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Abstract
Construction project risks affect contractors' tender price. A host of factors influencing tender prices were identified and the importance of these factors evaluated by making use of the data collected in a postal questionnaire survey conducted to the ‘Buildings’ contractors in Hong Kong. Out of 60 factors identified, the availability of required cash, uncertainty in costs estimates, urgent need for work, past experience in similar projects and contract size are considered most important. The need for work and the amount of experience are similar to those factors affecting bidding decisions of top UK contractors. The findings suggest that in the upward adjustment of tender prices, the large‐size contractors are more concerned with the uncertainty in costs estimates while the medium‐ and small‐size contractors care more about no past experience. In the downward adjustment of prices, the large size of the contract is the main factor affecting the pricing of the large‐ and medium‐size contractors while the urgent need for work is the main drive for the small‐size ones. There are significant differences between the contractors' perceptions of the importance of the risk factors. This is consistent with differing attitudes towards bid mark‐up decisions of the large‐ and medium‐size contractors in Singapore.
Acknowledgements
The authors are indebted to the anonymous referees for their insightful comments that improved and clarified this paper. We wish to thank the contractors who took part in the consultation and those who replied to the questionnaire. Their openness and honesty during the interviews are appreciated.
Notes
1. One or more risk factors may affect the project success simultaneously. The degree of impact on pricing for risks varies from factor to factor due to different resources and capabilities of different contractors. Depending on the heterogeneous nature of project risks, the effect may be positive or negative. For one particular factor, pricing for risks may be adjusted upward (inflated) slightly; for the other, it could be adjusted downward (deflated) significantly. Take the ‘need for work’ as an example: the small contractors may price their bids way lower than normal to acquire the job that would enable the company to maintain a viable business while the large contractors would not be under pressure to reduce their prices. Similarly, the small contractors may inflate the price for the ‘large size of contract’ due to their limited capability while the large contractors may deflate the price for the benefits arising from the economies of scale.
2. Group C contractors in Hong Kong are the largest contractors that are eligible to bid for public projects of any value exceeding HK$50 million. Group B contractors may bid for projects of value ranging from HK$20 million to HK$50 million. Group A contractors are only eligible to bid for projects not exceeding a value of HK$20 million.
3. In Shash (Citation1993), the denominator in the importance index formula is 5, i.e. the weighting ranges from 1 (least important) to 5 (most important). In Dulaimi and Shan (Citation2002), the denominator is 7 with weighting ranges from 1 to 7 where 1 is the least important and 7 is the most important. In this study, the weighting ranges at seven 15% intervals of price adjustment, both upward (inflated) and downward (deflated), for scoring answers. In so doing, the validity of the survey instrument is improved. Abstract qualitative words such as ‘very’ and ‘slightly’, which are likely to create rating distortion in the survey answers, are eliminated. (See notes by Edwards and Bowen (Citation1998b) on the survey design.)
4. In the Singapore study, the contractor classification was focused on the ‘general building’ category from the register of contractors for public sector projects maintained by the Building and Construction Authority (BCA) in Singapore. ‘Large’ contractors in the BCA are those G7 and G8 contractors. G7 contractors are eligible to bid for projects up to a value of S$50 million (US$1 = S$1.8) or HK$216.7 million (US$1 = HK$ 7.8) and G8 contractors may bid for projects of any size. The second group selected for study covered G4 and G5 contractors, representing the ‘medium‐size’ contractors. G4 contractors are allowed to bid for projects up to S$5 million (or HK$21.7 million) and G5 may bid for projects to the value of S$10 million (or HK$43.4 million). The classification is somewhat similar in Hong Kong. G7 and G8 contractors in Singapore are more or less equivalent to Group C ones in Hong Kong and G4 and G5 are similar to Group B.