American Journal of Industrial and Business Management, 2015, 5, 581-589

Published Online September 2015 in SciRes. http://www.scirp.org/journal/ajibm

http://dx.doi.org/10.4236/ajibm.2015.59058

Application of the Analytical Hierarchy

Process (AHP) to Multi-Criteria Analysis for
Contractor Selection
Mohammed Balubaid, Rami Alamoudi
Department of Industrial Engineering, King Abdulaziz University, Jeddah, Saudi Arabia
Email: [email protected]

Received 4 August 2015; accepted 8 September 2015; published 11 September 2015

Copyright © 2015 by authors and Scientific Research Publishing Inc.

This work is licensed under the Creative Commons Attribution International License (CC BY).
http://creativecommons.org/licenses/by/4.0/

Abstract
One of the key activities of any client is contractor selection. Without a suitable and precise me-
thod for selecting the best contractor, the completion of a project will likely be affected. In this
study, we examine the use of the analytical hierarchy process (AHP) as a decision-support model
for contractor selection. This model can assist project management teams in identifying contrac-
tors who are most likely to deliver satisfactory outcomes in a selection process that is not based
simply on the lowest bid. In this study, an AHP-based model is tested using a hypothetical scenario
in which candidate contractors are evaluated. Six criteria for the primary objective are evaluated.
The criteria used for contractor selection in the model are identified, and the significance of each
criterion is determined using a questionnaire. Comparisons are made by ranking the aggregate
score of each candidate based on each criterion, and the candidate with the highest score is
deemed the best. This study contributes to the construction sector in two ways: first, it extends the
understanding of selection criteria to include degrees of importance, and second, it implements a
multi-criteria AHP approach, which is a new method for analyzing and selecting the best contractor.

Keywords
Analytical Hierarchy Process, Multi-Criteria Decision-Making, Contractor Selection

1. Introduction
According to the Central Department of Statistics and Information of Saudi Arabia, the contribution of the con-
struction industry to the GDP of Saudi Arabia increased from 4.3% in 2011 to 4.8% in 2013. The industry’s
value add increased by 13.4%, from US$31.6 billion in 2012 to SAR134.4 billion US$35.8 billion in 2013.

How to cite this paper: Balubaid, M. and Alamoudi, R. (2015) Application of the Analytical Hierarchy Process (AHP) to Mul-
ti-Criteria Analysis for Contractor Selection. American Journal of Industrial and Business Management, 5, 581-589.
http://dx.doi.org/10.4236/ajibm.2015.59058
M. Balubaid, R. Alamoudi

One of the key activities of any client is contractor selection. Without a suitable and precise method for se-
lecting the best contractor, the completion of a project will likely be affected. In this study, we examine the use
of the analytical hierarchy process (AHP) as a decision-support model for contractor selection. This model can
assist project management teams in identifying contractors who are most likely to deliver satisfactory outcomes
in a selection process that is not based simply on the lowest bid.

2. Literature Review
Analytic Hierarchy Process
According to Wang et al. [1], the contractor selection process is a multi-criteria decision-making (MCDM)
problem. Numerous MCDM models including utility theory [2] [3], fuzzy theory [4] [5], and performance-based
modeling [6] have been developed for contractor qualification or final selection.
The AHP [7] [8] is a decision-making method that was developed by Saaty. This technique calculates the
qualified priorities of a given set of alternatives on a scale based on the judgment of the decision-maker. The
process stresses the importance of the intuitive judgments of a decision-maker and consistency in the compari-
son of alternatives in the decision-making process. Skibniewski and Chao [9] suggested that the strength of this
approach is that it organizes tangible and intangible factors in a systematic way and offers a structured, simple
solution to decision-making problems.
The AHP-based approach has become quite popular primarily due to its simple and systematic implementa-
tion steps [7] [10]-[14].

