An analytical study of critical factors affecting contractor efficiency in construction projects in Indian scenario

Shumank Deep 1 , Laura Simon 2 , Mohd Asim 3 , Ali Rahimzadeh 2 , and Sulala Al-Hamdani 2
  • 1 University of Newcastle, , Newcastle, Australia
  • 2 School of Architecture and Built Environment, University of Newcastle, Callaghan, Australia
  • 3 Department of Civil Engineering, Himalayan Institute of Technology and Management, Lucknow, India
Shumank Deep, Laura Simon
  • School of Architecture and Built Environment, University of Newcastle, Callaghan, Australia
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, Mohd Asim
  • Department of Civil Engineering, Himalayan Institute of Technology and Management, Lucknow, India
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, Ali Rahimzadeh
  • School of Architecture and Built Environment, University of Newcastle, Callaghan, Australia
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and Sulala Al-Hamdani
  • School of Architecture and Built Environment, University of Newcastle, Callaghan, Australia
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Abstract

Purpose

Recent studies show that lowest bidder technique is mainly used in developing countries such as India to award a contract. It has been demonstrated that the lowest bid is not always the accurate one and can lead to cost overruns and time extensions amongst other problems. The aim of this study was to investigate the critical factors impacting contractor’s efficiency in Indian construction projects.

Research approach

A survey was sent to participants of construction projects awarded by the government with the lowest bidder technique in Uttar Pradesh, India. For further research, snowball sampling was used, and structured interviews were conducted amongst experienced managers and engineers of these projects on both client’s and contractor’s side.

Findings

It was observed that, to a greater extent, the delays were caused due to contractor’s opportunistic behaviour. The main findings are that new bidding methodologies are to be tested as they can lead to the choice of a more accurate and realistic bidder. In addition, subjective evaluation components, such as schedule and work-force, should be reflected in contract award methods in addition to the cost criteria. Further studies should be performed on the choice of contract awarding methodology based on the project size and type.

Originality value

The researcher’s focus was to analyze the influence of contracting methodologies and factors affecting contractor’s performance in lowest bid award project, where this is an area of least focus amongst researchers in the Indian subcontinent.

1 Introduction

The latest and complex modifications in projects and market have compelled the researchers to study the feasibility of project delivery methods used in the construction industry (Palaneeswaran and Kumaraswamy, 2001). Lowest bid award methodology is one of the most popular bidding techniques used for project award. Increased application of lowest bidder technique has promoted inadequacy and unseemliness amongst the submitted bids and resulted in the repetitive occurrence of disputes, cost overruns and time extension (Leśniak, 2015; Setiawan et al., 2015; Suprapto et al., 2015a; Chang, 2017; Yang et al., 2017). As a result, if the Indian government and its subsidiaries as well as privately managed construction organizations have learned a lesson, have adapted to recent advances and invite worthy bidders, yet it is still important to research prequalification criteria and the target of the prequalification and bid assessment forms (Hatush and Skitmore, 1997).

Although in the past few years, in developing countries especially in Uttar Pradesh, India, it is a common observation that construction activities being conducted by government and its subsidiary agencies prefer lowest bidder techniques to award a project for medium-scale projects. The contractor whose bidding price is the lowest will win the bid (Manu et al., 2015; Dražić et al., 2016; Elzomor and Parrish, 2016; Deep et al., 2017a; Dixit et al., 2017). The prequalification and bid assessment methods require the advancement of essential and adequate selection criteria (Palaneeswaran and Kumaraswamy, 2000). The past two decades have witnessed an enormous improvement in multidimensional aspects of project requirements which prompted to the utilization of different project delivery frameworks (Deep et al., 2017a, 2017e). Interestingly, the prequalification and bid assessment and handling, evaluating and appraisal of criteria are still in its unique frame. In the current scenario, the lowest bidder from the past project is collected in a pool and considered for prequalification in a project, but still lowest bid award is a preferred mechanism to award projects.

2 Theoretical background

The quality of work in the public sector is affected, to a greater extent, by the capability of the contractor (Wong, 2004; Elyamany and Abdelrahman, 2010; Chang, 2016). Researchers have arrived at a consensus that client satisfaction is the vital factor to be considered for contractor’s performance measurement “clients are at the core of the process and their needs must be met by the industry” (Latham, 1994; Xiao and Proverbs, 2003). Whether it is arm’s length or long term, a client is generally focused on the factors such as budget, time and quality (Heesom et al., 2003; Chang, 2016). The construction industry is considered to be a dynamic and sophisticated; the pertinent reason is it has a direct impact on public (Wong, 2004; Gündüz et al., 2012; Chang, 2015). In addition, major construction projects involve various categories of resources, i.e. human resources, materials and equipment, which require effective planning and allocation by contractors to avoid stereotypes and reap maximum economic benefits (Sarker et al., 2012).

