(Semnar-2) Lterature Revew

Cost Effectve Contract Strategy for Employers

Submtted By Ishan Juneja (CP-0612)

Guded By Prof. (Dr.) P.V. Akalkotkar Prof & Charman M.Tech CEM Programme

M. Tech. Programme n Constructon & Project Management CEPT Unversty Ahmedabad-380009

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Table of Contents
Chapter - 2 (Lterature Revew) ......................................................................................................................... 3 2.1 Exstng Research ................................................................................................................................ 4

Bblography ...................................................................................................................................................... 7

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Chapter - 2 (Lterature Revew)

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2.1 Exstng Research

There are many varables that affect a contractors decson to bd or not to bd, and how much to bd (Dozzi, AbouRizk and Schroeder). The determnaton of the proper mark-up sze entals the evaluaton of numerous factors and t vares from one bd to another, dependng on a multplcty of nternal and external factors that are encountered n each mark-up decson (Shash and Abdul-Hadi, Factors affecting a contractors mark-up size decision in Saudi Arabia.). It s supplemented by other research that the bddng crtera ncluded envronmental factors, company factors, and project factors n whch the envronmental factors were further separated nto geographcal, economc, and hstorcal groups (Dozzi, AbouRizk and Schroeder).When preparng a bd, contractors consder the resource requred for the project n terms of quantty, qualty, cost, and performance, and other factors such as the extent of nformaton requrements, project envronment, etc., whch may affect the performance of those resources to determne the consoldated cost estmate (Akintoye). As many of these factors are dffcult to quantfy, a subjectve analyss can be used to evaluate such crtera n the determnaton of a bddng mark up (Dozzi, AbouRizk and Schroeder). Shash and Abdul-Had ponted out that very few top Amercan contractors used mathematcal models to ad them n determnng the proper mark-up sze whle the majorty used subjectve judgment (Shash and Abdul-Hadi, Factors affecting a contractors mark-up size decision in Saudi Arabia.). Ths was supported by another study n 1993, whch revealed that contractors n Saud Araba evaluated many factors subjectvely when they decded on mark-up szes (Shash and Abdul-Hadi, The effect of contractor size on mark-up size decision in Saudi Arabia.). t was a common thought that many bddng and mark-up sze decsons were based on contractors experence, ntuton, personal bas, subjectve assessment of the condtons surroundng the bd stuaton, and emotonal responses to the presences of the moment (Fayek).n vew of ths hgh subjectvty, an emprcal study s consdered an approprate method n nvestgatng the factors affectng the bddng and mark-up sze decsons. The dentfcaton of elements consttutng the stuatonal varables requres the reference to prevous research studyng the factors affectng bd/no bd decson and the factors affectng the mark-up sze decson. The relevant factors dentfed n these studes can serve as gudng ncentve n studyng the factors affectng contractors prcng for tme-related rsks. Drew and Sktmore explaned that the constructon ndustry envronment conssts of general envronmental factors (poltcs and law, economcs, socology, and technology) as well as compettve envronmental factors (fnance, plant, labor, management, supplers, subcontractors, consultants, and clents) (Drew and Skitmore). The man features that managers state n assessng projects are project sze, project complexty, and constructon method. Further, economcs has strongly nfluenced manageral thought as well. Therefore, n decdng whether to bd, contractors are lkely to consder both ther current work load and future avalable work n the constructon market. Shash dentfed 55 factors nfluencng the tenderng decsons made by top UK contractors, for whch the need for work, the number of compettors tenderng, and the amount of experence on such projects were ISHAN JUNEJA (CP-0612) |13th September 2013 4

