Halima Ahmed

PERFORMANCE OF CONTRACTORS SELECTED USING THE LOWEST BID
EVALUATION METHOD FOR PUBLIC UNIVERSITY PROJECTS IN ETHIOPIA:

(A CASE STUDY ON ARBAMINCH UNIVERSITY PROJECTS)
HALIMA AHMED
A THESIS SUBMITTED
THE SCHOOL OF CIVIL ENGINEERING

SCHOOL OF GRADUATE STUDIES
HAWASSA UNIVERSITY,
HAWASSA, ETHIOPIA
IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE

DEGREE OF MASTER OF SCIENCE IN CIVIL ENGINEERING
SPECIALIZE IN CONSTRUCTION TECHNOLOGY AND MANAGEMENT
JUNE, 2017
HAWASSA UNIVERSITY
SCHOOL OF GRADUATE STUDY
PERFORMANCE OF CONTRACTORS SELECTED USING THE LOWEST BID

EVALUATION METHOD FOR PUBLIC UNIVERSITY PROJECTS IN ETHIOPIA:
(ACASE STUDY ON ARBAMINCH UNIVERSITY PROJECTS)
By
Halima Ahmed
A thesis Submitted to Hawassa University School of Civil Engineering School of Graduate
Studies in Partial Fulfillment of the Requirement for the Degree of Master of Science in
Construction Technology & Management
Advisor
Abebe Dinku prof. (Dr. Ing)
Approved By Board of Examiners
Advisor
_______________ _______________ _____________
Advisor Signature Date
Examiner (External)
_______________ _______________ _____________
Examiner (Internal)
_______________ _______________ _____________

Chairperson
_______________ _______________ _____________
SCHOOL OF GRADUATE STUIDIES
HAWASSA UNIVERSITY
ADVISORS’ APPROVAL SHEET

This is to certify that the thesis entitled “Performance of contractors selected using the lowest
bid evaluation method for public university projects in Ethiopia (A case study on Arbaminch
university projects)” Submitted in partial fulfillment of the requirements for the degree of
Masters of science in civil engineering with specialization in Construction Technology and
Management the Graduate Program of the School of Civil engineering and has been carried
out by Halima Ahmed under my supervision. Therefore I recommend that the student has
fulfilled the requirements and hence hereby can submit the thesis to the department.
_______________ _______________ _____________

DECLARATION AND COPY RIGHT
Halima Ahmed Endris, declare that this thesis is my original own work that has not been
presented and will not be presented by me to any other University for similar or any other
degree award.
______________________________
Signature
Performance of Contractor Selected Using The Lowest Bid Evaluation Method In Public University
Project In Ethiopian (A Case Study On Arbaminch University Projects)
ACKNOWLEDGEMENT
First of all, I want to thank the almighty Allah for helping me to complete this thesis and
the MSc program. Next I would like to gratefully thank Professor Dr. Ing. Abebe Dinku,
the advisor of my thesis for his valuable comments, suggestion, precious discussions,
continuous supervision and for all necessary guidance and helps to completer the thesis.
I also would like to thank the consultant and contractor who facilitate the research by
providing, different documents and as well have been cooperative for interviews and
intermittent discussion.
Last but not least, my special compliment goes to my family for their continuous support
and prayer during this work.
Halima Ahmed. MSc Thesis 2017, Hawassa University i

TABLE OF CONTENTS
Acknowlegement ...........................................................................................................................................i
Table of content ........................................................................................................................................... ii
Abbrivation ................................................................................................................................................... v
List of tables...................................................................................................................................................vi
List of figures .............................................................................................................................................. viii
Abstract ..........................................................................................................................................................ix
CHAPTER ONE ............................................................................................................................ 2

INTRODUCTION........................................................................................................................... 2
1.1. Reasarch background ................................................................................................................. 2
1.2. Problem statement ...................................................................................................................... 3
1.3. Objective of the reasearch .......................................................................................................... 3
1.4. Scope and limitation of the reasearch ........................................................................................ 3
1.5. Significance of the Study ........................................................................................................... 3
CHAPTER TWO ............................................................................................................................ 5
LITERATURE REVIW ................................................................................................................. 5
2.1. Background ................................................................................................................................ 5
2.2. Construction project and performance ....................................................................................... 6
2.3. Problems of performance in construction industy ..................................................................... 7
2.4. Performance of contractor.......................................................................................................... 8
2.5. Bid awarding systems ................................................................................................................ 9
2.5.1. Lowest bid system............................................................................................................... 9
2.5.2. Nearest to the average of all bids received ....................................................................... 11
2.5.3. Limited by average bid and client estimate ...................................................................... 11
2.5.4. Danish system(competitive average biding or priced base) ............................................. 12
2.5.5. Negotiated offer ................................................................................................................ 13
2.6. Awarding system in the Ethiopian construction industry ....................................................... 14
2.6.1. Legal status and grade of contractors in Ethiopian construction industry ....................... 15
2.6.2. Annual construction turnover .......................................................................................... 17
2.6.3. Liquid Asset ..................................................................................................................... 17
2.6.4. Construction experiance................................................................................................... 17
Halima Ahmed. MSc Thesis 2017, Hawassa University ii

2.6.5. Proposed equipment ................................................................................................... …..18

2.6.6. Proposed personnel ......................................................................................................... .18
2.6.7. Proposed work program and methodology .................................................................. .. 18
2.7. Tender Evaluation and analysis amendement by Ministry of Works and Urban Development19
2.8. Performance of contractor selected using lowest evaluated bidder ........................................ 20
2.9. Factors for assessing contractors performance ........................................................................ 24
2.9.1. Prequalification of contractors ......................................................................................... 24
2.9.2.Warnning letter ................................................................................................................. 24
2.9.3. Program of work .............................................................................................................. 27
2.9.4. Project completion time ................................................................................................... 27
2.9.5. Project final cost .............................................................................................................. 27
2.9.6. Client satisfaction............................................................................................................. 27
2.9.7. Specification .................................................................................................................... 28
2.9.8. Organization ..................................................................................................................... 28
2.9.9. Warranty period ............................................................................................................... 29
2.9.10. Cooperation .................................................................................................................... 30
2.10.Summary of literature review ................................................................................................. 31
CHAPTER THREE ...................................................................................................................... 33
RESEARCH METHODOLOGY ................................................................................................ 33
3.1. Research Methodolgy .............................................................................................................. 33
3.2. Data collection ......................................................................................................................... 33
3.3. Data analysis ............................................................................................................................ 34
CHAPTER FOUR ......................................................................................................................... 36
RESULTS AND DISCUSSION ................................................................................................... 36
4.1. The result and discussion of desk study................................................................................... 36
4.2. Tendering procedures followed in case project ....................................................................... 37
4.2.1. Project One ...................................................................................................................... 37
4.2.1.1 Technical bid evaluation system ............................................................................... 37
4.2.1.2 Financal bid evaluation system ................................................................................. 40
4.2.2. Project two ...................................................................................................................... 42
4.2.2.1 Technical bid evaluation system .............................................................................. 42
Halima Ahmed. MSc Thesis 2017, Hawassa University iii

4.2.2.2 Financal bid evaluation system ................................................................................ 43

4.2.3. Project Three ................................................................................................................... 45
4.2.4. Project Four- ................................................................................................................... 47
4.2.5. Project Five- .................................................................................................................... 49
4.2.5.1 Technical bid evaluation system .............................................................................. 49
4.3. Evaluation of the performance of contractor ........................................................................... 54
4.3.1. Project One ...................................................................................................................... 54
4.3.1.1 Major challenge faced during the construction process ........................................... 55
4.3.2. Project Two ..................................................................................................................... 56
4.3.3. Project Three ................................................................................................................... 58
4.3.4. Project Four ..................................................................................................................... 61
4.3.4.1Major challenge faced during the construction process ............................................ 62
4.3.5. Project Five ..................................................................................................................... 63
4.3. Summary of result and discussion ........................................................................................... 70
CHAPTER FIVE .......................................................................................................................... 67
CONCLUSION AND RECOMMENDATION .......................................................................... 67
5.1. Conclusion ............................................................................................................................... 67
5.2. Recommendation ..................................................................................................................... 68
REFERENCES ............................................................................................................................... 69
Appendix I ...................................................................................................................................... 74
Appendix II ..................................................................................................................................... 76
Appendix III .................................................................................................................................... 78
Halima Ahmed. MSc Thesis 2017, Hawassa University iv

ABBREVIATION
ALT Abnormal Low Tenders
BC Building Contractor
EBCS Ethiopian Building Code Standard
EMAT Economically Most Advantageous Tender
ETB Ethiopian Birr
EU European Union
FDRE Federal Democratic Republic of Ethiopia
GC General Contractor
ITB Instruction to Bidders
KPI Key Performance Indicator
MoWUD Ministry of Works and Urban Development
NCB National Competitive Bidding
PM Project Management
PPA Public Procurement Agency
PPMS Project Performance Monitoring System
RC Road Contractor
SBD Standard Bidding Document
SC Special Contractor
SC-PD Special Contractor for Paining and Decoration
SC-SI Special Contractor for Sanitary Installation
SC-LS Special Contractor for Landscaping
Halima Ahmed. MSc Thesis 2017, Hawassa University v

LIST OF TABLES
Table 2.1 Contractors Grade and project size………………………………………………16
Table 2.2 Bidder Evaluation………………………………………………...….…………..20
Table 4.1 General information on the projects under the study……………………………37
Table 4.2 Prequalification criteria of project one………………………………………….39
Table 4.3 Summary of technical evaluation for project one ………………………………41
Table 4.4 Bidder offer and condition as read for project one………………………………42
Table 4.5 Completeness of documents for compliance with instruction to bidder for project
one……………………………………………………………………………….42
Table 4.6 Final bidder offer after checking arithmetic error for project one……………...42
Table 4.7 Prequalification criteria of project two……………………………………........43
Table 4.8 Summary of technical evaluation for project two……………………………….45
Table 4.9 Bidder offer and condition as read for project two………………………………45
two ……………………………………………………………………………….46
Table 4.11 Final bidder offer after checking arithmetic error for project two……………….46
Table 4.12 Prequalification criteria of project three ……………………………………….. 45
Table 4.13 Summary of technical evaluation for project three………………………………45
Table 4.14 Bidder offer and condition as read for project three……………………………. 46
three………………………………………………………………………………46
Table 4.16 Final bidder offer after checking arithmetic error for project three……………..46
Table 4.17 Prequalification criteria of project Four…………………………………………47
Table 4.18 Summary of technical evaluation for project Four………………………………48
Table 4.19 Bidder offer and condition as read for project four……………………………...49
Four………………………………………………………………………………49
Table 4.21 Final bidder offer after checking arithmetic error for project four………………49
Table 4.22 Prequalification criteria of project five…………………………………………..50
Table 4.23 Summary of technical evaluation for project Five……………………………….50
Table 4.24 Bidder offer and condition as read for project five………………………………52
Five………………………………………………………………………………52
Halima Ahmed. MSc Thesis 2017, Hawassa University vi
Table 4.26 Final bidder offer after checking arithmetic error for project five………………52
Table 4.27 Progress of the project one……………………………………….…………..….54
Table 4.28 Delayed work items and description for delay for project one…………..………55
Table 4.29 Progress of the project two……………………...……………………………….57
Table 4.30 Delayed work items and description for delay for project two …………………57
Table 4.31 Progress of the project Three…………………….……………….……….……..59
Table 4.32 Delayed work items and description for delay for project Three…………..……59
Table 4.33 Progress of the project Four……………………………………….………..……61
Table 4.34 Delayed work items and description for delay for project Four…………….…...62
Table 4.35 Progress of the project Five.…………………….……………………………….64
Table 4.36 Delayed work items and description for delay for project Five…………………64
Halima Ahmed. MSc Thesis 2017, Hawassa University vii

LIST OF FIGURES
Fig 3.1 Detail chart of research methodology……………………………………………………35
Halima Ahmed. MSc Thesis 2017, Hawassa University viii

ABSTRACT
In Ethiopian construction industry stakeholders have long recognized that accepting the lowest
price bid does not guarantee maximum value. Achieving a value-based procurement approach is
a challenge, particularly for the public sector clients who are limited in their ability to evaluate
the competitive bids based solely on the low-bid award system. In the current economic climate
it is increasingly likely that construction organizations will submit abnormally low tenders to win
new work. Persisting problems of inferior quality of constructed facilities, frequency cost
overrun and schedule overruns have become the main features of the public construction works
in Ethiopia. This research was undertaken to assess the performance of public university
construction projects awarded on a least bidder bid awarding system as a case study for
Arbamicnh University and find out the performance of the contractors awarding in these system.
An extensive literature review was carried out to identify different practices, a case project was
conducted among Arbaminch University and data are collected from the consultant who
administering the project under the study. A number of alternative bid evaluation and contract
award procedure are presented and discussed in this research, some of these alternatives are in
use in other countries and industries, and some are emerging. The industries are reviewed to
examine the objectives and intent of the law on this issue.
The research showed that least responsive bid evaluation and contract award procedure have
been the main method of awarding public construction works contract. Competitive low bid
method has been highly criticized for its negative impact on project coordination, quality control
and project duration and cost. Most of the projects have been suffering in financial shortage in
the final stage of the project progress. On the other hand other alternative bidding procedures
included in the study were highly practical in other counties particularly the researcher shared of
adopting the average bid method of awarding contracts among responsive bidders which are
supported by the ministry of work and urban development in March 2001.
Key Words: Lowest price bid, responsive bidder, Alternative bidding procedures.
Halima Ahmed. MSc Thesis 2017, Hawassa University ix

CHAPTER ONE
INTRODUCTION
1.1 RESEARCH BACKGROUND
The latest developments and desires in different aspects of human life, has directed the
professionals in construction industry to use alternative methods of project delivery system.
However, the bidding and project awarding systems are still largely in their basic form. If a client
wishes to muddle through these new trends and invite acceptable bidders, it is necessary to
clarify and develop pre-determined selection criteria and the objective of the pre-qualification
and bid evaluation processes (Hatush et al., 1997). In Ethiopia, major client of construction
industry is the government. And the most common procurement method is the lowest-bidder
system in which contracts are awarded to a responsive contractor who offers the least bid price.
In the last twenty years, the prequalification criteria and bidding processes have not seen much
advancement and are still in their old form. The client is provided by prequalification, with a list
of contractors that are invited to tender on a regular basis. There are unambiguous benefits and
distinct pitfall to the lowest-bidder bid awarding system. It compels the contractors to lower their
costs, usually through innovation and modernization, to ensure the win bids and maintain their
profit margins. In addition, the process is beneficial specifically to public sector because of the
transparency and simplicity, an important criterion of public policy (Photios, 1993). However,
allowing projects to be awarded based on the least price has inherent flaws. Delays in meeting
the contract duration, increment of the final project cost due to high variations, tendency to
compromise quality and adversarial relationship among contracting parties are the major pitfalls
associated with the responsive low bid procedure (Thomas, 2009). Moreover, the low-bid award
system encourages unqualified bidders in the competition and in contrary it discourages qualified
contractors to participate. In a survey conducted in the oromiay regional state, non-existence of
real competition during contractor’s selection; excessive time overruns; compromising quality
and escalation of the final project cost from the estimated cost were the major problems
associated with the existing approach of delivering projects (Lemma, 2006). Among many
causes of disagreements in the construction project, the project delivery system selected is one of
the significant elements (Abera, 2005).
Halima Ahmed. MSc Thesis 2017, Hawassa University 2