It is a well-established fact for the lowest bid award method that the absence of competition, unreasonable time extensions, trading off quality and acceleration of project costs are the significant issues related to the current approach of conveying projects (Lema, 2006). Inadequate financing of the project by the contracting organization and underestimated procurement of materials, equipment and workforces are prime causes for delays amid the construction stage in the construction industry (Lema, 2006; Oduro-Owusu et al., 2010; Khan et al., 2017c; Singh et al., 2017b).

The construction procedure includes the hierarchical flow of information. Strife and question can hence exist at all levels in the contractual hierarchy amongst client and consultant, client and contractor and contractor and subcontractor. Amongst many reasons for contradictions in the construction project, the project delivery framework chose one of the significant components (Deep et al., 2017e). Henceforth, numerous researchers have stated that construction organizations have learned from their past experiences and made various advancements. Research findings have created modified techniques to address these issues (Safa et al., 2015; Asgari et al., 2016; Aitken and Paton, 2017; Asim et al., 2017b; Deep et al., 2017a, 2017e).

One of these findings, focused normal bidding strategy, has turned into the most favoured approach amongst numerous European nations. Its enactment permitted public sector clients to diminish the unfriendly impacts of abnormally low tenders (ALTs), including unsuitable quality through the need to decrease construction costs (Winch, 2000), savage valuing, out-of-line rivalry that misshapes the market and contrarily influencing alternate bidders (Deep et al., 2017a). Focused normal bidding strategy has turned out to be the most preferred since all the components of the open competitive system are retained on the one hand. Thus, the probability of being awarded a contract to a contractor who submits, either unintentionally or intentionally, an unreasonably low bid will be decreased (Leśniak, 2015; Suprapto et al., 2015a, 2015b; Erdogan et al., 2017). The opposition gives an approach to keep away from extortion and defilement, which are the significant downsides of other transaction-based options.

3 Identification of knowledge gap

There are distinct advantages and disadvantages to the low-bid award framework. Increased competition amongst contractors is a distinct advantage of the procedure. It compels the contractors to decrease quoted costs for carrying out specific work, more often than not through advancement, to guarantee they win bids and keep up their net revenues (Wahaj et al., 2017a). Furthermore, the procedure is beneficial, specifically to the client on account of its straight forwardness, a necessary foundation of the transparency and increased professionalism (Ioannou and Leu, 1993; Ng et al., 2002; Walker et al., 2002; Shehu and Akintoye, 2010; Ishii et al., 2014; Kotula et al., 2015; Naoum and Egbu, 2015; Suprapto et al., 2015b; Jaafar et al., 2016; Wang et al., 2016; Bai et al., 2017). However, the system is not as advantageous in the case of lowest bid award to carry out a particular task that has inherent imperfections (Jekale, 2004; Deep et al., 2017d, 2018).

The framework is entirely focused towards client’s requirement which is not a bad idea; since it is more popular with government and its subsidiaries, it tends to increase malpractices and poor quality due to the contractors being sceptical about their profit margins (Deep et al., 2017b, 2017c, 2017e, Mathivathanan et al., 2017; Mishra et al., 2017; Sanderson et al., 2017). The criterion for choosing the potential bidder is the bid that is reasonably below the client’s estimate and serves client’s interest well (Deep et al., 2017e). Thus, there is a clear research gap, in the case of developing countries, that the contract awarding framework fails to answer mutual interests of client and contractor relationship resulting in unavoidable risks (Asim et al., 2017a, 2017b; Deep et al., 2017a, 2017b; Khan et al., 2017b; Singh et al., 2017a; Wahaj et al., 2017b). This study aimed to identify the critical factors of contract awarding methodologies that tend to decrease contractors’ efficiency in India.

4 Research approach

The work presented in this article is a result of exhaustive independent research conducted for a period of 5 months, i.e. August 2016 to December 2016. The target areas of the research were projects, in which Uttar Pradesh, India, was awarded by using lowest bidder technique. The information of these projects was obtained using Government of India, Right to Information Act, 2005. There were overall 400 major or minor construction projects being conducted throughout the state.

The required number of responses was determined by the following formula (Israel, 1992; Damoah and Akwei, 2017):
n=N1+Ne2
where n is the required number response, e2 is the error limit and N is the sample size.

The level of confidence was assumed as 95%, and an error margin of 5% was assumed. A total of 172 responses were required for the assessment of required parameters.

