First International Conference on Construction In Developing Countries (ICCIDCI)

Advancing and Integrating Construction Education, Research & Practice

August 4-5, 2008, Karachi,, Pakistan

AN ASSESSMENT OF GENERAL TRENDS ADOPTED FOR BIDDING AND

PROCUREMENT IN THE CONSTRUCTION INDUSTRY OF PAKISTAN.
Rizwan U. Farooqui
Assistant Professor, Department of Civil Engineering, NED University of Engineering and
Technology, Karachi, Pakistan & Ph.D. Scholar, Department of Construction Management,
Florida International University, Miami, Florida, USA
Muhammad Saqib
Assistant Professor, Department of Civil Engineering
NED University of Engineering and Technology, Karachi, Pakistan
Farrukh Arif
Lecturer, Department of Civil Engineering
NED University of Engineering and Technology, Karachi, Pakistan
Sarosh H. Lodi
Professor, Department of Civil Engineering
NED University of Engineering and Technology, Karachi, Pakistan

ABSTRACT
The construction industry and its clients are widely associated with Bid and Procurement issues.
These issues are different depending upon nature of construction business activities, processes,
environment and organization. Bid and Procurement is a substantial and integral element of
Construction project management. It has been the issue of attention in the construction world.
Due to time and cost overruns associated with construction projects, so many projects fail to
accomplish their targets and objectives. Unmanaged or unmitigated bidding and procurement
procedures are one of the fundamental causes of these overruns. In Pakistan and other underdeveloped countries, the most common method of awarding the contract is the Low-Bid or Priced
Based method, which has inherent flaws of high competition and minimum performance. On the
other hand, these days, developed countries are using alternate bidding systems such as Best
Value Procurement method for awarding a contract with basic characteristics of high performance
and high competition to meet the main objective of quality of the Construction Industry. The core
objective of presenting the study is to highlight the trends and flaws in the bidding and
procurement practices in construction industry of Pakistan, specifically in government sector
projects. A set of recommendations has been presented based on surveys results and interviews
for improvement of these trends.
KEY WORDS

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Construction management, Bid, Procurement lowest bid, best value procurement, Pakistan
1. INTRODUCTION
The construction industry and its clients are widely associated with Bid and Procurement issues in
the construction industry. These issues are different depending upon nature of construction
business activities, processes, environment and organization. Bid and Procurement is a substantial
and integral element of Construction project management. It has been the issue of attention in the
construction world. Due to time and cost overruns associated with construction projects, so many
projects fail to accomplish their targets and objectives. Unmanaged or unmitigated bidding and
procurement procedures are one of the fundamental causes of these overruns. These issues can be
managed and controlled by compelling influencing the current and adopting the latest procedures
of bidding and procurement. The paper aims at analyzing the current status of Bid and
Procurement Strategies in the construction industry of Pakistan. In Pakistan and other underdeveloped countries, the most common method of awarding the contract is the Low-Bid or Priced
Based method, which has inherent flaws of high competition and minimum performance. On the
other hand, these days, developed countries are using alternate bidding systems such as Best
Value Procurement method for awarding a contract with basic characteristics of high performance
and high competition to meet the main objective of quality of the Construction Industry.
The role of construction sector in national economy is paramount yet when it is judged by its
performance, it remains far behind the manufacturing and service industries. The construction
industry has long remained plagued with the following major issues: lack of performance, lack of
trained personnel and training programs with an impact on the level of expertise in the
construction industry, and a high level of risk in terms of bonding and contractor business failure
[Tulacz (2002), ENR (2004)]. The traditional methods of design-bid-build and lump sum
contracting have not been responsive to the problems [Uhlik and Eller, 1999). Over the past two
decades the construction industry has tried to identify the cause(s) of the problems in the industry
and reduce the rate of non-performance. Corrective action has been taken to change the delivery
systems (Design-Build, Construction Management at-Risk, Design-Build-Operate, Job Order
Contracting, etc.) in attempts to allocate risk to the party most capable of minimizing the risk.
While these processes have produced some encouraging results [Pocock, 1996], they have not
significantly impacted the quality of construction craftspeople [Garrity (1999), NDU (2005)].

