Risk and price in the bidding process of contractors

Formal and analytical risk models prescribe how risk should be incorporated in construction bids. However, the actual process of how contractors and their clients negotiate and agree on price is complex, and not clearly articulated in the literature. Using participant observation, the entire tender process was shadowed in two leading UK construction firms. This was compared to propositions in analytical models and significant differences were found. 670 hours of work observed in both firms revealed three stages of the bidding process. Bidding activities were categorized and their extent estimated as deskwork (32%), calculations (19%), meetings (14%), documents (13%), off-days (11%), conversations (7%), correspondence (3%) and travel (1%). Risk allowances of 1-2% were priced in some bids and three tiers of risk apportionment in bids were identified. However, priced risks may sometimes be excluded from the final bidding price to enhance competitiveness. Thus, although risk apportionment affects a contractor’s pricing strategy, other complex, microeconomic factors also affect price. Instead of pricing in contingencies, risk was priced mostly through contractual rather than price mechanisms, to reflect commercial imperatives. The findings explain why some assumptions underpinning analytical models may not be sustainable in practice and why what actually happens in practice is important for those who seek to model the pricing of construction bids.

Comparative costs of the commercial process in different construction procurement methods

The commercial process in construction projects is an expensive and highly variable overhead. Collaborative working practices carry many benefits, which are widely disseminated, but little information is available about their costs. Transaction Cost Economics is a theoretical framework that seeks explanations for why there are firms and how the boundaries of firms are defined through the “make-or-buy” decision. However, it is not a framework that offers explanations for the relative costs of procuring construction projects in different ways. The idea that different methods of procurement will have characteristically different costs is tested by way of a survey. The relevance of transaction cost economics to the study of commercial costs in procurement is doubtful. The survey shows that collaborative working methods cost neither more nor less than traditional methods. But the benefits of collaboration mean that there is a great deal of enthusiasm for collaboration rather than competition.

Horses for courses: Relating innovation diffusion concepts to the stage of the diffusion process

The research uses a sociological perspective to build an improved, context specific understanding of innovation diffusion within the UK construction industry. It is argued there is an iterative interplay between actors and the social system they occupy that directly influences the diffusion process as well as the methodology adopted. The research builds upon previous findings that argued a level of best fit for the three innovation diffusion concepts of cohesion, structural equivalence and thresholds. That level of best fit is analysed here using empirical data from the UK construction industry. This analysis allows an understanding of how the relative importance of these concepts' actually varies within the stages of the innovation diffusion process. The conclusion that the level of relevance fluctuates in relation to the stages of the diffusion process is a new development in the field.

Subcontract and supply enquiries in the tender process of contractors

In the tender process, contractors often rely on subcontract and supply enquiries to calculate their bid prices. However, this integral part of the bidding process is not empirically articulated in the literature. Over 30 published materials on the tendering process of contractors that talk about enquiries were reviewed and found to be based mainly on experiential knowledge rather than systematic evidence. The empirical research here helps to describe the process of enquiries precisely, improve it in practice, and have some basis to support it in theory. Using a live participant observation case study approach, the whole tender process was shadowed in the offices of two of the top 20 UK civil engineering construction firms. This helped to investigate 15 research questions on how contractors enquire and obtain prices from subcontractors and suppliers. Forty-three subcontract enquiries and 18 supply enquiries were made across two different projects with average value of 7m. An average of 15 subcontract packages and seven supply packages was involved. Thus, two or three subcontractors or suppliers were invited to bid in each package. All enquiries were formulated by the estimator, with occasional involvement of three other personnel. Most subcontract prices were received in an average of 14 working days; and supply prices took five days. The findings show 10 main activities involved in processing enquiries and their durations, as well as wasteful practices associated with enquiries. Contractors should limit their enquiry invitations to a maximum of three per package, and optimize the waiting time for quotations in order to improve cost efficiency.

Commercial reviews in the tender process of contractors

Purpose – The purpose of this paper is to show the extent to which clients amend standard form contracts in practice, the locus of the amendments, and how contractors respond to the amendments when putting together a bid. Design/methodology/approach – Four live observational case studies were carried out in two of the top 20 UK construction firms. The whole process used to review the proposed terms and conditions of the contract was shadowed using participant observation, interview and documentary analysis. Findings – All four cases showed strong evidence of amendments relating mostly to payment and contractual aspects: 83 amendments in Case Study 1 (CS1), 80 in CS2, 15 in CS3 and 29 in CS4. This comprised clauses that were modified (37 per cent), substituted (23 per cent), deleted (7 per cent) and new additions (33 per cent). Risks inherent in the amendments were mostly addressed through contractual rather than price mechanisms, to reflect commercial imperatives. “Qualifications” and “clarifications” were included in the tender submissions for post-tender negotiations. Thus, the amendments did not necessarily influence price. There was no evidence of a “standard-form contract“ being used as such, although clients may draw on published “standard-form contracts” to derive the forms of contract actually used in practice. Practical implications – Contractors should pay attention to clauses relating to contractual and financial aspects when reviewing tender documents. Clients should draft equitable payment and contractual terms and conditions to reduce risk of dispute. Indeed, it is prudent for clients not to pass on inestimable risks. Originality/value – A better understanding of the extent and locus of amendments in standard form contracts, and how contractors respond, is provided.