All participants were required to rate their answers on a Likert scale of 1–5. For determining the critical factors that affected the project, we used importance index analysis and ranking and percentile analysis. For further research, snowball sampling was used, and structured interviews were conducted amongst the professionals working in the top level and middle level of hierarchy amongst the project staff on both client’s and contractor’s side as summarized in Tabs. 2 and 3.

Tab. 1

Categorization of the factors affecting contractor’s efficiency in construction projects.

Sl. no.Category itemTotal no. of category factors
1Consultant’s influence8
2Contractor’s issues13
3Design changes11
4Equipment related7
5External factors17
6Human resources9
7Material constraints9
8Non-cooperation from principal19
9Project complexities6
Total99
Tab. 2

Categorization of participants.

IDAffiliation of respondentsNo. of respondentsPercentage
1Principal41.45
2Consultants207.27
3Managers4416.00
4Engineers8229.82
5Contractors12545.46
Total275100
Tab. 3

Working experience of respondents.

Industrial experienceNo. of respondentsPercentage
1–5 years4215.27
5–10 years5821.09
10–0 years8631.27
Above 20 years8932.37
Total275100

5 Data analysis

An extensive study of literature resulted in the identification of various factors that affected contractor’s efficiency shown in the Tab. 1. and relative importance index of each factor was calculated. Furthermore, all these nine categories were divided into 99 different factors.

5.1 Ranking of delay factors

After calculating overall index (OI) for each delay factor, a ranking of delay factors was carried out by their OI, which is summarized in Appendix 1. It was found that the OI was the highest for factor number 43, “Delay in obtaining permits from municipality” (72.49%), related to the external category. Factor number 63, “Human Resources strikes due to revolutions” (48.82%), related to human resources category, was the lowest amongst all factors. This indicates that factor number 43 is the most influencing parameter and factor number 63 is the least influencing parameter of construction delay in India. From the list of 99 delay factors, top 20 major delay factors and least 20 delay factors are selected considering the OI factors (Ibironke et al., 2013).

6 Discussion of results

Evidently, all the delay-causing factors originated either from the following: consultant’s influence, contractor’s issues, design changes, equipment related, external factors, human resources, material constraints, non-cooperation from principal or project complexities (Eriksson, 2010; Wang et al., 2015; Doğan et al., 2016; Sinčić Ćorić et al., 2017). A probable explanation of this is every actor is trying to blame others for delays. Furthermore, it is desirable to compare the strength or importance of each category; thus, a weighted average of each category was calculated to arrive at an unbiased observation. The results are presented in Tab. 4 by using priority rule formula as shown in the following equation:
ERIIj(%)=(n=1n=N(PnXRIIn)n=1n=N(Pn))
where ERIIj (%) is the equivalent weighted average percentage of relative importance index per category and ORIIn (%) is the overall weighted average percentage of relative importance index of each factor in a specific category, which is calculated on the basis of total experiences of respondents; n is the number that represents the factor number in the related category (from the first factor of category n=1 to form the last factor of category n=N) and Pn is the priority weight of the studied factor. It is clear that the results of the nine categories are almost consistent, where the categories are ranked from top to bottom as summarized in Tab. 4.
Tab. 4

Equivalent average relative importance index of category.

RankCategory itemEquivalent average relative importance index (Eq. 2)
01Consultant’s influence64.62
02Contractor’s issues63.82
03Design changes62.46
04Equipment related62.28
05External factors60.28
06Human resources60.26
07Material constraints60.25
08Non-cooperation from principal59.61
09Project complexities59.31

As evident from Tab. 5, summarizing the rank and impact of the grouped factors, there were three most contributing factors to delay for each group: the first important group was consultant’s influence (Equivalent average Relative Importance Index (EARII) =64.62%), the most critical factor in this category was “inadequate project management assistance (OI=66.17)”. The second important group was contractor’s issues having the most significant factor as “inadequate contractor experience (OI=70.23)”. The third most important group was design group (design changes) having the most important factor in this category as “misinterpretation of owner’s requirements by design engineer (OI=72.03)”; this factor mostly depended on the skill of engineer and designers. The OI and ranks of the each factors are summarized in Appendix 1.

Tab. 5

High priority delay factors in each category.

Category no.CategoryIDDelay factor descriptionOI%Overall rank
1Consultant6Inadequate project management assistance66.1719
2Contractor10Inadequate contractor experience70.2305
3Design28Misinterpretation of owner’s requirements by design engineer72.0303
4Equipment37Low efficiency of equipment66.0721
5External43Delay in obtaining permission72.3001
6Human resources61Shortage of human resources72.3002
7Material67Damage of sorted materials66.8313
8Owner78Delayed payments67.0312
9Project94Project ambiguities (project type, project scale, etc.)67.5110

OI, overall index.