1.2 PROBLEM STATEMENT
Ethiopian Construction industry stakeholder has long recognized that accepting the lowest price
bid does not guarantee maximum value. Achieving a value based procurement approach is a
challenge, particularly for the Ethiopian public sector clients who are limited in their ability to
evaluate the competition bids based solely on the low bid award system. In the current economic
climate it is increasingly likely that construction organizations will submit abnormally low
tenders to win new works. The potential problem associated with this awarding practice is: It
forces contractors to price work at unrealistically low levels, it does not deliver cost saving but in
fact is more likely to result in cost and time overrun.
1.3 OBJECTIVES OF THE RESEARCH
The main objective is to identify the problem of least bidder bid awarding practice in public
university project in order to suggest improvement methods.
The research specifically aims at:
 To Show how qualification criteria applied to select among contractors in public
university project.
 To Show the challenges associated with the bid procurement trends in public owned
university projects and to analyze their impact on the project life cycle.
 To propose improvement in the existing practice and more useful techniques could be
introduced to improve the project performance.
1.4 SCOPE AND LIMITATION OF THE RESEARCH

The Scope of the study is to assess the performance of public owned university construction
projects which are awarded by the lowest bidders bid awarding procurement procedures in
Ethiopia. However, the research is limited to Arbaminch University construction projects which
exclude other public owned construction projects.
1.5 SIGNIFICANCE OF THE STUDY

Significance of the study is:
 To show contractors performance on projects awarded using the lowest evaluated tender
that would be used by the construction public university project in Ethiopia.`

 To shows different method of bid awarding system in the industry and it shows factors
that are affects contractor performance using lowest biding awarding system.
 To identifies and makes recommendations for use a more suitable and effective
evaluation method that would be used in bid evaluation to ensure improvement in
Contractors performance.

CHAPTER TWO
LITERATURE REVIEW
2.1 BACKGROUND
The procurement process is the process by which a project is settled to a contractor. By the
nature of this process, a number of ethical questions and practices arise in its implementation.
These issues may stem either from the client‘s side, the contractor‘s side or both. When unethical
decisions are made, the outcomes adversely affect the quality of the project and the concept of
ethics on the procurement side of project management has been widely debated. Policy of
procurement procedures play a major role in how construction projects are awarded in the
tendering process and proper policy management and implementation is necessary to regulate the
procurement process, especially for large construction projects or projects that are conducted for
government.
The selection of a proper construction contractor increases chances of successful completion of a

construction project (Alhazmi and Mc Caffer, 2000). It can also fulfill the client goals and keep
the schedule of the cost, time and quality. So it is extremely critical to select an appropriate
contractor in the process of construction management.
The selection of construction contractors are very often conducted during tendering. Tendering
definitely gives a client a choice in awarding contract a company which proposes the lowest
price and short construction cycles, but usually they do not allow to precisely evaluate a tender.
At the same time there are more and more procedures in which the decision criterion of choosing
a tender is the price. In recent years most clients made use of such a method on the other hand
the research results show that the cheapest tenders often have problems with completing the
project accepting the lowest price is the basic cause of the project completion problems because
very often lowering the price means lowering the quality. It is true in some cases. The above
condition makes that it is especially important to properly evaluate the contractor capabilities. I
analyzed in selecting the most suitable contractor for construction project is crucial decision for
owners.
According to Abeselom (2008), success rate of tender offers is below 50% for 80% of the
surveyed contractors and 67% among these, have a success rate less than 25% which according
to the research highest ranking responsible factor is tough competition, which is also aggravated

by absence or lack of bidding strategy by the contractors. Also technical evaluation like the
capacity of contractors in regard to previous construction success leads the evaluation for
subjective bias.
2.2 CONSTRUCTION PROJECTS AND PERFORMANCE
Success of construction projects depends mainly on success of contractor performance. Many

previous researches had studied performance of construction projects. Dissanayaka and
Kumaraswamy (1999) remarked that one of the principal reasons for the construction industry's
poor performance has been attributed to the inappropriateness of the chosen procurement system.
Reichelt and Lyneis (1999) remarked three important structures underlying the dynamics of a
project performance which are: the work accomplishment structure, feedback effects on
productivity and work quality and effects from upstream phases to downstream phases. Thomas
(2002) identified the main performance criteria of construction projects as financial stability,
progress of work, standard of quality, health and safety, resources, relationship with clients,
relationship with consultants, management capabilities, claim and contractual disputes,
relationship with subcontractors, reputation and amount of subcontracting.
Chan and Kumaraswamy (2002) stated that construction time is increasingly important because it
often serves as a crucial benchmarking for assessing the performance of a project and the
efficiency of the project organization Cheung et. al (2004) studied the project performance
related to project managers. He suggest that development of a Web-based construction Project
Performance Monitoring System (PPMS) can assist project managers in exercising construction
project performance indicators and can help senior project management, project directors, project
managers, etc., in monitoring and assessing project performance. Pheng and Chuan (2006) stated
that while project management is only one of the many criteria upon which project performance
is contingent, it is also arguably the most significant as people formulating the processes and
systems who deliver the projects. Ugwu and Haupt (2007) stated that an adequate understanding
and knowledge of performance are desirable for archiving managerial goals such as
improvement of institutional transformations, and efficient decision making in design,
specification and construction, at various project level interfaces, using appropriate decision-
support tools. Ling et al (2007) investigated project management (PM) practices adopted by
Singaporean construction firms. It was determined that the performance level of their projects in
China; identifies project management practices that led to better performance; and recommended
key PM practices that could be adopted by foreign construction firms in China to improve
project performance. Having briefly discussed the link between construction projects and
performance it is appropriate to highlight some of the problems associated with performance in
the construction industry.
2.3 PROBLEMS OF PERFORMANCE IN CONSTRUCTION INDUSTRY
The failure of any construction project is mainly related to the problems and failure in
performance. Moreover, there are many reasons and factors which attribute to such problem.
Ogunlana et al, (1996) stated that the construction industry performance problems in developing
economies can be classified in three layers: problems of shortages or inadequacies in industry
infrastructure (mainly supply of resources), problems caused by clients and consultants and
problems caused by contractor incompetence/inadequacies. Okuwoga (1998) identified that the
performance problem is related to poor budgetary and time control. Long et al (2004) suggest
that performance problems arise in large construction projects due to many reasons such as:
incompetent designers/contractors, poor estimation and change management, social and
technological issues, site related issues and improper techniques and tools.
Navon (2005) stated that the main performance problem can be divided into two groups: (a)
unrealistic target setting (i.e. planning) or (b) causes originating from the actual construction (in
many cases the causes for deviation originate from both sources). Samson and Lema (2002)
found that the traditional performance measurement systems have problems because of large and
complex amount of information with absence of approaches to assist decision maker understand,
organize and use such information to manage organizational performance. Navon (2005)
remarked that traditional project performance control is usually generic (e.g. cost control
techniques). It relies on manual data collection, which means that it is done at low frequency
(normally once a month) and quite some time after the controlled event occurred (i.e. not in real-
time). Moreover, manual data collection normally gives low- quality data. Ling. et. al (2007)
remarked that architectural, engineering and construction (AEC) firms may face difficulties
managing construction projects performance in China because they are unfamiliar with this new
operating environment. Kim et al (2008) stated that international construction projects
performance is affected by more complex and dynamic factors than domestic projects; frequently

being exposed to serious external uncertainties such as political, economic, social, and cultural
risks, as well as internal risks from within the project. To be able to discuss problems associated
with contractor’ performance there is the need to identify performance indicators that are used to
evaluate contractors’ performance
2.4 PERFORMANCE OF CONTRACTOR
Performance has been described as “the degree of achievement of certain effort or undertaking”.
It relates to the prescribed goals or objectives which form the project parameters (Chitkara,
2005). From project management perspective, it is all about meeting or exceeding stakeholders’
needs and expectations from a project. It invariably involves placing consideration on three
major project elements i.e. TIME, COST AND QUALITY. (Project Management Institute,
2004). It has been pointed out that, in today’s highly competitive and uncertain business
environment, the client who is the major stakeholder, want speedier delivery of their project with
early start of construction work, certainty of performance in terms of cost, time and quality,
value for money for their investment, minimal exposure to risk and early confirmation of design
(Costa et al, 2004). Although many tend to focus on the elements of cost, quality and time, all
others are also important parameters of project performance. By the needs of the clients, it is
prudent that at every stage of the project delivery, some kind of checks is done to ascertain
discrepancies.
Thus performance measurement as defined by Neely (1995), is the set of metrics used to quantify
both the efficiency and effectiveness of action. Further Alwi et. Al. (2002) indicated that
performance measurement is a management tool which has the power to focus attention on
desired behavior and results. This means that, measuring performance allows an organization to
objectively determine what is working and what is not. In order to measure performance or
calculate the effects of any given change on the construction process, one must first determine
the appropriate Key Performance Indicators (KPIs) to focus on to measure their impact on
project delivery. However, Ofori, et. Al. (2001) has indicated that measuring performance is a
complex problem. This is because every contractor is unique in terms of the manner in which he
follows design specifications, method of delivery, administration, and composition of team
members. Performance measurement is a good exercise to undertake in that Steven et al (1996)
asserted that performance measurements are needed to track, forecast, and ultimately control the

success of a project. Despite the importance of performance measurement, it has not been widely
implemented in construction companies and information on the performance of the construction
industry as a whole is also scarce (Dayana, et al. 2005). For example, in Nigeria according to
Amu, et al (2005) the untimely completion of construction projects has been found to be a major
setback in the construction industry. Earlier, Odusami and Olusanya (2000) have indicated that
projects executed in Lagos metropolis experienced an average delay of 51% of planned duration
for most projects. Therefore an improved contractor performance can lead to increased client
satisfaction, improvement in reputation and competitiveness in the market (Ogunsemi and
Jagboro, 2006). However contractor performance is critical to the success of any construction
project which is the determinant of cost, time and quality standard because the contractor
converts the design into practical reality (Xiao and Proverbs, 2003). Having stated this, we need
to discuss the link between construction success and performance.
2.5 BID AWARDING SYSTEMS
There are a number of award systems available to the construction industry across the globe and
among them are Lowest Bid System, the Average Bid System Multi-criteria Evaluation System,
the Utility Function and the Most Advantageous Tendering (MAT). Literature available indicates
that almost all countries use one or two of the named award systems in their procurement
methods. In Ethiopia, just like any other country also uses at least one of the methods mentioned
for public works.
2.5.1 Lowest Bid Systems
The most commonly applied systems for contract awarding is to the lowest bidder. This system
according to Aitah (1988) comes under competitive bidding through which a large number of
contractors obtain their work in construction and generally all public works are done by this
method. The main objective behind using competitive bidding is to encourage efficiency and
innovation by contractors which will lead to a constructed project of specified quality at the
lowest possible price. However competitive bidding sometimes leads to the selection of
incompetent contractors, excessive claims by the contractor against the client, disputes and
litigation between two parties, bid shopping and other problems (Aitah, 1988). Although there
are two types of competitive bidding (‘open’ and ‘closed’) award of contracts to the lowest
bidder is done through open competitive bidding. In open bidding according to Aitah (1988), all

contractors use the same proposal form provided with the bidding documents and the bids are
open publicly to avoid imputations of favoritisms. In the closed bidding, no prescribed proposal
form is used and there is no public opening of bids.
In Ethiopia the major purchaser of construction is the federal government and the most common
procurement method is the competitive low-bid procedure in which contracts are awarded to a
responsive contractor who offers the least price. The prequalification and bid evaluation
processes requires the development of necessary and sufficient criteria. The last two decades
have witnessed a huge development in project complexity and clients need and this has led to an
increasing use of alternative forms of project delivery systems. In contrast, the prequalification
and bid evaluation process, quantifying and assessment of criteria are still in its original form.
Prequalification provides a client with a list of contractors that are invited to tender on a regular
basis. This is the approach most currently used by many countries and in which many and
different types of criteria are considered to evaluate the overall suitability.
There are definite benefits and drawbacks to the low-bid award system. Promoting competition
amongst contractors is a clear benefit to the process. It compels the contractors to lower their
costs, usually through innovation, to ensure they win bids and maintain their profit margins. In
addition, the process is beneficial specifically to the public sector because of the transparency, an
important criterion of public policy (Photios, 1993). However, allowing projects to be awarded
based on the least price has inherent flaws. Delays in meeting the contract duration, increment of
the final project cost due to high variations, tendency to compromise quality, and adversarial
relationship among contracting parties are the major drawbacks associated with responsive low
bid award procedure (Thomas, 2009). Moreover, the low-bid award system encourages
unqualified bidders in the competition and in contrary it discourages qualified contractors to
participate.
According to Hardy (1978), the criteria used for bid evaluation should reflect the client’s
objectives. These are that bids are fully responsive to the contract and bidders are sufficiently
well qualified to undertake the contract. The criteria for selecting the successful bidder are then
that bid which maximizes the return on the client’s investment. Thus he has proposed that

bidders should submit a schedule of the payments they expect to fall due to them during the
contract.
In a survey conducted in the oromiya regional state, non-existence of real competition during
contractor’s selection; excessive time overruns; compromising quality; and escalation of the final
project cost from the estimated cost were the major problems associated with the existing
approach of delivering projects (Lemma, 2006). Poor initial funding of the project by the
contractor and lack of timely resources of materials, machineries and workforces are also the
major factors identified as causes of delays during the construction phase in Ethiopian
construction industry (Abdo, 2006). The construction process involves multi-organizational
activity. Conflict and disputes can therefore exist at all levels in the contractual chain: between
client and consultant, client and contractor, client and sub-contractor, and so on. Among many
causes of disagreements in the construction project, the project delivery system selected is one of
the significant elements (Abera, 2005).
2.5.2 Nearest To the Average of All Bids Received
This is another system of bid awarding that comes under open competitive bidding. In this
system once the owner has received the offers from all participants he does a simple
mathematical calculation to find the average bid valve, where all the participants’ offers are
summed and divided by the total number of bids received. To award the contract, the client looks
for the nearest offer to the average bid value and considers this the successful bid for the award
of the contract. Through this system, used in some European countries, the owner is trying to
avoid low bidder who may not have studied the contract carefully or do not have enough
experience and also to avoid overestimated bids. On the other hand, the client will probably not
have enough information about the degree and the type of experience the successful bidder has.
2.5.3 Limited by Average Bid and Clients Estimate
This is another open competitive bidding system for bids awarding. Whereas in the previous
system all bids received are summed and the summation is divided by the number of bids
received to get the average bid value, the client also through his own resources and experience
come out with his estimated cost for the project. To award the contract, the owner reviews all the
participating offers and looks for the offer nearest to the average bid value but which at the same

time does not exceed his estimated cost. The offer that satisfies these two requirements is the
successful bid and the one to be awarded the contract. That is client’s estimate offer of successful
bidder This system might not have a brighter future than the previous one except perhaps as the
successful bid is between the client’s estimate and the average bid, the system may give the
client some indication about the seriousness of the offer and the contractors Understanding of the
project documents, these two qualities are reflected in his reasonable offer.
2.5.4 Danish system (Competitive Average Biding or Priced base)
This is also another system of bid awarding that is under the umbrella of open competitive
bidding. It was developed in Europe and is known as Danish system (Purshottau et al, 1980 cited
in Aitah, 1988) which is a simple formula to select the most reasonable offer from the
competitive bids received. As in the previous system, this system also avoids the two extreme
offers (highest and lowest) which were rejected. A new highest and lowest offer will exist and a
new average (NA). The rest of the offers are considered in relation to the new highest offer
(NH). The new lowest offer (NL) and the average (A) of all offers are calculated. The new
average (NA), which will help in selecting the successful bidder, is calculated as follows:
NA = (NL + 4A + NH) --------------------------- (E.q 2.1)