3. Data Collection and Analysis

3.1. Problem Overview
The evaluation and selection of contractors prior to the award of a construction contract is a vital part of the
construction process. Procedures related to the pre-qualification of potential bidders and the assessment of bids
submitted by pre-qualified contractors are normally performed by a client’s representative and ultimately lead to
the selection of a contractor for the project.
The qualification and bid-assessment processes require the development of sufficient and suitable criteria.
Project complexity and developer requirements have greatly expanded in the last two decades. This expansion
has led to an increased use of alternative forms of project delivery systems. Conversely, the qualification and bid
evaluation processes, which involve the quantification and the assessment of criteria, have remained unchanged.
Applying a decision-making tool such as the AHP to contractor selection and qualification can be particularly
useful to ensure that a project is successful because selecting a qualified and capable contractor to complete any
project increases the likelihood of a timely delivery of results that are within the allocated budget and of accept-
able quality.
The model used in this study was developed based on two questions, which included all of the questions for
level 1 of the hierarchy shown in Figure 1. Level 2 of the hierarchy was not part of the questionnaire due to
confidentiality reasons.
The questionnaire was distributed to subject matter experts in the fields of contract procurement and project
management from various departments at Saudi Aramco including the contracting department, the project man-
agement team (PMT) and the project management office department (PMOD). Table 1 shows the types of ques-
tions used for data collection.

3.2. Data Collection

Interviews and meetings were conducted with various groups of individuals involved in the contract procure-
ment process and project management including senior project engineers, project managers, contract advisors,
and project controllers. Based on previous information, we developed a questionnaire to collect the required data.
The AHP model was formulated after the data were gathered from all of the questionnaire responses.

3.3. Building the Model

Given the dimensions and the merits of the problem, the model was developed to select the most appropriate

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Contractor Selection

Financial Past Resources Current Past Safety

Cap. Performance Workload Experience Performance

Bidder 1 Bidder 2 Bidder 3

Figure 1. Final structure of the AHP model.

Table 1. Types of questions used for data collection.

No. Question Category Possible Answer

1 How much more important do you think “Factor 1” is than “Factor 2”? For Criteria Scale from 1 to 9

contractor for the project.

3.3.1. Decision Making

The AHP technique was used to select the most qualified and capable contractor to complete the project. The
following six criteria for the contractors were chosen from the hierarchy structure:
• Financial Capability
• Past Performance
• Contractor’s Past Experience
• Contractor’s Resources
• Current Workload
• Safety Performance
All of these criteria were evaluated with respect to the primary objective, which was to select the most quali-
fied and competent contractor for the contract. Ratings were assessed via surveys, which were distributed to
subject matter experts in the areas of project management and contract procurement.

3.3.2. Most Commonly Qualified Contractor (Alternatives—Level 2)

Because of confidentiality reasons the identities of the contractors have not been disclosed. The purpose of this
analysis was to develop an effective decision-making technique and apply it to contractor qualification and final
selection using certain criteria.

3.4. Questionnaire
Questionnaires were used for data collection to prioritize the criteria and rate the relative importance of each
criterion used in the AHP model. The survey was distributed to subject matter experts in the fields of project
management, contract procurement and contractor evaluation. Contractors play critical roles in the success of
any project, particularly in construction; therefore, selecting the most qualified primary contractor to complete
the project is critical to the project’s success. A pre-determined set of qualifying criteria are used to eliminate
undesirable contractors from the bidding process, thus ensuring that the project is completed within the allocated

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budget, on schedule, safely, and to a desired level of quality. The following criteria were used for contractor qu-
alification.

4. Financial Capability/Past Performance/Past Experience/Resources/Current

Workload/Safety Performance
The questionnaire shown below in the appendix was developed to identify the most important criteria used for
qualifying contractors during a technical bid evaluation process prior to awarding a contract. Respondents were
asked to choose the number that indicated which item in each pair of criteria was a more important qualification
criterion for contractor selection.