Many reasons have been attributed to the underperformance of the industry and multitudes of
taskforce have been initiated to improve the status of construction industry. Extensive research
[PBSRG, 1991 to date] has found that one of the root causes of underperformance lies in the fact
that many clients still equate price with cost, selecting designers and constructors solely based on
tendered price. This low-bid project procurement system is widely seen as one of the greatest
barriers to improvement. In Pakistan, like many other countries including the U.S., it is mandated
by legislation that construction contracts for public work projects be procured using a competitive
sealed bidding process and awarded using a low-bid system. Under this low-bid system,
contractors submit bids based on plans and specifications prepared by the public agency or a
private engineering firm hired by the agency, and, except under extraordinary circumstances, the
contractor submitting the lowest responsive bid is awarded the construction contract. In all but a
few cases, experience levels of the contractor, quality issues, and other criteria are not taken into
consideration in awarding these contracts.

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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 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
owners best interest, which makes it less likely that contracts will be awarded to the bestperforming 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.
In todays construction climate, public sector owners are finding themselves under increasing
pressure to improve project performance, complete projects faster, and reduce the cost of
administering their construction programs. In response to these pressures, the global construction
industry has experimented with alternative procurement and contracting methods. Many
construction owners in the U.S., for instance, are implementing best-value procurement to
improve project quality and enhance performance. In essence, best-value procurement
incorporates factors other than just price into the selection process to improve performance or
achieve other specific project goals.
The aim of the research presented in this paper is to assess the impact of low-bid environment on
performance of major public work projects (in terms of schedule, cost, quality and safety) in
Pakistani construction industry. The study will form the baseline for developing a proposal for
implementing best-value procurement system for the construction industry of Pakistan.

2. RESEARCH SCOPE
The scope of the study was to identify the practices of bidding and procurement existing in the
construction industry of Pakistan. Also to prepare a set of such recommendations that can help to
improve the bidding and procurement practices. The study was conducted through intense survey
and interviewing exercise through survey. It targeted the key players of construction industry who
are responsible for conceiving and funding the project i.e. public clients and private clients.

3. RESEARCH OBJECTIVES
The core objective to present the study is to highlight the problems associated with the bid
procurement trends in construction industry of Pakistan, specifically in Govt. owned projects and
to analyze the impact of these problems over the life cycle of projects. The information gathered
through surveys and interviews served as the foundation of the study, so that improvement in the
existing practices could be proposed and new better and more useful techniques and models could
be introduced to improve the project performance.

4. RESEARCH METHDOLOGY

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The questionnaires were developed for survey exercise based on the information acquired from
the literature review and input from various local and international experts. Separate
questionnaires were developed for each target i.e. public clients and private clients according to
their scope of work, responsibilities in a project and engineering background.
After the development of questionnaire and before finalizing the draft, pilot surveys were
conducted. The pilot surveys were conducted for both public and private clients. Based on the
suggestions questionnaires were improved.
The questionnaire were then sent either by fax or dropped in person or through mail. Majority of
the questionnaires were delivered in persons. Interviews were also held along the questionnaires
survey to cross- check the information and obtain any extra knowledge.
The response obtained from questionnaire survey was analyzed statistically to identify the trends
and practices in bid and procurement. The analytic technique adopted for this analysis was
statistical approach. Questionnaire was analyzed separately and then collectively sections as well
as questionnaire wise. Based on the data obtained conclusions were drawn.

5. Analysis and Discussion

5.1 Project Delivery systems
The clients were asked five questions to collect information about the procurement and delivery
system adopted on their project. A summary of the results for all projects is given in Table 1.
Table 1: Projects delivery system profile
Question
No.
1.
2.
3.
4.

5.