Where: 6
NA=New average
NH=New highest offer
NL= New lowest offer
A= the average
The offer which is first above this new average is then treated as realistic and acceptable. The
major drawbacks of the low-bid method is the possibility of awarding a construction contract to a
contractor that submits, either accidentally or deliberately, an unrealistically low bid price. Often,
such an occurrence works to the owner’s and contractor’s detriment by promoting disputes,
increased costs, and schedule delays. To address this problem, other countries have adopted the
average-bid method and award the contract to the contractor whose price is closest to the
average-bid method and explores its merits relative to the low-bid method (Photois, 1993). The
main advantage is that it safeguards an owner against signing a construction contract for an

unrealistically low bid price that almost certainly will lead to adversarial relationships during
construction (Ioannou et al, 1993).It was also pointed out that, under this method, contractors are
protected from having to honor a bid containing a gross mistake or oversight. The basic
drawback of the average-bid method is that it does not necessarily promote price competition
that leads to lower costs for the owner.
A technological or managerial breakthrough that results in major cost savings will not
necessarily be passed on to the owner in the form of lower prices, unless this breakthrough is
known to be available to all bidders. Although it has been argued that average bidding method
results in significantly higher profits for the contractors in projects won (Irtishad, 1993).When
such high profits are available throughout the industry, bid prices should be expected to
gradually fall and the savings will eventually be passed to the owner. It has been claimed that the
average bid method would increase contractor profitability and it has the potential to improve
relationships between the owner and the contractor.
It is apparent from the above discussion that most of the perceived benefits of average bid
method may only be realized in the long run. Moreover, some of these benefits are of intangible
nature. The success of this procedure also depends on the requirement that general contractors
select their subcontractors on the average-bidding principle. Given the way bidding is practiced,
accepting sub-bids till the last moment, this would be very difficult to enforce. In addition,
currently the law does not require general contractors to submit and retain a preselected group of
subcontractors.
2.5.5 Negotiated offer
Where the client negotiates the contract with a pre-selected contractor or group of contractors,
this means the client may go through the competitive process entirely and handpick the
contractor on the basis of reputation and overall qualification to do the job. The forms of such
contracts are almost limitless because they could include many provisions that are best suited for
particular work involved and are agreeable to both parties. Negotiated contracts are normally
limited to privately financed work because competitive bidding is a legal requirement for public
projects except under extraordinary or unusual application of negotiated contracts across board in

the private sector. This can only be interpreted as a sign that owners are increasingly finding that
such arrangement are in their best interest.
2.6 AWARDING SYSTEM IN THE ETHIOPIAN CONSTRUCTION INDUSTRY.
In Ethiopia proclamation No. 649/2009 15th year No. 60 9th September 2009 defines the
successful bidder as follows: the bid that is found to be responsive to the technical requirements
and with the lowest evaluated price (article 43(8)). The responsiveness is determined by the
technical evaluation of bidders. In order to participate in public procurement, candidates must
qualify by meeting the following criteria and such other criteria, as the public body considers
appropriate under the circumstances: that they possess the necessary manpower, equipment,
financial and technical capabilities; that they have legal capacity to enter into the contract; that
they are not insolvent; that they are registered in the suppliers list, that they are not suspended
from participating in public procurement in that period; that they have renewed trade license and
tax clearance; and that they have a bank account (article 28). Any requirements required by the
public body will be set forth in the bid documents or other documents for solicitation of
proposals, and deemed to apply equally to all candidates. In addition, in the process of selecting
the successful bidder, the public body should only consider substantially responsive bids for
further evaluation and comparison in accordance with the Criteria set forth in the bidding
documents (article 43(6)). The tender document for the procurement of works for public bodies
in the federal government is The Federal Democratic Republic of Ethiopia Standard Bidding
Document (SBD) For Procurement of Works for National Competitive Biddings (NCB) Public
Procurement Agency (PPA) January 2011, Addis Ababa.
The Federal Government of Ethiopia has statutes requiring submission of competitive bids for
construction projects. This statutes requires public organizations to award such contracts to the
“lowest responsive bidder.” The word “responsive” is inserted to require that a successful bid
must also be adequately responding to the requirements of the project as specified. While it is not
too difficult to determine whether a bid is responsive because responsiveness is evaluated based
on the documents submitted by contractors, it takes considerable amount of time and effort to
ascertain whether a bid is responsible. “Responsible” generally refers to the apparent low
bidder’s quality, fitness, and capacity to perform the proposed work satisfactorily. “Responsible”
means more than simply financially responsible. The bidder must also have the requisite
judgment, skill, ability, and integrity to perform the contract according to its terms. (Irtishad,
1993).
For two reasons application of this requirement becomes difficult. First, there is generally a
narrow window of time available between a bid opening and the award of the bid. Second,
although the law allows public organizations to reject any or all the bids, the rejection cannot be
done arbitrarily or in bad faith. When it is the low bid which is rejected, particularly close
scrutiny of the reasons given for the rejection is warranted. For these reasons, the decision to
reject a low bid on the ground that the bidder was not responsible enough is dependent on the
discretion of the organization. In most cases some degree of subjectivity gets involved in the
process of determining whether a particular bidder is responsible. As a consequence, these kinds
of rejections frequently give rise to resentment and may end up in court. To avoid these
problems, many public organizations take only responsiveness of the bid in consideration before
making award decisions. Some public organs use a stringent and specific set of prequalification
procedures. (Laychluh, 2012).
2.6.1 Legal Status and Grade of Contractors in Ethiopian Construction Industry

Legal requirements are main eligible criteria that able the bidder to participate different countries
have different set of legal status requirements. FDRE Proclamation 649/2009 article 28 in
Qualification of Candidates states that the bidder have to Present renewed trade license and
fulfilled their obligations to pay taxes according to Ethiopian tax laws.
FDRE directive 649/2009 more clarify legal requirements in article 16.4 Instruction to bidders
Sub article 16.4.2
"Public Body has to ascertain that the instruction to bidders it prepares contains the following:-
b) The criteria that bidders are expected to fulfill including a statement of requirement that
domestic bidders submitting bids for a contract value of Birr 100,000.00 and above must present
value added tax registration certificate and foreign bidders must as appropriate submit business
organization registration certificate or trade license issued by the country of establishment."
For contractors to present trade license first must have commercial registration and certificate of
competence than Ministry of Trade and industry will issue trade license. By the power vested in

Ministry of Urban Development and Construction in FDRE Proclamation No. 691/2010 Article
25 (1) to determine grade and certify contractors and award competence. Ministry of Urban
Development and Construction amended directive no 19/2013 contractors divided in four
categories i.e. General Contractors (GC), Building Contractors (BC), Road Contractors (RC) and
Special Contractors (SC); the ministry Directive defines scope of each contractor categories.
General Contractor (GC): in range of form grade one to grade ten and are contractors who are
qualified to undertake a variety of construction work such as building, roads railways bridges,
airports, dams, water works etc. Building contractors (BC) in range of form grade one to grade
ten and are contractors who are qualified to undertake building construction and supplementary
works to buildings. Road Contractors (RC) in range of form grade one to grade ten and are
contractors who are qualified to undertake construction of roads and other related Civil
Engineering works. Specialized Contractors(SC) in range of form grade one to grade six and
are these are contractors who are qualified to undertake construction activities in specialized
fields as and classify further more as; Painting and Decorations (SC-PD), Sanitary Installation
(SC-SI), Wood and Metal Works (SC-WM), Landscaping (SC-LS).
The ministry put fixed threshold project size for the different categories and grades of contractors
in the Directive 19/2013 of MUDC as shown in table below.
Table 2.1: Contractors Grade and Project Size
GC/BC/RC Construction Cost (ETB)
in Grade BC(Building Contractor) RC(Road Contractor) GC(General Contractor)
1 Above 210,000,000 Above 300,000,000 Above 350,000,000
2 Up to 210,000,000 Up to 300,000,000 Up to 350,000,000
3 Up to 160,000,000 Up to 225,000,000 Up to 270,000,000
4 Up to 110,000,000 Up to 154,000,000 Up to 185,000,000
5 Up to 54,000,000 Up to 76,000,000 Up to 100,000,000
6 Up to 27,000,000 Up to 38,000,000 Up to 45,000,000
7 Up to 11,000,000 Up to 15,000,000 Up to 18,000,000
8 Up to 5,400,000 Up to 7,500,000 Up to 9,000,000
9 Up to 3,000,000 Up to 4,200,000 Up to 5,000,000
10 Up to 1,000,000 Up to 1,500,000 Up to 1,800,000
Source: MUDC Amended Directive 19/2013 P: 13
Contractors grade and project size indicative of awarded amount of construction sized
predetermined with its grade and in invitation to bidder grade of contractors to call shall
carefully examine. Contractors needed to present required manpower and equipment to award
requested category and grade. Grade one general contractor must present stated manpower and
equipment in MUDC Amended Directive 19/2013 and for any particular project again the
contractor must present his available manpower and equipment. On the other hand the contractor
may request to present historical contract Non-Performing and Pending Litigation to evaluate
further legal capability to be awarded.
2.6.2 Annual Construction Turnover

Annual construction turnover of the company is total amount of money the company collect in
the budget year without considering advance payment.
2.6.3 Liquid Asset

Ward (2000) defines Asset as "amount recorded on a contractor's balance sheet representing the
Value of property owned by or debts owed to the contractor. May be cash, near-cash (accounts
receivable, temporary investments, notes receivable), or non-monetary property." On the other
hand historical financial performance of the contractor request to assurance the financial
capability to the contractor in future. Historical financial performance presented last five years
financial situation of the bidder indicating the parameters from balance sheet; current asset, total
asset, current liability, short-term debts and working capital.
2.6.4 Construction Experience.

The performance of an organization and its long-term effectiveness are impacted by
organizational culture. Culture is a key factor in the success of organizations in many different
industries, including the public sector (Cameron and Quinn, 2002). There are different ways to
measure organizations long term effectiveness one and best way is general construction
experience of the contractor with unit of years and type of works executed in those years.
Specific Construction Experience Contractors performance can be evaluated in other domination
by considering on company's specific construction experience. Specific construction experiences.
Are experiences indicates contractors capability only for proposed area of work similar to work

experience. In addition to general and specific construction experience the contracture evaluated
in current contract commitments. Current contract commitments are project on hand and not
completed in six months or completion less than seventy present in financial progress. Current
contract commitments indicate the current organization and performance of the bidder.
2.6.5 Proposed Equipment

In the tender document "Evaluation and Qualification Criteria" there are number of equipment
the bidder expected to proposed as owned, hire or lease (in some case to be purchased also
acceptable) for particular project in subject. Where tender documents prepared fairly and
precisely there will be points for provisions of each equipment’s; sometimes it’s good to provide
more than required to assure the employer/evaluator the company have enough of equipment
and not to worry in missing of required attached data.
2.6.6 Proposed Personnel

Where the tender document request to present personnel requirements the contractor should
demonstrate the qualification and competence of the personal proposed for the subject project;
the bidder should show for every required position education level, General Experience,
experience in similar works and Position.
2.6.7 Proposed Work Program and Methodology

The bidder shall demonstrate technique capability, full knowledge how each activity shall be
execute, time required for each activities, how crew formed and managed, site condition and
safety measure to be taken in contract execution period. These ideas can be demonstrate in two
forms; First work program which indicated time line to project execution, start and finish date of
project, relation between each activity, project closer, items delivery time and critical activates.
Secondly; construction methodology, includes crew formation, camp and site organization,
activates detail description, required manpower and equipment for every activities. Both
demonstrates bidder technical knowledge towards the project, assures understanding of the site
and scope work.