Critical stages of the brewing process for changes in antioxidant activity and levels of phenolic compounds in ale

Samples were taken at each stage of brewing (malt, milling, mashing, wort separation, hop addition, boiling, whirlpool, dilution, fermentation, warm rest, chill-lagering, beer filtration, carbonation and bottling, pasteurization, and storage). The level of antioxidant activity of unfractionated, low-molecular-mass (LMM) and high-molecular-mass (HMM) fractions was measured by the 2,2'-azinobis(3-ethylbenzothiazoline-6-sulfortic acid) radical cation (ABTS(.+)) and ferric-reducing antioxidant power (FRAP) procedures. Polyphenol levels were assessed by HPLC. The LMM fraction (<5 kDa) was responsible for similar to80% of the level of antioxidant activity of the unfractionated malt and beer samples. In the unfractionated samples, significant decreases (P < 0.001) in antioxidant activity levels were observed after milling and beer filtration, with the decrease after beer filtration being accompanied by a significant decrease (P > 0.001) in catechin and ferulic acid levels. Increases in antioxidant activity levels were observed after mashing, boiling, fermentation, chill-lagering, and pasteurization, in line with previous studies on lager. Additionally, increases in the level of antioxidant activity occurred after wort separation and carbonation and bottling and were accompanied by increases in levels of most monitored polyphenols. Data from the ABTS(.-) and FRAP assays indicated that the compounds contributing to the levels of antioxidant activity responded differently in the two procedures. Levels of ferulic, vanillic, and chlorogenic acids and catechin accounted for 45-61% of the variation in antioxidant activity levels.

Rheology and the breadmaking process

The applications of rheology to the main processes encountered during breadmaking (mixing, sheeting, fermentation and baking) are reviewed. The most commonly used rheological test methods and their relationships to product functionality are reviewed. It is shown that the most commonly used method for rheological testing of doughs, shear oscillation dynamic rheology, is generally used under deformation conditions inappropriate for breadmaking and shows little relationship with end-use performance. The frequency range used in conventional shear oscillation tests is limited to the plateau region, which is insensitive to changes in the HMW glutenin polymers thought to be responsible for variations in baking quality. The appropriate deformation conditions can be accessed either by long-time creep or relaxation measurements, or by large deformation extensional measurements at low strain rates and elevated temperatures. Molecular size and structure of the gluten polymers that make up the major structural components of wheat are related to their rheological properties via modern polymer rheology concepts. Interactions between polymer chain entanglements and branching are seen to be the key mechanisms determining the rheology of HMW polymers. Recent work confirms the observation that the dynamic shear plateau modulus is essentially independent of variations in MW of glutens amongst wheat varieties of varying baking performance and also that it is not the size of the soluble glutenin polymers, but the secondary structural and rheological properties of the insoluble polymer fraction that are mainly responsible for variations in baking performance. Extensional strain hardening has been shown to be a sensitive indicator of entanglements and long-chain branching in HMW polymers, and is well related to baking performance of bread doughs. The Considere failure criterion for instability in extension of polymers defines a region below which bubble walls become unstable, and predicts that when strain hardening falls below a value of around 1, bubble walls are no longer stable and coalesce rapidly, resulting in loss of gas retention and lower volume and texture. Strain hardening in doughs has been shown to reach this value at increasingly higher temperatures for better breadmaking varieties and is directly related to bubble stability and baking performance. (C) 2003 Elsevier Ltd. All rights reserved.

The tendering process and performance analysis of a public building project in Ghana

A case study on the tendering process and cost/time performance of a public building project in Ghana is conducted. Competitive bids submitted by five contractors for the project, in which contractors were required to prepare their own quantities, were analyzed to compare differences in their pricing levels and risk/requirement perceptions. Queries sent to the consultants at the tender stage were also analyzed to identify the significant areas of concern to contractors in relation to the tender documentation. The five bidding prices were significantly different. The queries submitted for clarifications were significantly different, although a few were similar. Using a before-and-after experiment, the expected cost/time estimate at the start of the project was compared to the actual cost/time values, i.e. what happened in the actual construction phase. The analysis showed that the project exceeded its expected cost by 18% and its planned time by 210%. Variations and inadequate design were the major reasons. Following an exploration of these issues, an alternative tendering mechanism is recommended to clients. A shift away from the conventional approach of awarding work based on price, and serious consideration of alternative procurement routes can help clients in Ghana obtain better value for money on their projects.

Risk accountability in the tender process of contractors in Ghana and UK

The process of how contractors take account of risk when calculating their bids for construction work is investigated based on preliminary investigations and case studies in Ghana and UK. Ghana and UK were chosen, more or less arbitrarily, for the purpose of case studies, and to test the idea that there are systematic differences between the approaches in different places. Clear differences were found in the risk pricing approaches of contractors in the two countries. The difference appeared to emanate from the professional knowledge and competence of the bid team members, company policy, corporate accountability and the business environments in which the contractors operate. Both groups of contractors take account of risk in estimates. However, risk accountability was found to be higher on the agenda in the tender process of UK contractors, documented more systematically, and assessed and managed more rigorously with input from the whole bid team. Risk accountability takes place at three levels of the tender process and is dictated strongly by market forces and company circumstances.