dentfed as the top three factors that affected a contractors decson to bd for a project, whle the degree of dffculty, the rsk nvolvng owng to the nature of the work, and the current work load were the hghest ranked factors affectng mark-up sze decsons (Shash and Abdul-Hadi, The effect of contractor size on mark-up size decision in Saudi Arabia.). Wanous et al. also dentfed 38 factors that affected the bd / no bd decson of the contractors n Syra (Wanous, Boussabaine and Lewis). Chua and L consdered competton, rsk, companys poston n bddng, and need for work as the determnng factors to contractors bddng decson. They also addressed the effect of dfferent types of procurement methods on the bddng decson of contractors (Chua and Li). Dozz et al. ponted out that locaton, labor relablty, labor avalablty, market condtons, competton, future projects, hstorcal proft and falures, current work load, project type, project sze, owner, project complexty, project duraton, cash flow requrements, estmate uncertanty, etc., were the factors affectng the bd mark-up decsons (Dozzi, AbouRizk and Schroeder). Smth and Bohn further dentfed the factors ncreasng contngency mark up, namely, workload, smaller contract sze, ncreased project complexty, lower number of bdders, employers poor reputaton, tough bdder mentalty, unclear contract documents, and short bddng tme frame, etc. (Smith and Bohn). Akntoye had smlar thoughts and consdered the man factors relevant to the cost estmatng practce were complexty of the project, scale and scope of constructon, market condtons, method of constructon, ste constrants, clents fnancal poston, buldablty, and locaton of the project (Akintoye). Dulam and Shan also nvestgated the factors nfluencng bd mark-up sze n Sngapore and the survey showed that contractor sze has a sgnfcant mpact on these decsons (Dulaimi and Shan). Prevous researchers consdered rsk as one of the major factors affectng the bddng decson and the markup sze. However, they had not studed adequately the factors affectng contractors prcng for rsks durng the tenderng stage. Ths study attempts to fll ths lterature gap. Whle t s wdely accepted that the factors dentfed n the above are the factors that contractors consder n the tenderng stage, t s antcpated that these factors may generally be applcable n ths study of prcng for rsks. Whle nvestgatng the relevant factors and ther mplcatons, concerns are placed on whether these factors affect the prcng made by dfferent-szed contractors n unequal scales. Dfferent bdders wll have dfferent degrees of preference toward the ndvdual contract characterstcs, such as sze, type, and locaton of proposed contracts; and, n determnng mark-up levels, dfferent bdders have dfferng degrees of selectvty between contracts (Drew and Skitmore). Contractors dvde the market nto dfferent segments accordng to the owners strctness of constructon management n whch prce level for projects wth a strct owner s remarkably hgher than for those wth relatvely less strct owners (Lo, Lin and Yan). Besdes, the level of mportance attrbuted to the factors nfluencng the mark-up sze decson may vary wth contractor sze. Allocaton of rsks among the contractng partes n a contract s an mportant decson affectng the project success and there are some rsks n a project whch contractng partes can nether control nor affect the occurrence of such rsks, ther allocaton to a party would be nequtable (Makui, Mahdavi and ISHAN JUNEJA (CP-0612) |13th September 2013 5

Farrokhian). Constructon ndustry s wdely assocated wth a hgh degree of rsk and uncertanty due to the nature of ts operatng heterogeneous envronment, common rsks faced by contractors nclude: changes n work, delayed payment on contract, fnancal falure of owner, labor dsputes, labor, equpment and materal avalablty, productvty of labor, defectve materals, productvty of equpment, safety, poor qualty of work, unforeseen ste condtons, fnancal falure of contractor, poltcal uncertanty, changes n government regulaton, permts and ordnances (Oyewobi, Ibrahim and Ganiyu). Constructon clams are one of the most dsruptve and unpleasant events of a project, due to ntense Competton clams and dsputes have become burdens to the constructon ndustry (Ho and Liu).Therefore, ths study wll examine the smlartes and dfferences of the factors nfluencng dfferent-szed contractors prcng for tme-related contract rsks.

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Bblography
Akntoye, Akntola. Analyss of factors nfluencng project cost estmatng practce. Contructon Management and Economcs (2000): 77-89. Chua, D. K. H. and D. L. Key Factors n Bd Reasonng Model. Journal of Constructon Engneerng and Management (2000): 349-357. Dozz, S. P., S. M. AbouRzk and S. L. Schroeder. Utlty-Theory Model for Bd Markup Decsons. Journal of Constructon Engneerng and Management (1996): 119-124. Drew, Derek and Martn Sktmore. The Effect of Contract Sze and Contract Type on Compettveness n Constructon Contract Buldng. Constructon Management and Economcs (1997): 469489. Dulam, Mohammed Fadhl and Hong Guo Shan. The factors nfluencng bd mark-up decsons of largeand medum-sze contractors n Sngapore. Constructon Management and Economcs (2002): 601610. Fayek, Amnah. Competetve Bddng Strategy Model and Software System for Bd Preperaton. Journal of Constructon Engneerng and Management (1998): 1-10. Ho, S. Png and Lang Y. Lu. Analytcal Model for Analyzng Constructon Clams and Opportunstc Bddng. Journal of Constructon Engneerng and Management (2004): 94-104. Lo, W., C. L. Ln and M. R. Yan. Contractors Opportunstc Bddng Behavor and Equlbrum Prce Level n the Constructon Market. Journal for Constructon Engneerng and Management (2007): 409-416. Maku, Ahmad, raj Mahdav and Fatemeh Farrokhan. A Model for Sharng the Costs of Uncontrollable Rsks among. Journal of ndustral and Systems Engneerng (2009): 125-139. Oyewob, L. O., A. D. brahm and B. O. Ganyu. Evaluatng the mpact of Rsk on Contractors Tender Fgure n Publc Buldngs Projects n Northern Ngera. Journal of Engneerng, Project, & Producton Management (2012): 2-13. Shash, A. A. and N. H. Abdul-Had. Factors affectng a contractors mark-up sze decson n Saud Araba. Constructon Management and Economcs (1992): 415429. . The effect of contractor sze on mark-up sze decson n Saud Araba. Constructon Management and Economcs (1993): 421-429. Smth, Gary R. and Caryn M Bohn. Small To Medum Contractor Contngency And Assumpton Of Rsk. Journal for Constructon Engneerng and Management (1999): 101-108. Wanous, M., A. H. Boussabane and J. Lews. To bd or not to bd: a parametrc soluton. Constructon Management and Economcs (2000): 457-466. Wanous, Mohammed, Halm A. Boussabane and John Lews. A neural network bd/no bd model: the case for contractors n Syra. Constructon Management and Economcs (2003): 737-744.

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