4.1. Example: Applying the Six Criteria to All of the Alternatives

Table 2 is an example in which all of the criteria were applied to three potential bidders interested in the project.
As mentioned previously, the example was used only to demonstrate the application of certain criteria to various
alternatives. As discussed previously, the names of all of the bidders have been withheld, and the information
provided on all of the bidders was hypothetical; the information is listed to demonstrate the application of the
method to actual cases.
The average Level 1 scores for the six criteria based on a survey is shown in Table 3. The weight of each cri-
terion at the same level was calculated as follows:
Level 1:
• Calculate the total for each column in the comparison matrix;
• Divide each score by the sum of its column to form a new matrix; and
• Calculate the average of each row in the new matrix to obtain the priority vector weights of each criterion.
Table 4 shows the new matrix after the weights were calculated.
The “Average” column above shows the average values of the normalization matrix and is called the priority
vector. The priority vector is usually determined by averaging the row entries in the normalization matrix.
Table 5 shows the pair wise comparison and normalization matrices for each criterion.

Table 2. The comparison of Level 2 “alternatives” for the criteria.

Bidder 1 Bidder 2 Bidder 3

Financial Capability $3 MM Assets $3.5 MM Assets $2.7 MM Assets

Past Performance Below Average Average Above Average

Past Experience No Similar Experience Good Experience Good Experience

Manpower of 700 Manpower of 400 with Direct Manpower of 550 with Direct
Resources
with Direct Sponsorship Sponsorship/400 to Be Mobilized Later Sponsorship
5 Capital Projects at One Large Project Nearing Completion,
Current Workload Two Capital Projects
Various Locations Two Capital Projects Underway
Safety Performance Average Average Average

Table 3. The average Level 1 scores for the six criteria based on a survey.

Financial Past Past Current Safety

Resources
Capability Performance Experience Workload Performance
Financial Capability 1 1 3 0.5 2 3

Past Performance 1 1 7 1 7 2

Past Experience 0.33 0.14 1 0.25 3 1

Resources 2 1 4 1 7 1

Current Workload 0.5 0.14 0.33 0.14 1 0.5

Safety Performance 0.33 0.5 1 1 2 1

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Table 4. The Level 1 normalization matrix of Level 1 for the six criteria.

Financial Past Past Current Safety

Resources Average
Capability Performance Experience Workload Performance
Financial Capability 0.194 0.264 0.184 0.128 0.091 0.353 0.192
Past Performance 0.194 0.264 0.43 0.257 0.318 0.235 0.279
Past Experience 0.064 0.0377 0.061224 0.06422 0.14 0.118 0.078
Resources 0.39 0.2642 0.245 0.256881 0.318 0.118 0.264
Current Workload 0.1 0.038 0.02041 0.037 0.045 0.059 0.048
Safety Performance 0.064 0.132 0.061224 0.257 0.091 0.118 0.140

Table 5. The pairwise comparison and normalization matrices for each criterion.