As it can be observed from the abovementioned findings, most of the factors that have been prioritized by the participants are related to the contractor. The reason is as follows: although a contractor is awarded project on the basis of its low bid, it tends to meet out its finances through time value on money, i.e. by delaying the project (Hatush and Skitmore, 1997; Palaneeswaran and Kumaraswamy, 2000, 2001; Elyamany and Abdelrahman, 2010; Sarker et al., 2012; Leśniak, 2015; Deep et al., 2017e; Asim et al., 2017a, 2017b). The real purpose behind quality imperfections, i.e. in the case of equipment and material, has been due to the inclination of contractors to meet out their cost since they have won the tender with low bids. It is found in the research that the advance according to the timetable of most projects awarded on the responsive lowest bidder award system was weak (Deep et al., 2017e). Competitive lowest bid method has been exceptionally scrutinized for its adverse effect on contractor’s profit, disputes/claims, coordination, quality control and project span. Respondents exceedingly valued other option bidding methodologies incorporated into the review for their beneficial outcomes on these characteristics. Most of the respondents favored the use of a competitive system ensuring the work award to bidder whose bid is closest to the average of all bids. (Asim et al., 2017b; Deep et al., 2017a, 2017e; Khan et al., 2017a, 2017c; Singh et al., 2017b; Wahaj et al., 2017a). Amongst the respondents, however, few trusted that the current bidding strategy does not urge contractors to be innovative. The majority of the respondents have consented to the application of competitive system with an arrangement to award contracts to bidders closest to the normal of all bidders and the project cost. All respondents trusted that bidding strategy ought to rely on sort and multifaceted nature of the project. The majority of the members agreed that subjective evaluation components (e.g. timetable, association and workforce) other than cost should be reflected in the contract award. In addition, the majority of the respondents agreed that the choice of the bid evaluation and the contract award methods depend on the type of contract chosen.

7 Conclusion

The method of procurement for the construction project is significant for its success (Shehu and Akintoye, 2010; Kotula et al., 2015; Doğan et al., 2016; Wahaj et al., 2017b), since its essential determinant for the selection of participant that will be responsible for its execution. It was observed that, in Indian scenario, mainly consultant’s influence and contractor’s influence are the major factors that affect contactor’s working efficiency in state-funded construction. Regarding the efficiency of the contractor, it was observed that there is a lack of coordination between consultant and contractor indicating the presence of opportunism. A reason for opportunistic behaviours is the lack of experience of the contractor on a similar type of projects. Next, we observed in this study that there is a lack of project management awareness. In the current state, it is only reduced to planning stage and implementation is low or negligible in execution. Thus, it is vital for a contractor to adopt best practices in project management and for a planner to improve their tendering strategies to ensure on-time delivery of construction projects which will enhance the contractor’s efficiency in construction projects.

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  • Wang, C. M., Xu, B. B., Zhang, S. J., & Chen, Y. Q. (2016). Influence of personality and risk propensity on risk perception of Chinese construction project managers. International Journal of Project Management, 34(7), pp. 1294–1304. doi: .

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  • Wang, T., Tang, W., Qi, D., Shen, W., & Huang, M. (2015). Enhancing design management by partnering in delivery of international epc projects: Evidence from Chinese construction companies. Journal of Construction Engineering and Management, 142(4), p. 04015099.

  • Winch, G. M. (2000). Institutional reform in British construction: Partnering and private finance. Building Research & Information, 28(2), pp. 141–155.

  • Wong, C. H. (2004). Contractor performance prediction model for the United Kingdom construction contractor: Study of logistic regression approach. Journal of Construction Engineering and Management, 130(5), pp. 691–698. doi: .

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  • Xiao, H., & Proverbs, D. (2003). Factors influencing contractor performance: An international investigation. Engineering, Construction and Architectural Management, 10(5), pp. 322–332.

  • Yang, W., Gao, Y., Li, Y., Shen, H., & Zheng, S. (2017). Different roles of control mechanisms in buyer-supplier conflict: An empirical study from China. Industrial Marketing Management, 65, pp. 144–156. doi: .

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Appendix 1: Ranking of delay factors and OI.