Percentage
Projects
Delivered
Project Delivery Method? Traditional (Design-Bid-Build)
100%
Project Procurement Method? Low-Bid
100%
Project Bidding Strategy? Open Competitive Bidding
100%
Type of Contract? Fixed Unit Price
78%
Fixed Lump Sum Price
12%
Fixed Price Plus Escalation
8%
Project Execution Approach? Normal track
68%
Fast Track (Multiple Prime Contracting) 32%
Delivery System Component

The findings of this section indicate that all of the projects surveyed under the research study
were procured using the traditional low-bid open competitive bidding system, while a majority of
the surveyed projects were fixed unit price contracts (without escalation) and were performed
using normal track execution approach.
5.2 Clients Project Experience as Related to Low-Bid Environment
The Clients were asked about negative consequences of lowest bidding they had on the work
environment and team relationships. The responses are summarized in Table 2 (in descending
order of response percentages)

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Table 2: Negative consequences of low-bid system on work environment and team

relationships

Consequence
Increased No. of Claims
Increased No. of Disputes
Work Suspensions
Increased No. of Change Requests/ Orders
Higher cost of contract administration

Percentage
Projects
Affected
65%
60%
55%
52%
30%

From the responses, it is evident that low-bid environment generated a wide variety of negative
consequences on majority of projects in terms of affecting work environment and team
relationships. This is, in particular, true in terms of increased number of claims, disputes and
changes, and work suspensions.
5.3 Inappropriate Selection of Contractors by Clients
Clients were asked whether the inappropriate selection of the contractors is the consequence of
Low bid practices. It is interesting to note that 82% clients responded affirmatively to this
question, signifying that inappropriate contractor selection is largely a consequence of low-bid
price selection criteria.
5.4 Obstacles to Alternative Procurement strategies
The clients were asked about the major obstacles they face in adopting alternative strategies in
construction projects (such as best value procurement).Most of the clients responded that

lowest price bidding is mandated by government regulations for public projects (response
rate=58%) and lowest price bidding is the traditional form of contracting strategy
(response rate=58%) which require time to be changed to alternative methods as it has
become a culture for construction projects in Pakistan.
On the other hand when they were asked whether they believe that Best Value
Procurement application to Construction Industry will help in improving the construction
processes 50% of the clients responded in affirmation.
5.5 Clients Project Experience as Related to Low-Bid Environment
In this section, seven questions were asked to collect information about the clients experience on
projects as related to low-bid environment. The results are given as follows.
What negative consequences lowest bidding had on the work environment and team
relationships?

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Table 3. Negative consequences of low-bid system on work environment and team relationships
Percentage
Consequence
Projects
Affected
65%
Increased No. of Claims
60%
Increased No. of Disputes
55%
Work Suspensions
52%
Increased No. of Change Requests/ Orders
30%
Higher cost of contract administration
The responses are summarized in Table 3 (in descending order of response percentages). From
the responses, it is evident that low-bid environment generated a wide variety of negative
consequences on majority of projects in terms of affecting work environment and team
relationships. This is, in particular, true in terms of increased number of claims, disputes and
changes, and work suspensions.
What was your experience regarding the lowest bidder as a contractor on this project?
Table 4. Clients experience regarding lowest bidder as the contractor on the project
Low-Bidder Issue
Unprecedented Claims and disputes
Technical & managerial incompetence
Financial instability
Lack of technical input in form of human resources (employment of third-grade
human resources on the project)
Cost at project completion is substantially more than the contract (bid) cost
Specifications compliance issues
Low productivity issues

Percentage
Projects
Affected
48%
46%
42%
42%
40%
38%
34%

The responses are summarized in Table 4 (in descending order of response percentages). The
results clearly indicate that, as per the experience of major public clients, the low-bidder as the
contractor on a project has mostly mal-performed, particularly in terms of generating
unprecedented claims and disputes, technical and managerial incompetence, financial
incompetence and employment of third-grade human resources on the project.
The clients were asked four questions to establish the relationship between project nonperformance (in terms of performances on schedule, cost, quality and safety) and inappropriate
contractor selection. The results are shown in Table 5.
Results clearly indicate that a majority of public clients approve the fact that inappropriate
contractor selection is a key contributory factor toward project non-performance. The above
responses (Table 5) in conjunction with the responses to the options in previous question
(question no. 7) provide ample evidence as to state that inappropriate contractor selection (lowest
bidder as the contractor on the project) is a major factor contributing to project non-performance.
Table 5. Project Non-Performance as related to Inappropriate Contractor Selection
Question
Percentage
No.
Non-Performance Issue
Clients Agreed

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8.
9.
10.
11.

Can a major proportion of project delay (more than 80% of the delay)
be attributed to inappropriate contractor selection?
Can a major proportion of project cost overrun (more than 80% of the
cost overrun) be attributed to inappropriate contractor selection?
Can a major proportion of project quality issues be attributed to
inappropriate contractor selection?
Can a major proportion of project safety issues be attributed to
inappropriate contractor selection?

