A Case Study of a Negotiated Tender within a Small-to-Medium Construction Contractor: Modelling Project Cost Variance

James Ellis,David John Edwards,Mark Shelbourn,Ernest Effah Ameyaw,Obuks Ejohwomu,Wellington Didibhuku Thwala

doi:10.3390/buildings11060260

Abstract

This research explores the failure of competitively tendered projects in the UK construction industry to procure the most suited contractor(s) to conduct the works. Such work may have equal relevance for other developed nations globally. This research seeks to teach clients and their representatives that “lowest price” does not mean “best value”, by presenting a case study of a successfully negotiated tender undertaken by a small-to-medium enterprise (SME) contractor; SME studies are relatively scant in academic literature. By applying the “lessons learnt” principle, this study seeks to improve future practice through the development of a novel alternative procurement option (i.e., negotiation). A mixed philosophical stance combining interpretivism and pragmatism was used—interpretivism to critically review literature in order to form the basis of inductive research to discuss negotiation as a viable procurement route, and pragmatism to analyse perceptions of tendering and procurement. The methods used follow a three-stage waterfall process including: (1) literature review and pilot study; (2) quantitative analysis of case study data; and (3) qualitative data collection via a focus group. Our research underscores the need to advise clients and their representatives of the importance of understanding the scope of works allowed within a tender submission before discounting it based solely on price. In addition, we highlight the failings of competitive tendering, which results in increased costs and project duration once the works commence on site. These findings provide new contemporary insight into procurement and tendering in the construction industry, with emphasis on SME contractors, existing relationships, and open-book negotiation. This research illustrates the adverse effects of early cost estimates produced without first securing a true understanding of project buildability and programming. Our work concludes with a novel insight into an alternative procurement option that involves early SME contractor involvement in an open-book environment, without the need for a third-party cost control.

Highlights

Following the Joint Contracts Tribunal (JCT’)’s launch of the Design and Build (D&B) form of contract in 1981 [1], the UK construction industry has moved away from traditional procurement routes involving bills of quantities and designs complete to RIBA Stage 4—Technical Design [2,3]
This approach reduces the clarity of procuring a contractor who has fully understood and allowed for the full extent of the scope of the works [9]. This lack of clarity in terms of scope, and the inherently competitive element of this procurement route, compel contractors to strategically plan their approach to each tender in order to increase the appeal of their tender return [10] and participate in the infamous “race to the bottom” [11]
Future research should seek to run a cross-comparative analysis across various projects and procurement paths, in order to determine whether the findings presented here are unique or generalizable

Summary

Introduction

Following the Joint Contracts Tribunal (JCT’)’s launch of the Design and Build (D&B) form of contract in 1981 [1], the UK construction industry has moved away from traditional procurement routes involving bills of quantities and designs complete to RIBA Stage 4—Technical Design [2,3]. The project requirements are largely defined and delineated by the contractors’ interpretations [6], increasing the difficulty of levelling bids, especially due to the inclusion of qualifications that form the basis of the tender return [7,8]. This approach reduces the clarity of procuring a contractor who has fully understood and allowed for the full extent of the scope of the works [9]. This strategy encourages decisions to exclude work items and use provisional or prime cost sums to reduce element costs, and/or value engineering of the specification in order to offer cheaper alternatives [13]

Methods

Findings

Discussion

Conclusion