Pairwise Comparison Matrix Normalization Matrix

Financial Cap. Bidder 1 Bidder 2 Bidder 3 Financial Cap. Bidder 1 Bidder 2 Bidder 3 Avg.
Bidder 1 1 1/2 7 Bidder 1 0.318 0.077 0.854 0.416
Bidder 2 2 1 1/5 Bidder 2 0.636 0.154 0.024 0.272
Bidder 3 1/7 5 1 Bidder 3 0.045 0.769 0.122 0.312
SUM 3.143 6.5 8.2
Work-Load Bidder 1 Bidder 2 Bidder 3 Work-load Bidder 1 Bidder 2 Bidder 3 Avg.
Bidder 1 1 3 2 Bidder 1 0.545 0.375 0.615 0.512
Bidder 2 1/3 1 1/4 Bidder 2 0.182 0.125 0.077 0.128
Bidder 3 1/2 4 1 Bidder 3 0.273 0.5 0.308 0.360
SUM 1.833 8 3.25
Past Performance Bidder 1 Bidder 2 Bidder 3 Past Performance Bidder 1 Bidder 2 Bidder 3 Avg.
Bidder 1 1 1/3 4 Bidder 1 0.235 0.1 0.727 0.354
Bidder 2 3 1 1/2 Bidder 2 0.706 0.3 0.091 0.366
Bidder 3 1/4 2 1 Bidder 3 0.059 0.6 0.182 0.280
SUM 4.25 3.33 5.5
Safety Performance Bidder 1 Bidder 2 Bidder 3 Safety Performance Bidder 1 Bidder 2 Bidder 3 Avg.
Bidder 1 1 9 6 Bidder 1 0.240 0.878 0.545 0.555
Bidder 2 3 1 4 Bidder 2 0.720 0.098 0.364 0.394
Bidder 3 1/6 1/4 1 Bidder 3 0.04 0.024 0.091 0.052
SUM 4.167 10.25 11
Past Experience Bidder 1 Bidder 2 Bidder 3 Past Experience Bidder 1 Bidder 2 Bidder 3 Avg.
Bidder 1 1 1/6 4 Bidder 1 0.138 0.04 0.75 0.309
Bidder 2 6 1 1/3 Bidder 2 0.828 0.24 0.063 0.377
Bidder 3 1/4 3 1 Bidder 3 0.034 0.72 0.188 0.314
SUM 7.25 4.167 5.33
Resources Bidder 1 Bidder 2 Bidder 3 Resources Bidder 1 Bidder 2 Bidder 3 Avg.
Bidder 1 1 7 1/9 Bidder 1 0.099 0.848 0.022 0.323
Bidder 2 1/7 1 4 Bidder 2 0.014 0.121 0.783 0.306
Bidder 3 9 1/4 1 Bidder 3 0.887 0.03 0.196 0.371
SUM 10.143 8.25 5.111

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4.2. Consistency Ratio

The consistency ratio for each criterion at the same level was calculated as follows:
Level 1:
• Multiply the “Weight” column by the Level-1 matrix in Table 6, and then obtain a new matrix, which is
shown in Table 7;
• Find the sum of each row, as shown in Table 8;
• Divide the “Sum” column by the “Weight” column to find the average of that column (λmax), as shown in
Table 9;
• Find the average of the column that was obtained in the previous step;
• Calculate the consistency index using the following formula:
CI = ( λmax − n ) ( n − 1)

where n = 6 represents the number of factors and λmax is the average of the sum column;
• Find the consistency ratio using the following formula:
CR = CI RI
where RI = 1.41.
Averaging these results yields:
λmax= ( 7.042 + 6.785 + 6.8 + 6.48 + 6.604 + 5.57 ) =
6 6.547

The consistency index, CI, for two terms is as follows:

CI = ( λmax − n ) ( n − 1) = ( 6.547 − 6 ) 5= 0.1094

The consistency ratio, CR, is CI/RI, where RI = 1.24 for the six criteria:

Table 6. Shows a pair wise comparison matrix at Level 1 for the six criteria.

Financial Past Past Current Safety

Resources
Capability Performance Experience Workload Performance
Financial Capability 1 1 3 0.5 2 3

Past Performance 1 1 7 1 7 2

Past Experience 0.33 0.14 1 0.25 3 1

Resources 2 1 4 1 7 1

Current Workload 0.5 0.14 0.33 0.14 1 0.5

Safety Performance 0.33 0.5 1 1 2 1

Sum 5.16 3.79 16.33 3.89 22 8.5

Table 7. The actual pair wise and average values of the normalization matrix priority vector.

Financial Past Past Current Safety

Resources Avg.
Capability Performance Experience Workload Performance
Financial Capability 1 1 3 0.5 2 3 0.192

Past Performance 1 1 7 1 7 2 0.279

Past Experience 0.33 0.14 1 0.25 3 1 0.078

Resources 2 1 4 1 7 1 0.264

Current Workload 0.5 0.14 0.33 0.14 1 0.5 0.048

Safety Performance 0.33 0.5 1 1 2 1 0.140

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Table 8. Consistency ratio calculation.