2.7 Tender Evaluation and Analysis Amendment by Ministry of Works and Urban
Development-March 2001.
The Ministry of Works and Urban Development (MoWUD) was the authorized public body in
the procurement of all works under the federal government of Ethiopia until 2006. However,
after the establishment of public procurement agency (PPA) in 2006, the procurement of all
federal government works and services have been guided by the rules and regulations prepared
by this agency.
The tender evaluation and analysis approach were modified by the Ministry of Works and Urban
Development in March 2001. The basis for the modification were, according to the letter from
the ministry on the 14th day of march 1993 E.C Ref. no H1-T1 240/21, to improve the
procurement of public construction works by avoiding abnormal low bids. The Ministry,
accompanied to the letter referred above, has tried to show the modification through the
following example.
Example
i. Project Estimation
Project estimation means 50% engineering estimate and 50% estimate of the
Ministry.
The project estimate shall be indicated in the bid document.
Engineer’s estimate=ETB 7,500,000.00
Ministry’s estimate=ETB 7,300,000.00
Project estimate=50% (7,500,000.00+7,300,000.00) = ETB 7,400,000.00
ii. Bidders qualified for detail evaluation.
Bidders who submitted the required bid security and whose offer is within plus or
minus 20% of the project estimate will be subjected to detail evaluation. This
criterion shall be clearly indicated in the bid document.
=7,400,000.00+20 %( 7,400,000.00) =8,880,000.00
=7,400,000.00-20 %( 7,400,000.00) =5,920,000.00
Therefore, bidders whose offer is between ETB 5,920,000.00 and 8,880,000.00 will
be subjected to further evaluation. Bidders whose offers are outside the limit will be
rejected.

iii. Detail Evaluation

The winning bidder will be the least bidder whose offer is within -15% of the
adjusted project estimate. The adjusted project estimate is 25% of the project estimate
and 75% from the average of the offer from the bidders who are subjected to detail
evaluation.
Table 2.2 Bidder Evaluation
Bidder Offer(ETB) Remark
A 6,140,000.00 Accepted
B 5,790,000.00 Rejected
C 7,100,000.00 Accepted
D 7,500,000.00 Accepted
E 8,140,000.00 Accepted
F 7,930,000.00 Accepted
G 9,120,000.00 Rejected
Bidders B and G are non-responsive because their offer is not within plus or minus
20% of the project estimate.
Average offer from contractors=36,810,000.00/5=7,362,000.00
Adjusted project estimate=25 %( 7,400,000.00) +75 %( 7,362,000.00) =7,371,500.00
The minimum acceptable bid offer=7,371,500.00-15 %( 7,371,500.00) =6,265,775.00
Therefore, the winner of this bid will be the least bidder whose offer is greater than
ETB 6,265,775.00. In this particular example, bidder C whose offer is ETB
7,100,000.00(Seven million on hundred thousand birr) will be awarded.
(Source: MoWUD March 2001)
2.8. PERFORMANCE OF CONTRACTORS SELECTED USING LOWEST

EVALUATED BIDDER
The lowest bidder is one whose bid contains the lowest total amount when compared with other
bids submitted for the same work. There are definite risks associated with the low bid award
system. A number of studies have shown that the lowest bid does not guarantee the lowest cost.
Also, the lowest bidder is subject to the winner’s curse; the contractor with the lowest bid is the
one most likely to have underestimated the cost of the project (Capen et al., 1971). Lowest
bidders are required to complete a construction project that no one else was willing to do at that
price (Wolfsetter, 1996). It is known that many construction projects exceed the contract cost.
Thus, using the bid price (lowest bid) solely for contractor selection cannot guarantee the lowest
total construction cost. In addition, construction bid evaluation is one of the primary challenges
for the public sector. Its purpose is to choose the best qualified contractor who can accomplish
the project on time, within budget, and with the quality specified in the contract documents. In
finding a best qualified contractor, two terms, evaluation and selection, are commonly referred to
in the literature. Holt (1998) defined contractor evaluation as the process of investigating or
measuring contractor attributes and contractor selection as the process of aggregating the results
of evaluation to identify an optimum choice.
If a contractor submits a bid that is significantly lower than the client’s estimate and the other
bidders, it is difficult to understand how that contractor could complete the job profitably and
efficiently. The European Union defines those bids as Abnormally Low Tenders (DGIII, 1999).
In that regard the EU introduced legislation to allow public sector clients the option of awarding
a construction project using either the traditional low bid or the Economically Most
Advantageous Tender (EMAT). The legislation allowed public sector clients to reduce their
exposure to some of the adverse effects of abnormally low tenders (ALT), including:
 unsatisfactory quality through the desire to reduce construction costs (Winch, 2000); and
 Predatory pricing and unfair competition that distorts the market, negatively affecting the
other bidders (Alexanderson, 2006).
Some researchers have identified a long list of factors that can influence a contractor’s decision
to bid and the price they submit (Chua, 2000; Fayek, 1998). In addition to the many factors
involved in determining a price, there are a number of reasons that the bid submitted could be
considered abnormally low. Imprecise and ambiguous contract documentation including
incomplete drawings may cause a contractor to make a serious omission in calculating costs.
Errors may also arise due to insufficient time to prepare the bid. One of the most concerning
reasons is the practice of a contractor intentionally submitting an artificially low bid in
anticipation of making their profit through change orders and claims (Zack, 1993). Some bidders
carefully review the bid documents searching for mistakes and ambiguity in areas that could lead
to change orders and claims during the project (Dowle and DeStephanis, 1990). These bidders
can then use this knowledge to submit a lower bid with the expectation of recouping the money
later. This practice can be equated to a gambit strategy in chess: making a small sacrifice early to

Setup the opponent to be in a vulnerable position later (Crowley and Hancher, 1995).
In all cases, the abnormally low bid is not reflective of the final contract cost or the hidden costs
incurred by the client when dealing with numerous change orders and claims. One of the
remedies that these researchers have suggested is the use of median bid to select contractors. The
median bid is more reflective of the market value than the mean because it is not influenced by
outlying high and low bids. For example, it is common for contractors to submit a “courtesy” bid
that is high with no expectation of winning the tender to remain in good standing with the owner.
Using the postulate that the median bid reflects the fair market value, one could expect that if all
of the bidders are tightly clustered around the median, then they have a general consensus of the
complexity and the costs of the project with this scenario, one would expect that the cost
escalation of the project would be small. While a large gap between the low bid and the other
bids would suggest a greater chance that the abnormally low bidder is not bidding on the same
project as the rest of the bidders. Higher cost escalation for those projects is conceivable.
Some researchers have identified that highway road construction projects that were awarded to
low bidders that were significantly lower than the median bidder experienced 3.5 to 4 times the
cost Escalation (from the low bid) than projects where the low bidder was close to the median
bid price (Crowley and Hancher, 1995). The most commonly used contractor selection method in
Taiwan, Ghana, and Nigeria is the lowest bid system, where bid price the unique criterion in
tendering since the bidder providing the lowest bid price is awarded the contract. Without
prequalification, this method often results in an unscrupulous contractor being awarded the
contract, but it is conducted as a result of free market competition.
If each qualified bidder were to have a thorough estimate and sufficient planning prior to
bidding, the lowest bid system would be a perfect method of contractor selection for an owner.
Herbsman and Ellis (1992) proposed a contractor selection approach, the A-plus-B method that
used both construction cost and time as selection criteria. Because this method converts
construction time into bid related cost, with the award being made on the basis of the lowest total
cost, it can be regarded as a modified lowest bid system. In the A-plus-B contracting
environment, a bidder is motivated to bid the project at the shortest possible duration, with the
potential of either wining a bond for early completion or paying liquidated damages for lateness

(Fayeket al., 1998).Canadian construction participants have long recognized that accepting the
lowest price bid does not guarantee maximum value.
The research further demonstrated the need for prequalifying contractors when evaluation is
based solely on the low bid method. It also argued that non-existence of prequalification of
contractors when using low bid award system compound the problem associated with
performance of contractors. Thus compared to the other clients, the cost escalation is
significantly higher for the client that does not have a standard prequalification policy. Increased
contractor competition (high number of bids) and a large price gap between low bid and other
bids are correlated to higher cost escalation for the non-prequalifying client.
Also, the low bid award system encourages unqualified bidders (Carr, 2005). Herbsman and
(Ellis, 1992) also indicated that selecting a contractor based solely on price greatly diminishes
the significance of important criteria such as time and quality. Low bid price as the sole award
criterion encourages unqualified contractors to submit bids along with bidders that submit a very
low bid with the intent of recovering their losses through change orders and claims, also known
as predatory bidding (Crowley and Hancher, 1995) that low bid is not necessarily the best value.
This research hypothesized that this system is potential for too much open competition in public
sector construction procurement. It further discussed that by examining past construction project
data from several public sector agencies, it identified a threshold at which price cutting by the
winning contractor is no longer fair competition but predatory bidding. It is generally recognized
that both the performance of an organization and its long-term effectiveness are impacted by the
mode of their selection. Procurement of contractors is a key factor in the success of organizations
in many different industries, including the construction industry (Cameron and Quinn, 2002). A
common performance metrics for construction clients is the ability to minimize the amount of
cost escalation on projects. The means of obtaining the best value under this system is to award a
contract to the responsive and compliant bidder that is willing to fulfill the terms of the contract
for the lowest cost value. Having reviewed the performance of contractors selected using the low
bid as main selection criteria, their performance can be traced or associated with the Factors
discuss below.

2.9 FACTORS FOR ASSESSING CONTRACTORS PERFORMANCE
Factors that affect contractors’ performance have been identified by a number of Researchers
and are discussed below;
2.9.1 Prequalification of Contractors
Prequalification, according to Hughes et al (2006) is the primary mechanism for shortlisting

contractors. This means that prequalification serves as means of identifying bidders who are
most capable of doing the work. One of the main functions of prequalification is to reduce the
risks of non-performance from contractors which construction clients are likely to experience
(Hughes et al 2006). Writing in the same vein other writers such as Mlinga and Lema (1999)
among others identified some key principles or factors that are used for prequalifying building
contractors. These principles are presented here as:
 Technical capacity;
 Financial capacity;
 Quality management; and
 Occupational health safety
 Experience
 License /classification
A. Technical Capacity
Technical capacity is broadly defined as having recent previous experience and demonstrated
capability relevant to a monetary threshold in one or more of the prescribed field of work types
(Brown et al, 2002; Adams et al, 2002). To meet the requirements of technical capability, Adams
et al, (2002) asserted that contractor(s) must provide information on areas of work that includes:
expertise or specialization, past experience, staffing levels, and management and administration
capabilities including the use of subcontractors and consultants and plant and equipment
resources, evidence of appropriate qualifications including current licenses to practice in a
particular field. Again, indication from Brown et al, (2002) seem to suggest that at the tender
stage, contractors are required to nominate specified personnel or a team, such that their
qualifications and experiences proposed for the particular job tendered for. Implications from

Brown et al, (2002) are that with the required technical personnel on projects there is likelihood
of good performance of contractors.
B. Financial Capacity
The financial capability of the contractor for funding of a project is very important and crucial to
the success of a project. Costa et al, (2004) suggested that the submission of bank statement from
reputable financial institution serves as a guide for contractors to work promptly and
satisfactorily.
C. Quality
Numerous indications and complaints of low quality of work have been made by consumer’s
users through media and authorities which lead to decreased quality of life in uncomfortable and
unfriendly environments (Egan, 1998). Poor quality control at site, common problems such as
project delay and possible economic losses are constant dilemma for the client. Late delivery of
work will often result in late occupancy of the building, and this brings about inadequacy of
public facilities. As a result, end-users will not be happy if the end product does not meet their
requirement in terms of functionality and quality of service. In essence, successful stakeholders‟
performance has to be measured and managed in order to ensure their continual participation and
co-operation in a construction project (Fitzgrerald et al, 1991).
D. Occupational health and safety
The occupational health and safety (OHS) is seen to be concerned with physical and mental well-
being of the individual at a place of work (Danso, 2008). In the construction industry, the
physical and mental well-being of the individual at the construction site appears to be affected
through accident. Construction accident is defined to include minor injuries through fatalities
(Danso.2011). Literature available on this subject indicates that the construction industry all over
the world is among the leading cases of accidents. For example, the ILO‟s global estimates for
2003 indicate that each year at least 60,000 fatal accidents occur on construction sites around the
world or one fatal accident in every ten minutes.

E. Experience
Previous experience of the tenderer needs to be assessed in relation to the fields of expertise
required to achieve the intended outcomes of the project. Recent experience is more valuable
than historic experience. The company’s previous experience in technical areas comparable to
the tendered project, the scale of past projects and the role undertaken within those projects
should be considered. Information required should include a list of relevant projects undertaken
and for each project provide description and relevance to the tendered project, role of the
tenderer, project cost and duration of project and performance of the contractor on the projects
involved. The tendering organization’s performance in completing past projects to the quality
standards required, time Performance, within budget, claims history, project management, and
product value need to be assessed. Extension to the contract completion date and claims for
variations also give an indication of performance capability. Similarly, the satisfaction of
previous clients regarding the management of the project and project outcome provide useful
subjective information on performance of the tenderer.
F. License/Classification
"Classification" means the area of operation that a contractor can engage in based on the
technical experience and resources. In Ethiopia, building contractors are classified as,
BC/GC/RC-1, BC/GC/RC -2, BC/GC/RC -3, BC/GC/RC -4, BC/GC/RC -5 BC/GC/RC -6,
BC/GC/RC -7, BC/GC/RC -8, BC/GC/RC -9, BC/GC/RC -10 According to their resource level,
Capability and Experience.
On the international level, regulatory policies relating to control of land use, technical
requirement, building permits and inspections, registration of contractors and professionals,
wages and remunerations, classification of contractors, foreign equity limitation, transfer offends
between projects and lack of recognition of professional qualification have all impacted on the
competitiveness and performance of contractors operating abroad (Chan, 2001).
The classification system is justified on the basis that construction product is a social good, so
effort should be made to select the most efficient contractor; and that the client (this case the
government) needs protection from unscrupulous contractors. Construction clients all over the
world, including private clients in developing countries, have employed these well-researched
procedures in judging the competence of contractors.

2.9.2 Warning Letters
Contractors are usually issued warning letters as means of reprimanding them when their
performance is seen as below standard or their failure to adhere to instruction. The number of
warning letters issued is an indication of contractor’s performance. A contractor who is
performing poorly is likely to receive many warnings from client or the consultant.
2.9.3 Program of work
As part of requirements for engaging contractors, they are expected to submit program of work
indicating the various activities that would be performed and when they would be performed
which cumulatively give the possible project completion date. An incompetent contractor is most
likely to submit a more unreliable and unrealistic program of work
2.9.4 Project completion Time
Chan el at (2002) have indicated that project completion time is the actual construction time at
practical completion. Indications from Aitah, (1988), Adams et al, (2002) suggest that selection
of contractors using the lowest bidder as unique criteria can sometimes leads to the selection of
incompetent contractors, excessive claims by the contractor against the client, disputes and
litigation between two parties, bid shopping and other problems. All these are potential
ingredients or elements for project time increase (Adams et al, 2002).
2.9.5 Project final Cost
This is the total construction cost at practical completion (Chan, 2001).Researchers such as Carr
(2005), Amu et al (2005), have shown that the lowest bid does not guarantee the lowest cost.
Lowest bid is normally used to ensure competitive bidding. Its purpose is to choose the best
qualified contractor who can accomplish the project on time, within budget, and with the quality
specified in the contract documents. However, one of the most concerning reasons is the practice
of a contractor intentionally submitting an artificially low bid in anticipation of making their
profit through variation orders and claims (Zack, 1993). Some bidders carefully review the bid
documents searching for mistakes and ambiguity in areas that could lead to variation orders and
claims during the project (Dowle and DeStephanis, 1990). The project final cost can therefore be
used to assess the performance of contractors when other factors that can lead to cost increase
such as fluctuation, variations by client or consultant, e.t.c remain the same.
2.9.6 Client satisfaction
This is defined as how satisfied the client was with the process and outcome of the project and
the service received from contractors and professionals, using a client survey of satisfaction.
Client satisfaction, according to Ugwu et. al (2007) is one of the major factors used in
determining the performances of contractors. A satisfactory performance of a contractor means
that complaints by client are virtually minimal (Carr, 2005; Hancher, 1995).
2.9.7 Specification
As it is company policy to continually improve products, methods and materials, changes of