79%
74%
64%
52%

Was Inappropriate Contractor Selection a consequence of Low-Bid Price Selection Criteria?

(Yes/ No/ NA)
It is interesting to note that 82% clients responded affirmatively to this question, signifying that
inappropriate contractor selection is largely a consequence of low-bid price selection criteria.
This is a significant finding as to providing ample evidence to the hypothesis that low-bid
environment is a major contributory factor towards project non-performance.
In summary, the findings of this section indicate that low-bid environment has generated a wide
variety of negative consequences on majority of projects in terms of affecting work environment,
team relationships as well as project performance (schedule, cost, quality and safety). The lowbidder as the contractor on a project has mostly mal-performed, particularly in terms of
generating unprecedented claims and disputes, presenting technical, managerial and financial
incompetence, and employing third-grade human resources on the project. A majority of public
clients acknowledge the fact that inappropriate contractor selection is a key contributory factor
toward project non-performance, which is, as the survey indicates, primarily a consequence of
low-bid price selection criteria.
6. CONCLUSIONS
The root cause of construction non-performance in Pakistani construction industry can be
attributed to the low-bid project procurement system. The traditional low-bid approach has
evidently contributed promoting 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.
In summary, the findings indicate that low-bid environment has generated a wide variety of
negative consequences on majority of projects in terms of affecting work environment, team
relationships as well as project performance (schedule, cost, quality and safety). The low-bidder
as the contractor on a project has mostly mal-performed, particularly in terms of generating
unprecedented claims and disputes, presenting technical, managerial and financial incompetence,
and employing third-grade human resources on the project. A majority of public clients
acknowledge the fact that inappropriate contractor selection is a key contributory factor toward
project non-performance, which is, as the survey indicates, primarily a consequence of low-bid
price selection criteria.

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7. RECOMMENDATIONS
The authors propose the development of a procurement model for Pakistani construction industry
that selects contractors based on best value (performance and price) to replace the existing lowbid model in the industry. This model should utilize leadership/information concepts that transfer
risk, make all parties accountable, and motivate high performance construction. The model
should include educating and training the key players involved in construction process to adopt
best value practices. Since radical changes are not so easy to implement, it is believed that by
involving a select group of people from academia, industry and clients and training and educating
them will disseminate the idea to the rest of the industry. Prototype projects should be identified
for model testing. These test projects will serve as an example to the industry while establishing
the procedure for future projects. It is expected that the core group of people involved in these
selected projects will transfer the technical know-how to other project personnel.
The following basic steps are identified to implementing best-value procurement in the Pakistani
construction industry:
1.
2.
3.
4.
5.
6.
7.
8.

Setup of the best-value procurement system process and education.

Selection of test projects.
Collection of vendor past performance information.
Bidding and analysis of bids.
Selection of the best value contractor.
Managing the pre-award phase.
Construction and the rating of construction.
Analysis of results and system adaptation.

8. References
ENR Staff Writer (2004, Jan 26) Bonding and Insurance Trouble Needs Perspective,
Engineering News Record, vol. 252, no. 4, p. 52.
Garrity, Kathleen (1999) No Easy Solutions to Construction Labor Shortage. Construction and
Equipment, 23, March.
NDU (2005) Government Goals and Rules: Industry studies. The Industrial College of the Armed
Forces, Accessed on http://www.ndu.edu/icaf/industry/2000/construction/construction.htm.
PBSRG (1991 to date). Performance Based Studies Research Group. Accessed on
http://www,pbsrg.org
Pocock, Jim; Laing, Liu (1996) Alternative approaches to projects: better or worse?. Society of
American Military Engineers, vol. 88, no. 578, pp. 57-59, Jun.
Tulacz, Gary J. (2002). The Top 400 Contractors: Planning Hard for Soft Landing. ENR. Volume
248, Number 19, pp 54-56, 59-60, May.
Uhlik, F.T., and Eller, M.D., (1999). "Alternative Delivery Approaches for Military Medical
Construction Projects." Journal of Architectural Engineering, Volume 5, No.4 132-134.
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