RankGroupsFactor IDCause of delayOI
1External43Delay in obtaining permission72.49
2Human resources61Shortage of human resources72.30
3Design28Misinterpretation of owner’s requirements by design engineer72.03
4External48Sudden failure actions71.67
5Contractor10Inadequate contractor experience70.23
6Human resources62Slow mobilization of human resources69.98
7Contractor17Rework due to errors69.06
8Design27Mistakes and delays in producing design documents68.87
9External53Unfavourable weather conditions68.47
10Project94Project ambiguities (project type, project scale, etc.)67.51
11Design25Insufficient knowledge67.31
12Owner78Delayed payments67.03
13Material67Damage of sorted materials66.83
14Owner85Slowness in decision-making66.78
15Contractor12Incompetent project team66.76
16Human resources58Low motivation and morale of human resources66.52
17External46Global financial crisis66.41
18Contractor13Ineffective project planning and scheduling66.30
19Consultant6Inadequate project management assistance66.17
20Project99Unfavourable contract clauses66.15
21Equipment37Low efficiency of equipment66.07
22Contractor16Poor site management and supervision66.03
23External45Improper site facilities (water, electricity, etc.)65.70
24Owner83Lack of motivation65.49
25Contractor18Unreliable subcontractors65.33
26Project95Inadequate definition of substantial completion64.55
27Contractor9Frequent change of subcontractors64.48
28Owner88Lack of financial planning64.46
29Project97Conflicts between actors64.33
30Equipment39Slow mobilization of equipment64.25
31Owner89Long period between design and time of bidding/tendering64.09
32Contractor15Communication and coordination failure63.84
33Consultant1Insufficient experience on similar projects63.59
34Contractor21Poor financial control on site63.33
35Consultant8Communication and coordination failure63.21
36Contractor20Inappropriate contractor’s policies62.95
37Design24Design errors due to negligence62.89
38Owner90Inappropriate contractual procedure62.81
39External56Thefts performed on site62.75
40Consultant7Late in reviewing and approving design documents62.57
41Contractor19Inadequate site investigation62.41
42Owner86Suspension of work by owner62.21
43External49Price fluctuations62.07
44Design26Delayed approvals62.04
45Human resources64Unqualified/inadequate experienced human resources61.72
46External52Unexpected surface and subsurface conditions (soil, water table, etc.)61.68
47Material68Delay in manufacturing materials60.96
48Human resources65Human resources injuries on site60.95
49Material73Shortage of construction materials60.94
50External55Inappropriate government policies60.80
51Design22Complexity of project design60.78
52Owner79Delay in site delivery60.76
53Project96Ineffective delay penalties60.72
54Design31Incomplete project design60.70
55Design23Frequent design changes60.61
56Contractor14Obsolete technology60.61
57Owner82Lack of knowledge to handle construction projects60.24
58Project98Original contract duration is short59.67
59Consultant2Conflict between consultant and design engineer59.51
60Equipment34Frequent equipment breakdowns59.43
61Owner93Selecting inappropriate contractors59.41
62Equipment35Improper equipment59.13
63Owner77Delay in approving design documents58.99
64Owner81Lack of capable representative58.78
65Contractor11Inappropriate construction methods58.73
66Human resources59Low productivity of human resources58.71
67Material66Variations in specification58.56
68Material74Unreliable suppliers58.55
69Design30Unclear and inadequate details in drawings58.48
70Owner84Communication and coordination failures58.34
71External40Accidents during construction58.15
72Owner91Additional work57.88
73Equipment38Shortage of equipment57.88
74External54Inadequate production of raw material in the country57.87
75Material70Late delivery of materials57.76
76Material69Escalation of material prices57.74
77Owner92Bureaucracy in bidding/tendering method57.42
78Consultant3Delayed approval of changes by consultant57.37
79Owner87Inadequate planning57.33
80Human resources57Absenteeism57.30
81Material71Poor procurement of construction materials57.23
82Consultant4Delay in inspection and quality tests57.19
83External50Problem with neighbours57.10
84Equipment33Equipment allocation problem57.03
85Owner76Conflicts between joint ownership56.74
86External44Delay in third-party inspection and certification56.51
87Design32Defective design made by designers56.50
88Owner80Improper project feasibility study55.61
89External42Different tactics patterns for bribes55.61
90Material72Poor quality of construction materials55.25
91Design29Lack of application of software54.88
92External47Time losses due to interruption54.84
93External51Slow site clearance53.56
94Equipment36Inadequate modern equipment53.51
95External41Changes in government regulations and laws52.44
96Consultant5Inaccurate site investigation52.43
97Human resources60Personal conflicts amongst human resources52.08
98Owner75Modifications51.04
99Human resources63Human resources strike due to revolutions48.82

OI, overall index.

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    • Export Citation
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    • Export Citation
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    • Crossref
    • Export Citation