specification may be made from time to time without prior notice. The ability of the contractor to
follow specification as contained in contract document is an indication of contractors‟
performance.
2.9.8 Organization
Costa et al, (2004) showed how job tasks are formally divided, grouped and coordinated within
an organization and suggested how managers/leaders need to focus on those parameters when
designing an organizational structure, Work Specialization, Departmentalization, Chain of
Command, Span of Control, Centralization/Decentralization, and Formalization. These elements,
according to Boating, et al (2008), provide solutions to many key questions in organizational
structure design. The scope of a contracting firm encompasses not only the operating models
internal to the organization, but also its collaborators, customers, and environmental factors.
Benchmarking on the other hand and according to Ofori, (1991), is a management tool that can
help supplier organizations to understand how their performance measures up to their peers and
drive improvement up to world class standards. It is also an important aid to clients, helping
them to compare their own internal processes with those of similar organizations, in order to
identify priorities for improvement. Iyer and Jha (2005), appear to suggest that the Key
Performance Indicators have been particularly useful to organizations with unsophisticated
performance measurement systems.
Some organizations have used the indicators selectively to measure aspects that are important to
their business and to their clients, and to supplement their own performance measurement

systems. Again, for Jin Xiao-Hua and Ling Florence Yean Yng, (2006), the Key Performance
Indicators are not a substitute for more comprehensive performance measurement systems and
benchmarking, which can provide more rigorous assessments. They do, however, enable
organizations to gauge their performance in relation to other organizations. The indicators are
less suitable as tools to manage projects, suppliers or companies or as criteria for evaluating
tenders or in evaluating the success of a construction project in reducing the operational costs of
a building. Affirmation from Ugwu and Haupt (2007), suggest that benchmarking is a
management technique to improve business performance. It can be used to compare the
performance of the organization as a client with that of similar organizations, or the performance
of different suppliers in the same industry. For construction projects it can be used to: assess
performance objectively expose areas where improvement is needed to identify other
organizations with processes resulting in superior performance, with a view to their adoption test
whether improvement programmers have been successful.
2.9.9 Warranty Period
Two types of warranties are currently used in construction according to Winch (2000) and these
warranties are (i) materials and workmanship warranties, and (ii) performance warranties. These
warranty types differ by the degree to which the contractor is liable for product failure. In a
materials-and-workmanship warranty, the contractor is responsible only for defects that result
from poor materials and workmanship (Long, Ogunlana, & Lan, (2004a). On the other hand, a
contractor assumes greater responsibility for the product in a performance warranty and is
responsible for the product meeting certain agreed upon performance thresholds.
In either case, contractor liability should be properly balanced with the contractor's control of the
design, construction and long-term maintenance of the structure throughout the warranty period.
The warranted work is measurable or quantifiable and is under control of the contractor.
Performance warranty specifications can be written that allow the contractor to provide design
input and choose the optimal design. Failure threshold levels or material and workmanship
performance measures for the warranted work should be able to be explicitly defined in the
specification and measured in the field (Herbsman, and Ellis, 1992; Brown, and Adams, 2000).
Contractor is responsible for maintaining the end product for the warranty period, including any
necessary routine or emergency maintenance, as well as any required remedial actions. The

contractor is also required to perform any required remedial actions, preventive maintenance, and
emergency maintenance necessary for the length of the warranty period. Contactors are bound to
the projects within the warranty period. Early failure because of the contractors bad performance
will be corrected at the contractor’s cost during the warranty period. An increase in contract
disputes and litigation can also be expected due to the difficulty in identifying the real reason for
a failure during the warranty period. It has been observed by many researchers such as
Alexanderson and Hultén, (2006) that contractors who perform badly do a lot of remedial work
during the warranty period. We can therefore infer that the amount of remedial work done by a
contractor is an indication of the performance of the contractor during the execution or
construction period.
The number of calls made to the contractor during the warranty period is also an indication of the
quality of work done by the contractor and subsequently performance of the contractor during
the construction period. Within the warranty period, the contractor bears any cost of maintenance
work due to failures resulting from improper materials, inferior workmanship or defective design
for which the contractor is responsible. Any maintenance work incurred within the warranty
period would translate to savings to the state agency or the client if no defects are identified
during the period. Within the warranty period, the maintenance work depends on the type of
required remedial actions when a failure occurs. Most government agencies require contractors
to follow a standard protocol of remedial actions whenever failures happen.
2.9.10 Cooperation
Traditionally the construction industry characterized by adversarial relationships, the lack of

cooperation among project participants and the fact that construction companies and clients focus
mainly on the reduction of project cost and neglect the value, are some reasons for the poor
performance of construction projects. Relationships between clients and contractors in
construction projects are often adversarial. Traditional contracts, but also more integrated forms
of project delivery as design-build, are characterized by low trust and poor communication
(Cameron and Quinn, 2002; Anvuur et al, 2006). Aiming at increasing efficiency and quality in
construction, many clients have taken initiatives to improve cooperation with contractor
organizations by promoting partnering arrangements. Moreover, expectations between partners
about future cooperation create higher levels of trust among partners. A contractor who performs

satisfactorily is likely to receive better cooperation from the client. This means that existence of
cooperation between the client and the contractor is an indication of good performance by the
contractor.
2.10 Summary of Literature Review
This chapter has reviewed literature on contractors‟ performance on projects awarded using the
lowest evaluated bidder as a major criteria for a deeper understanding of performance of
Ethiopian building contractors. The chapter has also reviewed the various awarding systems
available to construction clients in the context of awarding contracts.
Least bidder bid awarding procedure has been widely accepted in many countries for decades.
The customary practice of awarding contracts to a lowest bidder was established to ensure the
lowest cost for completing a project. In public construction works, this practice is almost
universally accepted since it not only ensures a low price but also provides a way to avoid fraud
and corruption (Irtishad, 1993). However, allowing projects to be awarded based on the least
price has become one of the major sources of construction projects failures. Delays in meeting
the contract duration, increment of the final project cost due to high variations, tendency to
compromise quality, and adversarial relationship among contracting parties are the major
drawbacks associated with responsive low-bid award procedure (Thomas, 2009). Moreover, the
low-bid award system encourages unqualified bidders in the competition and in contrary it
discourages qualified contractors to participate.
Consequently, many countries based on their previous experiences and research findings have
developed modified procedures to address these problems. Competitive average bidding, Multi
parameter bidding, competitive negotiated bidding and non-competitive negotiated bidding
methods are the most frequently used procedures in many countries. Competitive average
bidding method has become the most favorite of many European countries. The European Union
(EU) introduced legislation to allow public sector clients the option of awarding a construction
project using either the traditional low bid or the Economically Most Advantageous Tender
(EMAT).
The legislation allowed public sector clients to reduce their exposure to some of the adverse
effects of abnormally low tenders (ALT), including: Unsatisfactory quality through the need to

reduce construction costs (Winch, 2000); and predatory pricing and unfair competition that
distorts the market, negatively affecting the other bidders (Alexanderson et al, 2006).
Competitive Average Bid procedure has become more popular because all the features of open
competitive system are retained on one hand. On the other hand, the possibility of awarding a
construction contract to a contractor that submits, either accidentally or deliberately, an
unrealistically low bid price will be reduced. The competition provides a way to avoid fraud and
corruption, which are the major drawbacks of other negotiation based alternatives. The averaging
will safeguard an owner against signing a construction contract for an unrealistically low bid
price that almost certainly will lead to adversarial relationships during construction (Ioannou et
al, 1993).
The literature also identified some factors which can be used to assess the performances of
building contractors in general and this includes; 1) Client satisfaction; 2) Rate of issuance of
warning letters; 3) Rate of request to attend to warranty calls 4) Compliance with instructions; 5)
Health and safety on site 6) Compliance with specification; 7) Cooperation from the client; 8)
Quality level; 9) Rate of compliance with program of work (organization); 10) Project
completion period; and 11) Project final cost.

CHAPTER THREE
RESEARCH METHODOLOGY
3.1 RESEARCH METHODOLOGY
Research methodology refers to the principles and procedures of logical thought processes which
are applied to a scientific investigation while research methods concern with the techniques
which are available (for data collection, analysis, etc.) and those which are actually implemented
in the research (Fellows, 2007).
This thesis carried for five projects under Arbaminch University. The research reviewed the
tender procedure followed in awarding the project under study and finally has carried the
evaluation of the projects performance. To evaluate the tender procedure, the researcher
collected archival that demonstrates the tender evaluation reports and reviewed the technical and
financial bid evaluation reports. To keep the confidentiality of the bidders who participated in the
bidding procedure, anonymous letters and numbers replaced the name of the bidders and projects
respectively. Similarly, to evaluate the performance of the projects awarded by the least bid
system, the research evaluated the projects performance from progress report, minutes of
meeting and evaluation of the projects physical and as well financial delivery as compared and
contrasted to their schedule.
3.2. DATA COLLECTION
The Research was started with literature review. Based on the information acquired from
literature reviews and inputs from various local experts. Case study survey were adopted for this
study.
The case study was developed for consultants who are administering public owned construction
projects (i.e. Arbaminch university project) there are five consultant are working with
Arbaminch university until this research is conducted among this three of them are selected for
this project because the other two has start the work recently to the University.
The Consultant selected for this case study is:

 Ethiopian Construction Design & Supervision works Corporation Building & Urban
Design & supervision work Sector.

 Berkete Tesfaye Consulting Architects & Engineers

 YTH consulting Architects & Engineers
The data that are expected from the above case study are as follows:
1. Technical and Financial Evaluation of Bidder.
2. Status of the project (contract time, completion time, extension of time given and project
final cost)
3. Challenges Encountered During construction period, etc.
3.3. DATA ANALYSIS
Yin (2003) Define a case study as an empirical inquiry that investigate a contemporary
phenomenon within its real life context especially when the boundaries between phenomenon
and context are not clearly defined.
Information for the study was obtained from both primary and secondary sources. The primary
data were obtained from a data collected from consultant (Both government and private) and
contractors which are involved in Arbaminch University construction projects. The secondary
data were from literature review mostly from text books, journal newspaper and internet. Finally
data were proceed and analyzing using Microsoft Excel-2016

MAIN PROCEDURES SUB PROCEDURES OUTPUT
Identify research needs and - Research

RESEARCH goals methodology
METHODOLOGY Research design and - Research objective
specification - Research scope &
limitation
-
Identify data source

DATA COLLECTION Performance of contractor
Data collection from
selected using lowest bid
archives, documents
Extraction of relevant data Evaluation of Factors

DATA ANALYSIS
Data Examination Affect contractor’s
Quantitative and qualitative performance with related
data analysis to lowest bid
REPORTING Documentation of Analysis

procedures and Results Fulfilling Research
Discussion, conclusion and Objective
Recommendation Recommendation for
future Study
Fig.3.1 Research Methodology flow chart

CHAPTER FOUR
RESULTS AND DISCUSSION
4.1 The Result and Discussion of Desk Study
The results and discussion are formulated in two parts in line with the objectives of the research
and desk study.
The first part reviewed the tender procedure followed in awarding the project under study the
second is to evaluate the performance of the projects awarded by the least bid system, the
research evaluated the projects performance physical and as well financial delivery as compared
and contrasted to their schedule.
Table 4.1. Below give the General information on the projects under the study.
Case description for Arbaminch University projects

No. Description Project-1 Project -2 Project-3 Project-4 Project-5
1.1 Project Laboratory, Center of water Design studio and Dormitory Post graduate
description class room work building assembly hall expansion and class room
and laundry and internal building
room access road
1.2 Method of National National National National National
tendering competitive competitive competitive competitive competitive
bidding(NC bidding(NCB) bidding(NCB) bidding(NCB) bidding(NCB)
B)
1.3 Condition of PPA 2011 PPA 2011 PPA 2011 PPA 2006 PPA 2006
contract
1.4 Contract Admeasure Admeasureme Admeasurement Admeasurement Admeasurement
Type ment nt
1.5 Contract 365 days 365 days 540 days 480 days 365 days
Period
1.6 Project Arbaminch Arbaminch Arbaminch Arbaminch Arbaminch
Location
1.7 Project Start Jan, 20, May 5, 2015 May,18,2014 Oct. 27,2011 Oct. 27,2011
2016

1.8 Project Jan, 21,2017 May 5,2016 Nov, 19,2015 Feb, 24,2013 Oct, 26 2012
completion
1.9 Project status 65% 97% 78% completed 100% 100%
Completed completed completed completed
1.10 Contract 37,738,693. 63,063,794.21 125,438,290.95 79,777,540.10 100,753,798.76
price (With 88
VAT)
1.11 Project Final 74,737,159. 83,101,850.83 200,471,827.80 154,575,627.23 203,008,800.32
cost** 53
1.12 Consultant Private Private Private Government Government
1.13 Client Arbaminch Arbaminch Arbaminch Arbaminch Arbaminch
University University University
University University
** The final cost is up to the researcher collected the data
4.2 Tendering procedures followed in case projects

4.2.1 Project One –Laboratory, class room and laundry building
4.2.1.1 Technical bid evaluation system
Seventeen bidders collected the bid document from Arbaminch University office and seven
bidders submitted their offer.
The technical evaluation committee comprising of representatives of consultant and client were
assigned to evaluate the technical proposal. The committee first evaluated the submitted tenders
for prequalification criteria taking in to account of the compliance with instruction to bidders.
 Prequalification (Eligibility of documents)
Table 4.2. Pre-qualification for project one
contractors
A B C D E F G
1 Furnishing of Bid security R R R R R R R
2 Technical proposal original and copy R R R R R R R

3 Financial proposal original and copy R R R R R R R
4 Trade license renewed for the year R R R R R R R
5 PPA registration certificate R R R R R R R
6 VAT certification R R R R R R R

7 Tax clearance R R R R R R R
8 Registration from ministry of construction and urban R R R R R R R
development
R=Responsive
NR= Non-Responsive
As can be seen from the results all tenders passed the prequalification criteria and transferred to
the next step. The technical committee has evaluated the accepted bidders based on the
evaluation methodology and criteria. This criterion was read in conjunction with the evaluation
methodology and criteria for construction tenders for procurement of works for national
competitive bidding prepared by federal public procurement agency, version1, August 2011. The
details of the evaluation criteria include:
I. The work methodology and Scheduling: - The considerations in this section include
evaluation the equipment schedule, the technical approach and methodology, the project
works, material schedule and labor schedule. Each has three points and makes 15% of the
proportion of the technical evaluation.
II. The technical qualifications, competence and experience:-In this section the general
and specific experience of the company relevant to the project requirements were
evaluated. Accordingly, the bidder should demonstrate the average annual volume of
work performed by the bidder for the past five years as a prime contract contractor. The
minimum annual volume of work estimated for this evaluation was 40 million ETB. This
was evaluated for five points. In addition to this , the current performance of the bidders’
participation as prime contract in the past three years evaluated by taking the
performance of three projects with minimum project value of each 30 million ETB. The
status of the projects evaluated in this section should be at least substantially 70%
completed and above completed and should be similar in nature to the proposed project.
Each project was evaluated out of five points. This section comprises 20% of the total of
the proportion of the technical evaluation.
III. Qualification and experience of the key personnel: - the schedule of key personnel
with the qualification and experience set in the requirements were evaluated. The key
personnel required were project manager, project engineer, site engineer, construction
foreman and quantity surveyor. Accordingly, the key information should include.
o Curriculum vitae recently signed by the proposed professional staff and employer

o Educational testimony.
o Renewed the professional license for the year
o Testimony of concerned government office as he/she is legally agreed and signed
to be professional of the contractor.
This section comprises 20% of the total of the proportion of the technical evaluation.
IV. Equipment for implementation of the contract:- Proposals for the timely
acquisition(own, lease) of the essential equipment listed include two pieces of damp
truck(above 10m3), two pieces of pickups (above 7 quintals), two pieces of concrete
mixers(360 lit and above), two pieces of hand compactor, one pieces of excavator and
one pieces of concrete vibrator. This section comprised 20% of the total of the proportion
of the technical evaluation.
V. Financial standing of the bidder: - the audited balance and other financial statements of
the past three years are expected to demonstrate the soundness of the bidders’ financial
status. In addition, the average annual turnover calculated as total payments certified for
the past three years were examined and the minimum amount expected to be not less than
40 million birr. Moreover, the evaluation criteria expected the bidder to demonstrate that
the bidder has access to, or has available, liquid assets, lines of credit, over draft facility
and other financial means sufficient to meet the construction cash flow, estimated as not
less than 4 million birr. This section comprises 25% of the total of the proportion of the
technical evaluation.
Table 4.3. Summary of technical evaluation
Points A B C D E F G
Description for
tender
1 Methodology 15 15 15 5 15 14 15 12
2 Technical 20 20 20 20 20 15 20 10
qualification,
Competency and
experience
3 Qualification and 20 20 16 18 20 13 20 10
experience of key
personnel
4 Equipment 20 20 16 20 20 17 18.5 14
implementation of
contract
5 Financial standing of 25 25 25 25 17 17 25 17
the bidder
total 100 100 96 84 92 76 98.5 63
Remark passed passed passed passed passed passed Dis-
qualified
4.2.1.2 Financial Bid Evaluation System

