Development of multi-criteria decision analysis models for bidding and contractor selection

Abstract

Estimating and bidding a job is one of those essential processes at the heart of a contractor's business. Risk and uncertainty are major considerations in bidding decisions for construction projects. Numerous factors need to be taken into account when making bidding decisions which make them multi-criteria decisions.
The present study focuses on developing multi-criteria decision making models to assist in bidding decisions. The Analytical Hierarchy Process (AHP), which is a multi-criteria decision making tool, is used to quantify risk encountered in bidding decisions. The AHP has been employed to model both the bid/no bid and mark-up decisions. The data required for this study was collected from thirty firms operating in Gaza Strip by way of a written structured questionnaire. The data was analysed using the Criterium Decision Plus Software based on the AHP. Ten factors were selected to affect bid/no bid decisions while eleven factors were chosen to influence mark-up decision. Results from the questionnaire survey supported previous studies that profit is not the most important factor in making bid/no bid and mark-up decisions. The results also indicate that the most important factors when making the bid/no bid decision are: the 'need for work' followed by the 'company strength in industry' and 'payment methods'. For the mark-up decision, the 'need for work', 'owner/client and consultant identity' and 'project size' are the most important factors. A real life case study was used to demonstrate the application of the two models. Twelve meetings were conducted with a contractor working in Gaza Strip construction industry in order to gather the required data for the validation. The case study consisted of three
different projects, road works, electromechanical and building projects, and the contractor had to make a decision on which projects to bid for and then which of them will result in a higher mark-up. The validity of the two models was confirmed by applying a two-stage Linear Programming (LP) approach to the data obtained from the case study. The results from the LP approach agreed with the outcome from the AHP. The developed AHP models can be easily used by the contractors to assist in making bid/no bid and mark-up decisions.
This study investigates the Fuzzy Sets Theory, which is a mathematical approach used to characterise and quantify uncertainty, as a bidding strategy. This study summarises the work that has been done to-date reviewing the fundamental concepts and applications of the Fuzzy Sets Theory in construction. Fuzzy Sets Theory was found to be used widely in construction research but most studies were found theoretical. The research also examines the challenges of using the reverse auction as an open bidding process. In construction industry, reverse auction is one such technique that uses secured Internet technology for tendering process. Advantages of on-line bidding include: the ability to submit more than one bid, time benefits, increasing competitiveness among contractors and attracting unknown bidders. The main drawback of reverse auctions is that the award of the product/service will be based on the price rather than on the quality of the product or service. Furthermore, security and legal issues need further considerations when forming e-contracts for the procurement of construction services.
Selecting a suitable contractor to execute a particular project is an important decision for the client to take. Awarding construction contracts based on the price only is not always a successful strategy for contractor selection as it could result in construction delays and cost overruns. In addition to price, factors such as quality and safety need to be taken into account when making the contractor selection decision. In this study, two methods for contractor selection were compared: the points method and the Analytical Hierarchy Process. The two methods were applied to a real life case study for contractor selection. Financial and Quality factors were considered to affect the contractor selection decision. Both methods resulted in selecting the same contractor for executing the project under consideration. The Analytical Hierarchy process provides a flexible and computer based method for contractor selection decision.