in identifying key competitors, and as a basis for formulating bidding strategies. The competitiveness between bids is examined according to: (i) project size, (ii) work sector; (iii) work nature; and (iv) number of bidders. The model was tested empirically by application to a bidding dataset obtained from a large Hong Kong contractor. Allowing for different degrees of sensitivity towards the four bidding variables across competing contractors (i.e. with the model parameters that varied across competing contractors), the results indicate that competitiveness in bidding of this contractor is generally greater than the majority of its competitors.

Implementing corporate ethics management and its comparison with the safety management system: a case study in Hong Kong

A case study of one general contracting construction organization in Hong Kong was undertaken. The study illustrates the current state of corporate ethics management in the implementation of a corporate code of ethics. The overall process of developing the corporate code of ethics from planning to implementation was investigated. It was found that the corporate management of the organization that was studied adopted a laissez‐faire approach in implementing its code at the project level. This means that there was no formal and unified cross‐organizational plan for implementing the code at the project level. The methods of communicating the corporate code of ethics to the members of the project team were left to the discretion of the individual project manager. The research findings also showed that different project managers adopted different methods of communication to disseminate the corporate code of ethics to members of their project team.

Analysing a consultant's competitiveness in two-envelope fee tendering

A method for analysing the competitiveness of a consultants two‐envelope fee tendering history is proposed and illustrated in an application to one of Hong Kongs larger quantity surveying practices. Separate measures for determining consultants’ fee, quality score and overall competitiveness are considered to accommodate the special nature of the Hong Kong system, which makes cross‐auction comparisons impossible. Maximum fee competitiveness is assumed to be the lowest submitted tender fee, while maximum quality score competitiveness is taken to be the highest quality score attained by a competing consultant. Fees and quality score are then expressed as separate competitiveness ratios relative to these maximums and aggregated for determining overall competitiveness. In analysing bidding performance it was found that this consultants fee, quality score and overall competitiveness are all above the competitor average. These competitiveness measures reveal large differences in variability between quality score and fees, with quality score variability being considerably lower. Such a large imbalance in competitiveness variability effectively discounts quality and promotes the influence of the fee, since competitiveness ratio differences between fees are much larger than the competitiveness ratio differences between quality scores.

The analysis of pre-tender building price forecasting performance: A case study

The financial management of the construction procurement process is dependent on the performance of the managers involved. This paper describes an analysis of pre‐tender building price forecasts (estimates) made by a Hong Kong consulting organisation for a series of 89 building projects from 1995 to 1997 to identify factors influencing the accuracy of the forecasts made for possible improvement in performance. This involved the consideration of two distinct sets of models, the purpose of which was: (1) to identify and explain the underlying systematic causes of errors; and (2) to assist in improving the predictive ability of the forecasts. The analysis for (1) used ANOVA to detect significant differences between the errors grouped according to building size (value), building size (floor area), forecasting (estimating) method (approximate quantities and superficial), nature of the work (new build and alteration work), type of client and type of project. This was followed by a Gunner‐Skitmore price intensity theoretic analysis. For (2), MRA was used by using cross‐validation analysis to simulate the ex‐post errors.

Benchmarking the use of information technology by the quantity surveying profession

This paper introduces the findings of a recent benchmarking study on the use of information technology (IT) among quantity surveying (QS) companies in Hong Kong. The study was conducted through a questionnaire survey among 15 QS companies registered in Hong Kong, representing around 50 per cent of the total number of companies in the profession. The study focused on how QS companies use IT in their daily operations, including information flows among business partners, the use of computer hardware and software, IT expenditure and training, management support, the perceived benefits of IT applications, perceived obstacles in IT implementation, and major criteria used in software selection. The content validity and measurement reliability of the questionnaire survey have been evaluated, and both of them have shown satisfactory results. This study provides an up‐to‐date and holistic view of the current state of IT applications among QS companies in Hong Kong, in terms of how well they have equipped with IT and their attitude towards adopting this technology. These findings provide a strong foundation for subsequent benchmarking studies to identify best practices among the quantity surveying profession in the construction industry. Based on the findings, this paper suggests major areas for improving IT usage in this sector of the construction industry.

Developing a tendering strategy in two-envelope fee tendering based on technical score-fee variability

Consultants, in competing for work through two-envelope fee tendering, have been urged to consider variability differences between fees and technical scores, since the criterion with the greatest variability will influence which consultant is awarded the contract. Fee and technical score variability arising from different client fee tendering competitions is analysed in this paper, and a method proposed for determining whether a particular clients two-envelope fee tendering competition is likely to be dominated in terms of technical score or fee. Such information should be useful to consultants, as part of their bidding strategy, in deciding whether to aim for a higher technical score or submit a lower fee. Standard deviation is used to measure fee and technical score variability. Fee and technical score standard deviations are determined for each tendering competition, expressed as a ratio and aggregated over a series of competitions. A technical score-fee standard deviation ratio approximately equal to unity indicates that for future competitions consultants should adopt a balanced bidding strategy in putting equal emphasis on fee and technical score. A smaller ratio indicates that consultants should adopt a ‘low fee’ strategy whereas a larger ratio shows that consultants should adopt a ‘high technical score’ strategy. Fee tendering data from two large Hong Kong public sector clients were analysed. Fees were found to dominate the vast majority of tendering competitions, thereby indicating that consultants would be wise to adopt a low fee strategy in future competitions.

Developing an optimal bidding strategy in two-envelope fee bidding

Two-envelope fee bidding is used frequently in allocating commissions to willing consultants such as architects, engineers and surveyors. Consultant fees and technical scores are normally aggregated to form a total score. The consultant obtaining the highest total score is usually awarded the commission. The consultants objective is to get the highest total score possible because this maximizes the chance of winning. Consultants can submit to the procurer any of a number of different technical proposals which is then converted to a technical score. Only one technical score+fee combination will result in the highest total score, i.e. the optimum technical score+fee combination. This paper offers consultants an approach to better identify their optimum technical score+fee combination. In using this approach consultants need to develop a total score continuum based on (1) the consultants original technical proposal and fee, (2) the absolute lowest fee and corresponding technical score, and (3) the absolute highest technical score and corresponding fee. The total score becomes the dependent variable and the fee the independent variable. Since the total score continuum is regressed on three points it will almost certainly be curvilinear in shape. Given that the optimum total score is at the highest point of the continuum, the optimum fee can be determined through differentiation. The corresponding technical score can then be found. After adjusting the original technical proposal to reflect the corresponding technical score, the optimum fee and adjusted technical proposal can then be submitted to the procurer.