As discussed previously, tender committee qualified six contractors for financial bid
evaluation. The details of the financial evaluation criteria were made as per the
instruction to bidders. Thus during financial evaluation the following were considered by
the tender evaluating committee. Thus the correction for arithmetic errors conducted in
accordance with the conditions set in ITB clause 38.
Table 4.4 bidder offer and conditions as read (before value added tax VAT)
Bidder Before checking Rebate Amount of bid(After VAT)
A. 55,579,888.96 0% 63,916,872.30
B. 34,981,700.50 0% 40,228,955.59
C. 52,174,871.11 0% 60,001,101.78
D. 40,772,433.28 3% 44,812,349.32
E. 34,872,830.35 0% 40,103,754.94
F. 31,860,332.47 0% 35,540,200.87
Table 4.5 Completeness of documents for compliance with instruction to bidder
Description A B C D E F
1 Bid security amount and bid security date R R R R R R
2 Financial document R NR R R R R
R=Responsive
NR=Non-responsive

According to the evaluation committee, bidder B has failed to submit a complete financial
document (priced proposal) for financial opening and hence as per the specified in the
disqualification clause (Clause 22.2C), the bidder was disqualified from the evaluation process.
Hence, the remaining five bidders; financial proposal was checked for arithmetic error and the
final figures were reported as listed below.
Table 4.6 Final bidder offer after checking arithmetic error
Bidder Before checking After Checking Condition Final Score

A 63,916,872.30 63,916,872.30 5
C 60,001,101.78 60,001,101,78 4
D 44,812,349.32 47,395,734.79 3% Rebate 3
E 40,103,754.94 40,028,099.00 2
F 35,540,200.87 37,738,693.88 1
Thus based this evaluation system the lowest evaluated bidder and the substantially responsive
bidder was awarded the project with bid price 37,737,693.88 ETB with VAT. As can be seen the
form of the three bidders demonstrate highest deviation from the awarded contractor, however
due to lack of engineering estimate the research could not conduct the offer that could show the
fair range of the project cost.

4.2.2 Project Two- Center of water works and internal access road.
4.2.2.1 Technical bid evaluation system.
Ten bidders collected the bid document from Arbaminch University office and six bidders
submitted their offer.
 Prequalification (Eligibility of documents).
Table 4.7 prequalification for project two
Description Contractors
A B C D E F
1. Furnishing of Bid security R R R R R R
2. Technical proposal original and copy R R R R R R
3. Financial proposal original and copy R R R R R R
4. Trade license renewed for the year R R R R R R
5. PPA registration certificate R R R R R R
6. VAT certification R R R R R R
7. Tax clearance R R R R R R
8. Registration from ministry of construction R R R R R R
And urban development.
R=Responsive
NR= Non-Responsive
methodology and criteria for construction tenders for procurement of works for national
competitive bidding prepared by federal public procurement agency, version1, August 2011. The
details of the evaluation criteria (See on Appendix I):

Table 4.8 Summary of technical evaluation

Points for A B C D E F
Description tender
1. Methodology 15 15 15 15 15 15 15
2. Technical qualification, 20 20 20 19 20 15 20
Competency and experience
3. Qualification and experience of 20 20 20 15 20 20 20

key personnel
4. Equipment implementation of 20 20 16 20 20 20 20
contract
5. Financial standing of the bidder 25 25 20 20 25 25 25
total 100 99 95 89 100 100 100
Remark passed passed passed passed passed passed
4.2.2.2 Financial Bid Evaluation System

As discussed previously, tender committee qualified six contractors for financial bid
accordance with the conditions set in ITB clause 38.
Table 4.9 Bidder offer and conditions as read (before value added tax VAT)
A. 83,452,434,78 0% 95,970,300.00
B. 119,530,299.00 0% 137,459,843.90
C. 74,071,403.00 0% 85,182,113.45
D. 54,838,081.92 0% 63,063,794.21
E. 108,978,908.00 0% 125,325,744.20
F. 96,647,054.00 0% 96,647,054.00
Table 4. 10 Completeness of documents for compliance with instruction to bidder
Description A B C D E F
1 Bid security amount and bid security date R R R R R R
2 Financial document R R R R R NR
R=Responsive
NR=Non-responsive
According to the evaluation committee, bidder F has failed to submit a complete financial
document (priced proposal) for financial opening and hence as per the specified in the
disqualification clause (Clause 22.2C), the bidder was disqualified from the evaluation process.
Hence, the remaining five bidders; financial proposal was checked for arithmetic error and the
final figures were reported as listed below.
A 95,970,300.00 95,970,300.00 3
B 137,459,843.90 137,459,843.90 5
C 85,182,113.45 85,182,113.45 2
D 63,063,794.21 63,063,794.21 1
E 125,325,744.20 125,325,744.20 4
Thus based this evaluation system the lowest evaluated bidder and the substantially responsive
bidder was awarded the project with bid price 63,063,794.88 ETB with VAT. As can be seen the
form of the two bidders demonstrate highest deviation from the awarded contractor, however due
to lack of engineering estimate the research could not conduct the offer that could show the fair
range of the project cost.

4.2.3 Project Three-Design Studio and Assembly Hall Building

Four bidders collected the bid document from Arbaminch University office and six bidders
 Prequalification (Eligibility of documents).
Table 4.12. Prequalification for project three
Description A B C D
1. Furnishing of Bid security R R R R
2. Technical proposal original and copy R R R R
3. Financial proposal original and copy R R R R
4. Trade license renewed for the year R R R R
5. PPA registration certificate R R R R
6. VAT certification R R R R
7. Tax clearance R R R R
8. Registration from ministry of construction and urban development. R R R R
R=Responsive
NR= Non-Responsive
methodology and criteria for construction tenders for procurement of works for National
Competitive biddings prepared by federal public procurement agency, version 1, August 2011.
The details of the evaluation criteria include (See appendix II)
Table 4.13 Technical evaluation for project three
Description Points for A B C D

tender
1. Methodology 15 15 15 14 15
2. Technical qualification, Competency and 20 18 20 18 20
experience
3. Qualification and experience of key personnel 20 20 20 18 17

4. Equipment implementation of contract 20 20 20 15 10
5. Financial standing of the bidder 25 25 25 20 20

Total 100 98 100 85 82
Remark passed passed passed passed
4.2.3.2 Financial Bid Evaluation system

As discussed previously, tender committee qualified four contractors for financial bid
accordance with the conditions set in ITB Clause 38.
A. 109,076,774.70 0% 125,438,290.95
B 139,462,199.28 0% 160,381,143.72
C 141,998,775.55 5% 163,298,591.90
D 148,113,869.33 0% 170,330,949.70
Table 4.15. Completeness of documents for compliance with instruction to bidder

Description A B C D
1 Bid security amount and bid security date R R R R
2 Financial document R R R R
R=Responsive
NR=Non-responsive
Accordingly, all bidders financial proposal was checked for arithmetic error and the final
figures were reported as listed below.
A. 109,076,774.70 0% 125,438,290.95
B 139,462,199.28 0% 160,381,143.72
C 141,998,775.55 5% 163,298,591.90
D 148,113,869.33 0% 170,330,949.70

Thus based on this evaluation system the lowest evaluated bidder and the substantially
responsive bidder were awarded the project with bid price 125,438,290.95 ETB with VAT.
4.2.4 Project Four- Dormitory Expansion building
Twenty bidders collected the bid document from Construction Design s.co and seven bidders
for prequalification criteria taking in to account of the compliance with instruction bidder
Prequalification (Eligibility of documents).
Table4.17. Prequalification Project Four
Description CONTRACTORS
A B C D E F G
1 Furnishing of Bid security R R R R R R R
2 Technical proposal original and copy R R R R R R R
3 Financial proposal original and copy R R R R R R R
4 Trade license renewed for the year R R R R R R R
5 PPA registration certificate R R R R R R R
6 VAT certification R R R R R R R
7 Tax clearance R R R R R R R
8 Registration from ministry of construction R R R R R R R
and urban development
NR=Non Responsive
R=Responsive
The details of the evaluation criteria include (See Appendix III).

Table 4.18 Technical evaluation for project Four

Points A B C D E F G
Description for
tender
1. Annual Volume of 25 25 25 24 25 24 25 25
construction work over
the past three years at
least
2. Experience in similar 35 35 35 25 25 34 35 33
nature of work over the
last five years at least
two
3. Equipment for 20 20 20 20 20 19 20 20
implementation of the
contract
4. Qualification and 20 20 20 20 18 19 20 20
experience of the key
personnel
Total 100 100 100 99 95 96 100 98
Remark passed passed passed passed passed passed passed

As discussed previously, tender committee qualified seven contractors for financial bid


A. 108,305,555.00 0% 124,551,388.25
B 108,392,646.00 0% 124,651,542.90
C 99,170,145.00 0% 114,045,666.75
D 69,371,774.00 0% 79,777,540.10
E 101,208,923.37 0% 116,390,261.88
F 109,718,868.24 0% 126,176,698.48
G 103,106,972.67 0% 118,573,018.57
Table 4.20 Completeness of documents for compliance with instruction to bidder
Description A B C D E F G
1 Bid security amount and bid security date R R R R R R R
2 Financial document R R R R R R R
R=Responsive
Accordingly, all bidders financial proposal was checked for arithmetic error and the final figures
were reported as listed below
A 124,551,388.25 124,551,388.25 5
B 124,651,542.90 124,651,542.90 6
C 114,045,666.75 114,045,666.75 2
D 79,777,540.10 79,782,790.66 3% rebate 1
E 116,390,261.88 116,390,261.88 3
F 126,176,698.48 124,990,675.97 7
G 118,573,018.57 118,573,018.50 4
responsive bidder were awarded the project with bid price 79,782,790.66 ETB with VAT.
4.2.5 Project Five- Post Graduate and class room project
Ten bidders collected the bid document from Construction Design s.co and eight bidders

Table 4.22 Prequalification for project five
Description A B C D E F G H
1 Furnishing of Bid security R R R R R R R R
2 Technical proposal original and copy R R R R R R R R
3 Financial proposal original and copy R R R R R R R R
4 Trade license renewed for the year R R R R R R R R
5 PPA registration certificate R R R R R R R R
6 VAT certification R R R R R R R R
7 Tax clearance R R R R R R R R
8 Registration from ministry of construction R R R R R R R R
and urban development
R=Responsive
The details of the evaluation criteria include (see appendix III)
Table 4.23 Technical evaluation for project five
Points A B C D E F G H
Description for
tender
1. Annual Volume of 25 25 24 25 23 23 23 24 24
construction work
over the past three
years at least
2. Experience in 35 35 35 25 25 25 23 23 23
similar nature of
work over the last
five years at least
two
3. Equipment for 20 20 20 20 20 20 20 20 20
implementation of
the contract
4. Qualification and 20 20 20 20 20 20 20 20 20
experience of the
key personnel
Total 100 100 99 100 98 98 96 97 97
Remark passed passed passed passed passed passed passed passed

As discussed previously, tender committee qualified eight contractors for financial bid

Before checking Rebate Amount of bid(After VAT)
A. 109,079,477.61 0% 125,441,399.25
B 108,479,353.83 0% 124,751,256.90
C 111,344,058.04 0% 128,045,666.75
D 111,344,058.04 0% 128,045,666.75
E 100,348,062.50 0% 115,400,271.88
F 113,532,932.17 0% 130,562,872.00
G 104,891,546.09 0% 120,625,278.00
H 87,611,998.92 0% 100,753,798.76
According to the evaluation committee, bidder D and bidder E has failed to submit a complete
bid security amount and financial document (priced proposal) for financial opening respectively
and hence as per the specified in the disqualification clause (Clause 22.2C) the bidders was
disqualified from the evaluation process, hence the remaining six bidders financial proposal was
checked for arithmetic error and the final figure were reported were reported as listed below.
Table 4.25. Completeness of documents for compliance with instruction to bidder.
Description A B C D E F G H
1 Bid security amount and bid security date R R R NR R R R R
2 Financial document R R R R NR R R R

A 125,441,399.25 125,441,399.25 4
B 124,751,256.90 124,751,256.90 5
C 128,045,666.75 128,045,666.75 2
F 130,562,872.00 130,562,872.00 3
G 120,625,278.00 120,625,278.00 6
H 100,753,798.76 100,753,798.76 1
responsive bidder were awarded the project with bid price 100,753,798.76 ETB with VAT. As

can be seen the form of the six bidders demonstrate highest deviation from the awarded
contractor.
In the upcoming section the researcher reviewed the performance of the awarded contractor
taking in to consideration of the project progress.

4.3 Evaluation of the performance of contractor
The performance of the project evaluated based on the progress report, the correspondence letters
and minutes of the minutes among the contracting parties.
4.3.1 Project One – Laboratory, class room and laundry Building.
Table 4.27 Progress of the project one
The project duration was from January 2015-January, 2016 which is one year. However the
No Major BOQ items % of Project Duration in Month(365 Days)

contract 1 2 3 4 5 6 7 8 9 10 11 12
1. Excavation and earth work 1%
2. Concrete work 29%
3 Masonry work 1%
4 Roofing and water proof 1%
work
5 Metal work 8%
6 Carpentry and joinery work 2%
7 Finishing work 25%
8 Sanitary work 4%
9 Electrical work 18%
10 Mechanical work 2%
project completed on May 2016.The project progress report was compared and contrasted with
the schedule of the project which, as shown above.
Table 4.3.1 shows the progress of the project tracked based on the progress report of the
contractor. Accordingly as shown above, the yellow color represents the project on progress on
schedule while the red color shows the progress is behind schedule.
In accordance to this the concrete work, masonry work, carpentry work, metal work, and
finishing, sanitary and electrical work are not on the schedule.

