Contract Act - Lowest Bid System
Contract Act - Lowest Bid System
Contract Act - Lowest Bid System
org
ISSN 2224-607X (Paper) ISSN 2225-0565 (Online)
Vol.5, No.3, 2015
ABSTRACT
Construction industry participants have started recognizing that accepting the least price bid does not guarantee
maximum value. Achieving a value-based procurement approach is a challenge, particularly for the Pakistani
public sector clients, who are limited in their ability to evaluate the competitive bids based solely on the
lowest-bid award system. Persisting problems of inferior quality of constructed facilities, high incidence of
claims and litigation, and frequent cost and schedule overruns have become the main features of Pakistan’s
public construction works contracts. This research was undertaken to assess the performance of public owned
construction projects awarded on a lowest bidder bid awarding system. Also, the objective was to seek
construction professionals’ opinions about the traditional bidding procedure and other alternative systems
for evaluation of bids and awarding contracts. An extensive literature search was carried out to identify
different practices and a questionnaire survey was conducted among the different groups that make up the
construction industry in Pakistan. Five alternate bid evaluation and contract award methods are discussed and
presented in this research. The questionnaire was distributed online as well as through visits to
contractors, clients and consultants. Additionally, 12 interviews were conducted with clients, consultants and
contractors. In total 200 questionnaires were distributed. The data were collected and 112 valid questionnaires
were analyzed by using MS Excel, PH stat, SPSS-20 and Sigma XL. The study concludes that 70% of the
respondents consider the multi-parameter bidding method is to be more effective than lowest bidding method
and ranked this method as best amongst all six selected methods. Insights and discussions are given in the
analysis. Finally, this work will provide valuable information to clients, consultants and contractors and other
stakeholders who desire to improve bidding methods in construction in Pakistan.
KEYWORDS: Bidding System, Construction Projects, Public Sector Construction, Public Sector
Procurement.
1.1 INTRODUCTION
The construction industry is one of the major sectors which involve substantial financial and human
resources. Design and construction play a vital role in the national economy, including the development
of residential housing, office, commercial and retail buildings, as well as industrial plants, and the
replacement, maintenance, and restoration of the nation’s infrastructure and other public facilities. Bid and
Procurement issues are widely related to the construction industry and its participants so that striving to
improve the procurement of construction by the public sector in particular is in the best interest of both the
community and the construction industry.
Currently, the public sector procurement of construction is largely based on the lowest bid award system. The
customary practice of awarding contracts to a lowest bidder was established to ensure the least 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). While the low-bid
procurement system has a long-standing legal precedence and has promoted open competition and a fair playing
field, a long-standing concern expressed by owners and some of their industry partners is that a system based
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strictly on the lowest price provides contractors with an incentive to concentrate on cutting bid prices to
the maximum extent possible (instead of concentrating on quality enhancing measures), even when a higher cost
product would be in the owner’s best interest, which makes it less likely that contracts will be awarded to
the best performing contractors who will deliver the highest quality projects. As a result, the low-bid system
may not result in the best value for money expended or the best performance during and after construction.
Moreover, the traditional low-bid approach tends to promote more adversarial relationships rather than
cooperation or coordination among the contractor, the designer and the owner, and the owner generally faces
increased exposure to contractor claims over design and constructability issues (Rizwan, 2008).
The study aims at analyzing the current status of Bid and Procurement Strategies in the construction industry of
Pakistan. In Pakistan, the most common method of awarding the contract is the Least Responsive Bidder or Price
Based method, which has inherent flaws of high competition and minimum performance. These incompetent
practices pose a serious risk and problems. It is therefore, imperative to to assess the impact of competitive low-
bid awarding system on performance of major public work projects (in terms of schedule, cost, quality
and safety) in Pakistan construction industry. The study will forward recommendations and suggestions for
developing a proposal for implementing alternative bid-evaluation and contract award procedures for the
construction industry of Pakistan.
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non-existence of real competition during contractors 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).
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requirement. The revised technical proposal along with the original financial proposal and supplementary
financial proposal shall be opened at a date, time and venue announced in advance by the procuring
agency.
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(c) Multi Parameter Bid Method (Basing on quality, time, price and “other” factors) .
(d) Negotiated Bid Method (Competitive).
(e) Negotiated Bid method (Non-Competitive).
(f) A+B Method.
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construction claims.
The basic principle is that the bidders should get a reasonable and practical cost of their work. It is assumed that
with a fair price, the contractor would ensure quality needs of the project, would finish on schedule, and will not
have any adverse relationship with the client, consultant and engineer.
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and quality parameters are assigned a maximum number of attainable points. The bids are then evaluated
and ranking is made basing upon these points, as well as the bid cost.
Some other parameters may also be included in the model as desired by the owner. Other factors may include
safety records, past working experience with client, history of disputes and claims, defect rectification
history etc. In this method a “total combined cost “will come up after applying all these factors (Tarricon, 1993).
The total combined costs of all the bids are then compared to pick the best bidder.
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very low and 5 being very high, was utilized to judge the performance parameters. The questionnaire was
distributed in hard form as well as it was uploaded through “Google Drive” for online filling and
submission. A total of 120 questionnaires were invited online and 80 were sent to different firms and
organizations. Out of these 200 questionnaires sent out, 117 were received. Five incomplete questionnaires are
excluded, so final analysis is carried out basing on 112 questionnaires. Respondents to this survey include 32
clients, 21 consultants and 59 contractors/subcontractors.