Financial Past Past Current Safety

Resources Sum
Capability Performance Experience Workload Performance

Financial Capability 0.192 0.28 0.23 0.13 0.01 0.42 1.352

Past Performance 0. 192 0.28 0.55 0.26 0.33 0.28 1.893

Past Experience 0.063 0.04 0.082 0.07 0.14 0.14 0.53

Resources 0.384 0.28 0.31 0.26 0.33 0.14 1.711

Current Workload 0.1 0.04 0.03 0.04 0.05 0.07 0.317

Safety Performance 0.06 0.14 0.08 0.26 0.1 0.14 0.780

Table 9. The numbers divided by their priorities.

Cons Avg. Cons/Avg

Financial Capability 1.352 0.192 7.042

Past Performance 1.893 0.279 6.785

Past Experience 0.530 0.078 6.8

Resources 1.711 0.264 6.48

Current Workload 0.317 0.048 6.604

Safety Performance 0.780 0.140 5.57

Avg. 6.546

= =
CR CI RI 0.1094=
1.24 0.088

The value of the consistency ratio CR is less than 0.10, which is well within the acceptable range.

4.3. Overall Priority Vector

The overall priorities were determined by multiplying the priority vectors of the criteria by the priorities for each
alternative decision for each objective.
Based on Table 10 and Table 11, the best contractor was Bidder#1.

5. Conclusions
Multi-criteria selection methods should be implemented in project management to select the “best” contractors
to achieve the project objectives. Contractor selection is a critical task for ensuring that a project is completed
within budget and on schedule and that the results are of good quality. The goal of multi-criteria contractor se-
lection is to identify the “best” contractor from a set of available options using an assessment based on multiples
election objectives. The selection of a suitable contractor is highly beneficial and avoids many risks that might
be encountered if a less capable contractor was awarded the project.
The AHP has emerged as a powerful tool that is applicable to all fields of decision-making to choose the best
overall alternative based on selected criteria.
Additionally, because of its flexibility and efficiency, the AHP has been chosen as a reliable instrument for
decision-making or problem-solving in the field of project management, particularly in contractor selection.
The decision model for contractor selection examined in this study involved multiple criteria that were eva-
luated simultaneously by aggregating the knowledge of experts and managing uncertain information. A model
based on the AHP technique was applied to determine the order of the criteria to identify the relative importance
of each criterion. This model was then used to determine the best alternative (i.e., bidder) to ensure a favorable
outcome.

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Table 10. Overall priority vectors.

Financial Capacity Past Performance Past Experience Resources Current Workload Safety Performance

0.192 0.279 0.078 0.264 0.048 0.140

Table 11. Priority vector for various alternatives.

Financial Past Past Current Safety Final Priority

Resources
Capability Performance Experience Workload Performance Vector
Bidder 1 0.416 0.354 0.309 0.323 0.512 0.555 0.390

Bidder 2 0.272 0.366 0.377 0.306 0.128 0.394 0.326

Bidder 3 0.312 0.280 0.314 0.371 0.360 0.394 0.285

Acknowledgements
We would like to thank Eng Mohammed Maki, for data collection and follow up to carry out this work.

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Appendices
Extremely Preferred Strongly Preferred Equally Preferred Strongly Preferred Extremely Preferred

Financial Capability 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Past Performance

Financial Capability 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Past Experience

Financial Capability 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Resources

Financial Capability 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Current Workload

Financial Capability 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Safety Performance

Past Performance 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Past Experience

Past Performance 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Resources

Past Performance 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Current Workload

Past Performance 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Safety Performance

Resources 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Current Workload

Resources 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Safety Performance

Resources 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Past Experience

Current Workload 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Safety Performance

Current Workload 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Past Experience

Past Experience 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 Safety Performance

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