Table 4.28 Delayed work items and description for delay

Delayed Total Planned Executed Reason for delay Data source
work items % of duration duration
cost
Concrete 29% Feb –July/ Feb-August -Revision of design Monthly report
2015 /2015
-delay of material Minutes of meeting
delivery ,correspondence
letters
Masonry 1% July-August October- -delayed concrete finish Monthly report
work /2015 Nov/2015
- delay of material Minutes of meeting
delivery ,correspondence
letters
Metal work 8% Aug- Sept-Dec -shortage of finance to Consultant report
Nov/2015 /2015 pay for subcontractors
Carpentry 2% Oct- Dec- -shortage of finance for “
and joinery Nov/2015 Jan/2015 purchase of wooden door
Finishing 25% Aug- Nov 15- -shortage of finance to “
work Nov/2011 April 16 order finishing items
-waiting for approval of -correspondence
equivalent items of the letters
specification
Sanitary, 22% July- Jul 16-May -shortage of finance to correspondence letters
electrical Dec/2015 2016 order fixtures items Minutes of meeting
4.3.1.1 Major challenges faced during the construction Process

The finding show that 85% of the contract amount of work was behind schedule and the project
cost was increasing by 98% of the contract price. The causes of this delay are related to shortage
of finance, delayed material delivery, late order of material, design change and late approval. As
can be seen from table 4.3.2, shortage of finance and delayed order and material delivery are the
common causes of delay of the project. This shows that the project was affected by financial
flow. As discussed in the literature review, the causes of financial shortage in the project are
caused by delayed payment, financial constriction due to underpricing, and lack of project cost
management. This study has probed the causes of this financial constriction by reviewing the
possible causes selected.
Under this particular case, the projects payments were not delayed and there were no complaints
from the contractor regarding payment delay. Thus the remaining possible causes of delay are

under pricing and poor management. However, from analyzing the correspondence letters and
discussions with the contracting parties, the contractor fails to finance the project with the
produced payment due to the high difference in cash flow and out cash flow .This becomes more
visible as the project goes to finishing stages. This being the final project work, the contractor
found that the prices of items got higher than the original price.
Project under the survey were also assessed in respect of major difficulties encountered during
the construction process, material shortage, equipment shortage, cash shortage, Manpower
Shortage, Design/drawing related Supervision related problems were short listed by the
research, other prominent factors such as unexpected weather condition and security related
problem were also discovered.
4.3.2 Project Two –Center of water work Building and Internal Access
Road
The project duration was from May 5, 2015-May 5, 2016 which was one year. However the
project now 95 completed but actually the project is extended above one year from original
contract time. The project progress report was compared and contrasted with the schedule of the
project which, as shown below.
Table 4.3.3 .shows the progress of the project tracked based on the progress report of the
contractor. Accordingly as shown below, the yellow color represents the project on progress on
finishing, sanitary and electrical work are not on schedule.

No Major BOQ items % of contract Project Duration in Month(365 Days)

1 2 3 4 5 6 7 8 9 10 11 12
1. Excavation and earth work 1%
2. Concrete work 7%
3 Masonry work 1%
4 Roofing and water proof work 1%
5 Metal work 8%
6 Carpentry and joinery work 2%

8 Sanitary work 1%
10 Mechanical work 30%
11 Asphalt work 31%
Table 4.29 Progress of the project
Table 4.30 Delayed work items and description for delay.

Delayed work Total Planned Executed Reason for delay Data source
items % of duration duration
cost
Roofing and 1% Feb –July/ Feb-August -Revision of design Monthly report
water proof 2015 /2015
-delay of material Minutes of meeting
delivery ,correspondence letters
Metal work 8% July-August October- -delayed concrete Monthly report
/2015 Nov/2015 finish
- delay of material Minutes of meeting
delivery ,correspondence letters
Carpentry and 2% Aug- Sept-Dec -shortage of finance Consultant report
joinery Nov/2015 /2015 to pay for
subcontractors
Finishing work 14% Aug- Nov 15- -shortage of finance “
Nov/2011 April 16 to order finishing
items
Mechanical 30% -waiting for Material -correspondence
work advance of letters with contractors
Sanitary, 1% July- Jul 16-May -shortage of finance correspondence letters
electrical Dec/2015 2016 to order fixtures Minutes of meeting
items

The finding show that 60% of the contract amount of work was behind schedule and the project
cost is extended by 32% of the original price. The causes of this delay are related to Variation
ordered by the client, shortage of finance by contractor, delayed material delivery, late order of
material, design change and late approval. As can as can be seen from table 4.3.4, shortage of
finance and delayed order and material delivery are the common causes of delay of the project.
This shows that the project was affected by financial flow. As discussed in the literature review,
the causes of financial shortage in the project are caused by delayed payment, financial
constriction due to underpricing, and lack of project cost management. This study has probed the
causes of this financial constriction by reviewing the possible causes selected.
Under this particular case, the projects payments were not delayed but the contractor wants to
ask the client material advance to purchase the finishing material and mechanical work. This
means, the contractor fails to finance the project with the produced payment due to the high
difference in cash flow and out cash flow .This becomes more visible for the item that are
imported from abroad.
the construction process, material shortage, equipment shortage, cash shortage, Manpower
Shortage, Design/drawing related Supervision related problems were short listed by the
research, other prominent factors such as unexpected weather condition and security related
problem were also discovered.
4.3.3 Project Three – Design Studio and Assembly Hall Building

The project duration was from May 18, 2014-November 19, 2015 which is one and six month.
However the project now 78% completed but actually the project still not finalized within the
original contract time. The project progress report was compared and contrasted with the
schedule of the project which, as shown below.
Table 4.3.5.shows the progress of the project tracked based on the progress report of the
finishing, sanitary and electrical work.
No Major % of Project Duration in Month(365 Days)

BOQ
item
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
1. Excavatio 2%
n and
earth
work
2. Concrete 25%
work
3 Masonry 11%
work
4 Roofing 7%
and water
proof
work
5 Metal 12%
work
6 Carpentry 1%
and
joinery
work
7 Finishing 30%
work
8 Sanitary 1%
work
9 Electrical 7%
work
10 Site work 2%

Delayed Total Planned Executed Reason for Data source
work items % of duration duration delay
cost
Excavation 2% Feb –July/ Feb- - Late site hand - Correspondence
and earth 2015 August over letter
work /2015
Concert 25% Feb -Because of late Minutes of meeting,
work excavation work correspondence letters

- revision of
design
Metal work 12% Aug- Sept-Dec -shortage of Consultant report
Nov/2015 /2015 finance to pay for
subcontractors
Carpentry 1% Oct- Dec- -shortage of “
and joinery Nov/2015 Jan/2015 finance for
purchase of
wooden door
Finishing 30% Aug- Nov 15- -shortage of “
work Nov/2011 April 16 finance to order
finishing items
-waiting for -correspondence letters
approval of
equivalent items
of the
specification
Sanitary, 8% July- Jul 16- -shortage of correspondence letters
electrical Dec/2015 May 2016 finance to order Minutes of meeting
fixtures items

The finding show that 78% of the contract amount of work was behind schedule. The causes of
this delay are related to Variation ordered by the client, shortage of finance by contractor,
delayed material delivery, late order of material, design change and late approval. As can be seen
from table 4.3.6, shortage of finance and delayed order and material delivery are the common
causes of delay of the project. This shows that the project was affected by financial flow and
poor project management. As discussed in the literature review, the causes of financial shortage
and poor management in the project are caused by delayed payment, financial constriction due to
underpricing, and lack of project cost management.
Under this particular case, due to complexity of the work the contractor could not assign the
required machinery stated in the technical document. As mobilization of machinery required
additional cost which could increase cost of the concrete work above the contract unit rate. In
addition to this all finishing material that are stated in the contract document is changed to local

material due to the contractor asked which imported material couldn’t manage the imported
item, the client and consultant discussed and forced to change the materials.
4.3.4 Project Four – Dormitory Expansion Project
The project duration was from October 27 2011-Feburary 24, 2013 which is one year and Four
month. However the project is not completed in original contract time and also the project final
cost is increased by 94% of the original bidding price. The project progress report was compared
and contrasted with the schedule of the project which, as shown below.
Table 4.3.7.shows the progress of the project tracked based on the progress report of the
finishing, sanitary and electrical work.
No Major BOQ item % Project duration in month(480 days)
of
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
1. Excavation and earth 3%
work
2. Concrete work 30%
3 Masonry work 4%
4 Roofing and water proof 5%
work
5 Metal work 9%
6 Steel Structure 17%
6 Carpentry and joinery 5%
work
8 Sanitary work 4%


Delayed work Total Planned Executed Reason for Data source
items % of duration duration delay
cost
Roofing and 5% July- October- -delayed Monthly report
Water August Nov/2015 concrete finish
proofing work /2015
Metal work 9% July- October- -delayed Monthly report
August Nov/2015 concrete finish
/2015
Steel structure 17% - delay of Minutes of meeting
material delivery ,correspondence
letters
Carpentry and 5% Oct- Dec- -shortage of “
joinery Nov/2015 Jan/2015 finance for
purchase of
wooden door
Finishing 16% Aug- Nov 15- -shortage of “
work Nov/2011 April 16 finance to order
finishing items
Sanitary, 11% July- Jul 16-May -shortage of correspondence
electrical Dec/2015 2016 finance to order letters
fixtures items Minutes of meeting

The finding show that 63% of the contract amount of work was behind schedule. The causes of
this delay are related to Variation ordered by the client, shortage of finance by contractor,
delayed material delivery, late order of material, design change and late approval. As can be seen
from table 4.3.8 shortage of finance and delayed order and material delivery are the common
causes of delay of the project. This shows that the project was affected by financial flow. As
discussed in the literature review, the causes of financial shortage in the project are caused by
delayed payment, financial constriction due to underpricing, and lack of project cost
management. This study has probed the causes of this financial constriction by reviewing the
possible causes selected.

Under this particular case, the projects payments were not delayed and there were no complaints
from the contractor regarding payment delay. Thus the remaining possible causes of delay are
under pricing and poor management. However, from analyzing the correspondence letters and
discussions with the contracting parties, the contractor fails to finance the project with the
produced payment due to the high difference in cash flow and out cash flow .This becomes more
visible as the project goes to finishing stages. This being the final project work, the contractor
found that the prices of items got higher than the original price.
the construction process, as shown in the general information the project is a dormitory building
the client need the building in time but because of the above reason the project is not ready for
the fiscal year in addition to this the project time is extended over a year the contractor is
challenged finished with in the extended time by managing his resource so that the client arrange
material advance to the contractor.
4.3.5 Project Five – Post Graduate and Class Room Project
The project duration was from October 27, 2011-October 26, 2012 which is one year. However
the project completed but actually the project is extended above one year from original contract
time. The project progress report was compared and contrasted with the schedule of the project
which, as shown below.
Table 4.35 shows the progress of the project tracked based on the progress report of the

Table 4.35 progress of the project.

No Major BOQ % of Project duration in month(365 days)
item
1 2 3 4 5 6 7 8 9 10 11 12
1 Excavation and 1%
earth work
2 Concrete work 28%
3 Masonry work 4%
4 Roofing and 5%
water proofing
work
5 Metal work 9%
6 Carpentry work 3%
8 Sanitary work 4%
9 Electric work 18%
10 Mechanical 3%
work
Delayed Total Planned Executed Reason for delay Data source
work items % of duration duration
cost
Metal work 9% Aug- Sept-Dec -shortage of finance to pay Consultant report
Nov/2015 /2015 for subcontractors
Carpentry and 3% Oct- Dec- -shortage of finance for “
joinery Nov/2015 Jan/2015 purchase of wooden door
Finishing 25% Aug- Nov 15-
-shortage of finance to “
work Nov/2011 April 16 order finishing items
Mechanical 3% August -waiting for approval of -correspondence
work equivalent items of the letters
specification
Sanitary, 22% July- Jul 16-May -shortage of finance to correspondence
electrical Dec/2015 2016 order fixtures items letters
Minutes of
meeting


The finding show that 62% of the contract amount of work was behind schedule and the final
cost of the project is extended by 101% of the original bidding price. The causes of this delay are
related to Variation ordered by the client, shortage of finance by contractor, delayed material
delivery, late order of material, design change and late approval. As can be seen from table 6.16,
shortage of finance and delayed order and material delivery are the common causes of delay of
the project. This shows that the project was affected by financial flow. As discussed in the
literature review, the causes of financial shortage in the project are caused by delayed payment,
financial constriction due to underpricing, and lack of project cost management. This study has
probed the causes of this financial constriction by reviewing the possible causes selected.
Under this particular case, the main cause of the project is the contractor cannot deliver the
finishing material on time because of the finishing material and electrical item are imported form
aboard so that the contractor are refuse to import this material because of it substitute with
equivalent material but the client doesn’t accept this because of this the project is extended over
a year. With discussion the consultant the constructor ask the client to approve the material with
in local market because of the imported unit rate is higher than the price he quoted in the bill of
quantity but this doesn’t accepted by the client and consultant.
4.4 Summary of Result and Discussion
In the analysis to review the performance of contractors, selected using lowest bid evaluation
was done in two parts. First the evaluation of bid selection was reviewed then the performance of
contractors during construction period was seen.
During the bid selection procedure the technical fitness was evaluated based on the criteria set
for the construction tender for national competitive bidding set by federal procurement agency.
The details of evaluation criteria include the work methodology and scheduling of the project the
technical qualification, competence and experience of the contractor, qualification of key
personnel to be involved in the project, equipment implementation for the project and financial
standing of the bidder.

In this way based on the criteria, set most of the contractors were found to have almost
equivalent technical points. This is due to the technical criteria set for evaluation are generalized
and lack detailing on the specific requirement of the project. For instance, evaluation of
contractors, technical capability in terms of project handling and financial capacity, work
methodology specific to the project requirements are not sufficiently detailed in the evaluation
process. The offers of contractors who qualified technical evaluation were accepted for financial
opening and after arithmetical checking of the financial offer the bid was awarded for those who
offer least price.
The performance of contractors who were selected in this system were evaluated on their
performance on their construction projects. According to the date collected from correspondence
letter and monthly report their progress against their work schedule, cash flow schedule, material
delivery schedule, the contractor’s performance reveled that:
 The project are behind schedule
 The Projects face financial shortage which reveled late material procurement, disruption
of works due to late payment to sub-contractors, change the specified material quality to
other which are lesser quality and price to originally specified.