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The result shows that the perception of contractors is different from clients and consultants as regards to the
parameter of selection of lowest bidder. Similarly, the perception of low experience professionals is different
from those having more experience in the CI as regarding response to changes.
5.2 Conclusions
In this research, the performance of public owned construction projects awarded on the least bidder bid
evaluation and contract award system were assessed. Additionally, it has been tried to investigate opinions of
construction professionals from public organizations about the current method of bid award procedure and other
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alternatives. The following conclusions are drawn based on the assessment made on information gathered
through questionnaires from construction professionals.
(a) It can be concluded from the research that least responsive bid evaluation and contract award
procedure is the main method of awarding public constructions works contract. Almost 83% of all
the public projects are awarded to responsible and responsive bidders with the least price offers in
CI of Pakistan.
(b) Collusion/Bid shopping is a malpractice in almost all the construction industries of the world. The
phenomenon is also prevailing in Pakistani CI. The result shows that this practice prevails in 62 %
of the cases. This not only affects the spirit of the competitive bidding process but also escalates the
bid price because of the unrealistic Bid quoted by the Bidders for the project.
(c) Quality of the completed projects by the lowest bidders was found to be just satisfactory (index
rating of 59%) and not the optimum. During interviews on few project sites, lower rates were the
main reason given by the contractors for not finishing the job with optimum quality.
(d) Almost half of the public owned projects overrun the time stipulated for their completion. Lowest
bidder cannot put in extra resources to boost the project as it costs more and profit margin is
reduced. Ultimately the project is delayed as a whole and WBS is also not followed in letter and
spirit.
(e) Cost is the major factor around which the whole process of bidding and construction revolves
internationally in general and in Pakistani CI in particular. Except for few exceptions in the world,
mostly the lowest bidder bid system is followed mainly because of saving the cost. But, at the same
time, it is concluded that more than 50% of the construction projects overrun the budget and end up
with a higher cost.
(f) No design can be perfect. Changes during or after the execution phase of the project are almost
inevitable. More than half of the lowest bidders are normally reluctant to accept change orders,
unless it is more profitable.
(g) Defects are generally observed in the more than 60% of the built facilities within the warranty
period. Contractors are often called upon to rectify the defect and their response is generally good.
(h) More than 90% of the construction professionals opine that Construction projects should not be
always given to the lowest bidder and the quality of the finished project will be improved if
performed by the non lowest bidder and project can be completed before stipulated time.
(i) Study of alternate methods for bidding is supported by the construction professionals. It was
appreciated that new methods in the field must be tried to get ultimate results.
(j) Multi parameter bidding method was appreciated by most of the construction professionals as it
appears to be more comprehensive and more useful in selection of the best bid. It can contain as
many parameters as desired by the client. It may have edge on the traditional lowest bidding
method.
(k) Competitive negotiated bidding is also a method which can bring upon positive changes as
compared to the lowest bidding.
(l) A+B method includes only cost and time. The project, in this case, may have only two major
advantages i.e. early finish and least cost. If the quality and other aspects of the project can be
controlled by the supervision consultant, this method can obtain rich dividends. Substantial savings
in construction time can be achieved.
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(m) The initial cost of the project in all five methods discussed in the study appears to be more than the
conventional lowest bidding method. But, in long term comparison these methods have lesser life
cycle cost with better quality and standards.
(n) It is discovered in the research that the progress as per the schedule of most projects awarded on the
responsive least bidder bid award procedure was not satisfactory.
(o) Traditional bidding procedure has been criticized that it might guarantees the lowest cost project,
but not the best.
(p) The perception of lesser experienced professionals was different from the experienced ones
regarding response to changes by the lowest bidder.
5.3 Recommendations
Findings of this research show the moderate level of performance of public construction projects executed by the
lowest bidders in most of the cases. The researchers of this thesis strongly recommend the Federal Government
of Pakistan to look for other alternative bidding methods for evaluation and award.
(a) Keeping in view the inherent weaknesses of the lowest bid system it should be improved by taking
following measures:-
i. Quality assurance team of the lowest bidder should be a pre requisite during the execution on
public construction projects.
ii. System of incentives and penalties should be strictly imposed and implemented for scheduled
completion of the projects.
iii. Projects should be planned in a way that changes are minimized. However, changes made
during the execution of the construction project should be well worked out and it should be
incorporated in a way that contractor accepts it voluntarily and a reasonable profit to the
contractor be kept in mind.
iv. Safety infrastructure of the firm should be given adequate importance at the time of bid
evaluation.
(b) Flexibility in method of awarding the project should lie with client in the best interest of the project
keeping in view the life cycle analysis and nature of the project.
(c) Multi parameter bidding method was appreciated by most of the respondents. It can be adopted on
trial basis and subsequently adopted if the results are better than the lowest bidding method.
(e) Percentage of Performance and insurance bonds should be revised for the lowest bidder to cope up
the weaknesses.
(f) The cost of any project should not be kept in mind as a single factor but life cycle cost should also
be evaluated.
(g) Government organizations should be authorized to reject the lowest tender even if the bidder is
responsive and responsible if the authority considers non lowest bidder to be more beneficial for
the execution of the project.
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(b) Case studies may be conducted on construction projects executed on lowest-bid and lump-sum
basis and conclusions be compared for cost and schedule overruns.
(c) Alternative methods, other than conventional lowest bidding, discussed in this study may be
analyzed by professionals in the industry.
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