CHAPTER FIVE
CONCLUSION AND RECOMMENDATION
5.1 Conclusion
The method of procurement of construction works has a significant role in the successful
completion of the project. In this study the performance of public owned construction project
awarded on the least bidder bid evaluation and contract award system were assessed, based on
the case study in Arbaminch University project.
In accordance to this study has examine the performance of contractors selected using the lowest
bid evaluation method of five selected projects form Arbaminch University. The case study
conducted by collecting the case companies bidding system, contract document and contractors
monthly reports, letters and correspondent with in consultant and contractors. Accordingly the
following conclusions are drawn.
 All the projects did not finish at their contract period due to extended period taken by
contractors to procure finishing items electrical work, sanitary and mechanical items.
This is critical period for contractors as it demand properly planned project cash flow
however as these items are underpriced and their prices were fixed at the beginning of the
project contractors could not afford to purchase the items at the underpriced items.
 The project did not face shortage of cash flow due to late payments; however the project
were cash flow was bottlenecked for purchasing materials at the end of the project. This
shows that the contractors cross financing projects as projects could not finance their own
project. This is the typical characteristic of projects that are underpriced during bidding.
 All project in the study did not finished with in the contract cost the final cost of the
project is more than 50% of the original price this is due to modification of the original
design, change in specification and price fluctuation, the implication of this on the
Ethiopian construction industry is that the contractors on these study can make claims for
additional money which was one of the strategies that contractors selected using least
evaluated bidder use to make up losses from the unreasonably low rates used during
bidding

5.2 Recommendations
The findings of the research show the lowest level performance of public university construction
works contracts. The author of this thesis strongly recommends the government of Ethiopia and
the ministry looks for other alternative bid evaluation and bid award procedures.
Particularly, the researcher shared the idea adopting the average bid method of awarding
contracts among responsive bidders which are supported by the ministry of work and urban
development in 2001. This method is highly preferable because it does not solely dependent on
either the engineers estimate or the contractors offer. On the other hand the engineers estimate
may minimize the risk of ring formation among contractors. On the other hand the average of the
contractors bid may reflect the actual construction cost because they believed the have a detailed
market assessment and hence an up to date price.
In addition to the average bid method, as favored by the researcher of this study, the government
should allow different bid evaluation and contract award procedures depending on the type and
complexity of the project. Use of prequalification of contractors and use of subjective evaluation
factors other than cost.
In this research it is discovered that the university projects performances are low in terms of cost,
meeting schedule and as well as quality. Therefore the researcher highly recommends fellow
researcher to study the magnitude of the effect of the current bid evaluation and contractor award
system in performance of other public university projects. And also recommended that the
legislation should along with the professionals association and other stakeholders before they
produce change the bid evaluation and contract award system in the county. Finally the
concerned government body should consult professionals in this area on whether there is a need
to change the current procurement method and if any should be based on the research findings.

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Appendix I
Project Two-
Technical bid evaluation system.
The details of the evaluation criteria include:
The work methodology and Scheduling: - The considerations in this section include evaluation
the equipment schedule, the technical approach and methodology, the project works, material
schedule and labor schedule. Each has three points and makes 15% of the proportion of the
The technical qualifications, competence and experience:-In this section the general and
specific experience of the company relevant to the project requirements were evaluated.
Accordingly, the bidder should demonstrate the average annual volume of work performed by
the bidder for the past five years as a prime contract contractor. The minimum annual volume of
work estimated for this evaluation was 60 million ETB. This was evaluated for five points. In
addition to this , the current performance of the bidders’ participation as prime contract in the
past three years evaluated by taking the performance of three projects with minimum project
value of each 50 million ETB. The status of the projects evaluated in this section should be at
least substantially 70% completed and above completed and should be similar in nature to the
proposed project. Each project was evaluated out of five points. This section comprises 20% of
the total of the proportion of the technical evaluation.
Qualification and experience of the key personnel: - the schedule of key personnel with the
qualification and experience set in the requirements were evaluated. The key personnel required
were project manager, project engineer, site engineer, construction foreman and quantity
surveyor. Accordingly, the key information should include.
a. Curriculum vitae recently signed by the proposed professional staff and employer
b. Educational testimony.
c. Renewed the professional license for the year
d. Testimony of concerned government office as he/she is legally agreed and signed
to be professional of the contractor.
This section comprises 20% of the total of the proportion of the technical evaluation.
Equipment for implementation of the contract:- Proposals for the timely acquisition(own,
lease) of the essential equipment listed include three pieces of damp truck(above 10m3), three
pieces of pickups (above 7 quintals),three pieces of concrete mixers(360 lit and above), three
pieces of hand compactor, one pieces of excavator and one pieces of concrete vibrator. This
section comprised 20% of the total of the proportion of the technical evaluation.
Financial standing of the bidder: - the audited balance and other financial statements of the
past three years are expected to demonstrate the soundness of the bidders’ financial status. In
addition, the average annual turnover calculated as total payments certified for the past three
years were examined and the minimum amount expected to be not less than 60 million birr.
Moreover, the evaluation criteria expected the bidder to demonstrate that the bidder has access
to, or has available, liquid assets, lines of credit, over draft facility and other financial means
sufficient to meet the construction cash flow, estimated as not less than 4 million birr. This
section comprises 25% of the total of the proportion of the technical evaluation.

Appendix II
Project Three-
Technical bid evaluation system.
The work Methodology and Scheduling: - The considerations in this section include evaluating
the equipment schedule, the technical approach and methodology, the project work, material
schedule and labor schedule. Each has three points and makes 15 % of the proportion of the
The technical qualifications, competence and experience: - in this section the general and
specific experience of the company relevant to the project requirements were evaluated.
Accordingly, the bidder should demonstrate the average annual volume of work performed by
the bidder for the past five years as a prime contract contractor. The minimum annual volume of
work estimated for this evaluation was 80 million ETB. This was evaluated for five points. In
addition to this, the current performance of the bidders’ participation as prime contract in the past
three years evaluated by taking the performance of three projects with minimum project value of
each 70 million ETB. The status of the projects evaluated in this section should be at least
substantially 70 % completed and above completed and should be similar in nature to the
proposed project. Each project was evaluated out of five points. This section comprises 20% of
the total of the proportion of the technical evaluation.
Qualification and experience of the key personnel:- the schedule of key personnel with the
surveyor.
Accordingly, the key information should include
 Curriculum Vitae recently signed by the proposed professional staff and employer
 Educational testimony
 Renewed the professional license for the year
 Testimony of concerned government office as he/she is legally agreed and signed
to be professional of the contractor. This section comprises 20% of the total of the
proportion of the technical evaluation

Equipment for implementation of the contract- Proposals for the timely acquisition(own,
lease)of the essential equipment listed include four pieces of damp Truck(above 10m3), Four
pieces of pickups(above 7 quintals), Four pieces of concrete mixers(360 lit and above) , Four
pieces of hand compactor, one pieces of excavator and Four pieces of concrete vibratory. This
section comprised 20% of the total of the proportion of the technical evaluation.
Financial standing of the bidder: - The audited balance and other financial statements of the
past three years are expected to demonstrate the soundness of the bidders’ financial status. In
addition, the average annual turnover calculated as total payments certified for the past three
years were examined and the minimum amount expected to be not less than 70 million birr.
Moreover, the evaluation criteria expected the bidder to demonstrate that the bidder has access
to, or has available, liquid assets, lines of credit, overdraft facility and other financial means
sufficient to meet the construction cash flow, estimated as not less than 5 million birr. This
section comprises 25% of the total of the proportion of the technical evaluation.

Appendix III
Project Four and Five
Technical bid evaluation system
Annual Volume of Construction work over the past three years at least: - in this section the
general and specific experience of the company relevant to the project requirements were
evaluated. Accordingly, the bidder should demonstrate the average annual volume of work
performed by the bidder for the past five years as a prime contract contractor. The minimum
annual volume of work estimated for this evaluation was 100 million ETB. This was evaluated
for five points. This section comprises 25% of the total of the proportion of the technical
evaluation.
Experience in similar nature of work over the last five years at least two project: - The
audited balance and other financial statements of the past three years are expected to demonstrate
the soundness of the bidders’ financial status. In addition, the average annual turnover calculated
as total payments certified for the past three years were examined and the minimum amount
expected to be not less than 40 million birr. Moreover, the evaluation criteria expected the bidder
to demonstrate that the bidder has access to, or has available, liquid assets, lines of credit,
overdraft facility and other financial means sufficient to meet the construction cash flow,
estimated as not less than 6 million birr. This section comprises 35% of the total of the
Equipment for implementation of the contract- Proposals for the timely acquisition(own,
lease)of the essential equipment listed include two pieces of damp Truck(above 10m3), two
pieces of pickups(above 7 quintals), two pieces of concrete mixers(360 lit and above) , two
pieces of hand compactor, one pieces of excavator and one pieces of concrete vibratory. This
section comprised 20% of the total of the proportion of the technical evaluation

 Qualification and experience of the key personnel:- the schedule of key personnel with
the qualification and experience set in the requirements were evaluated. The key
personnel required were project manager, project engineer, site engineer, construction
foreman and quantity surveyor. Accordingly, the key information should include:
Curriculum Vitae recently signed by the proposed professional staff and employer
 Educational testimony
 Renewed the professional license for the year
Testimony of concerned government office as he/she is legally agreed and signed to be
professional of the contractor. This section comprises 20% of the total of the proportion of the
technical evaluation

Project Five
Annual Volume of Construction work over the past three years at least: - In this section the
general and specific experience of the company relevant to the project requirements were
evaluated. Accordingly, the bidder should demonstrate the average annual volume of work
performed by the bidder for the past five years as a prime contract contractor. The minimum
annual volume of work estimated for this evaluation was 60 million ETB. This was evaluated for
five points. This section comprises 25% of the total of the proportion of the technical evaluation.
Experience in similar nature of work over the last five years at least two project: The
audited balance and other financial statements of the past three years are expected to demonstrate
the soundness of the bidders’ financial status. In addition, the average annual turnover calculated
as total payments certified for the past three years were examined and the minimum amount
expected to be not less than 40 million birr. Moreover, the evaluation criteria expected the bidder
to demonstrate that the bidder has access to, or has available, liquid assets, lines of credit,
overdraft facility and other financial means sufficient to meet the construction cash flow,
estimated as not less than 6 million birr. This section comprises 35% of the total of the
proportion of the technical evaluation. Equipment for implementation of the contract-
Proposals for the timely acquisition(own, lease)of the essential equipment listed include two
pieces of damp Truck(above 10m3), two pieces of pickups(above 7 quintals), two pieces of
concrete mixers(360 lit and above) , two pieces of hand compactor, one pieces of excavator and
one pieces of concrete vibratory. This section comprised 20% of the total of the proportion of the
technical evaluation
Qualification and experience of the key personnel:- the schedule of key personnel with the
surveyor. Accordingly, the key information should include. Curriculum Vitae recently signed by
the proposed professional staff and employer, Educational testimony, Renewed the professional
license for the year, Testimony of concerned government office as he/she is legally agreed and
signed to be professional of the contractor. This section comprises 20% of the total of the

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PERFORMANCE OF CONTRACTORS SELECTED USING THE LOWEST BID

EVALUATION METHOD FOR PUBLIC UNIVERSITY PROJECTS IN ETHIOPIA:

THE SCHOOL OF CIVIL ENGINEERING

IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE

PERFORMANCE OF CONTRACTORS SELECTED USING THE LOWEST BID

Approved By Board of Examiners

_______________ _______________ _____________

ADVISORS’ APPROVAL SHEET

_______________ _______________ _____________

Halima Ahmed. MSc Thesis 2017, Hawassa University i

CHAPTER ONE ............................................................................................................................ 2

Halima Ahmed. MSc Thesis 2017, Hawassa University ii

2.6.5. Proposed equipment ................................................................................................... …..18

Halima Ahmed. MSc Thesis 2017, Hawassa University iii

4.2.2.2 Financal bid evaluation system ................................................................................ 43

Halima Ahmed. MSc Thesis 2017, Hawassa University iv

Halima Ahmed. MSc Thesis 2017, Hawassa University v

Halima Ahmed. MSc Thesis 2017, Hawassa University vii

Halima Ahmed. MSc Thesis 2017, Hawassa University viii

Halima Ahmed. MSc Thesis 2017, Hawassa University ix

Halima Ahmed. MSc Thesis 2017, Hawassa University 2

1.2 PROBLEM STATEMENT

1.3 OBJECTIVES OF THE RESEARCH

1.4 SCOPE AND LIMITATION OF THE RESEARCH

1.5 SIGNIFICANCE OF THE STUDY

Halima Ahmed. MSc Thesis 2017, Hawassa University 3

Halima Ahmed. MSc Thesis 2017, Hawassa University 4

The selection of a proper construction contractor increases chances of successful completion of a

Halima Ahmed. MSc Thesis 2017, Hawassa University 5

2.2 CONSTRUCTION PROJECTS AND PERFORMANCE

Success of construction projects depends mainly on success of contractor performance. Many

2.3 PROBLEMS OF PERFORMANCE IN CONSTRUCTION INDUSTRY

Halima Ahmed. MSc Thesis 2017, Hawassa University 7

2.4 PERFORMANCE OF CONTRACTOR

Halima Ahmed. MSc Thesis 2017, Hawassa University 8

2.5 BID AWARDING SYSTEMS

2.5.1 Lowest Bid Systems

Halima Ahmed. MSc Thesis 2017, Hawassa University 9

Halima Ahmed. MSc Thesis 2017, Hawassa University 10

2.5.2 Nearest To the Average of All Bids Received

2.5.3 Limited by Average Bid and Clients Estimate

Halima Ahmed. MSc Thesis 2017, Hawassa University 11

2.5.4 Danish system (Competitive Average Biding or Priced base)

NA = (NL + 4A + NH) --------------------------- (E.q 2.1)

Halima Ahmed. MSc Thesis 2017, Hawassa University 12

2.5.5 Negotiated offer

Halima Ahmed. MSc Thesis 2017, Hawassa University 13

2.6 AWARDING SYSTEM IN THE ETHIOPIAN CONSTRUCTION INDUSTRY.

2.6.1 Legal Status and Grade of Contractors in Ethiopian Construction Industry

Halima Ahmed. MSc Thesis 2017, Hawassa University 15

2.6.2 Annual Construction Turnover

2.6.3 Liquid Asset

2.6.4 Construction Experience.

Halima Ahmed. MSc Thesis 2017, Hawassa University 17

2.6.5 Proposed Equipment

2.6.6 Proposed Personnel

2.6.7 Proposed Work Program and Methodology

Halima Ahmed. MSc Thesis 2017, Hawassa University 18

Halima Ahmed. MSc Thesis 2017, Hawassa University 19

iii. Detail Evaluation

2.8. PERFORMANCE OF CONTRACTORS SELECTED USING LOWEST

Halima Ahmed. MSc Thesis 2017, Hawassa University 21

Halima Ahmed. MSc Thesis 2017, Hawassa University 22

_______ _ _______

_______ _ _______