Global Journal of Management and Business Research: G

Interdisciplinary
Volume 15 Issue 1 Version 1.0 Year 2015
Type: Double Blind Peer Reviewed International Research Journal
Publisher: Global Journals Inc. (USA)
Online ISSN: 2249-4588 & Print ISSN: 0975-5853

Effects of Lowest Bidding Bid Awarding System in Public

Sector Construction Projects in Pakistan
By Tariq Hussain Khan & Abdul Qadir Khan
Army Public College of Management Sciences, Pakistan
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.

Keywords: bidding system, construction projects, public sector construction, public sector
procurement.

GJMBR - G Classification : JEL Code: L70

EffectsofLowestBiddingBidAwardingSysteminPublicSectorConstructionProjectsinPakistan

Strictly as per the compliance and regulations of:

© 2015. Tariq Hussain Khan & Abdul Qadir Khan. This is a research/review paper, distributed under the terms of the Creative
Commons Attribution-Noncommercial 3.0 Unported License http://creativecommons.org/licenses/by-nc/3.0/), permitting all non-
commercial use, distribution, and reproduction in any medium, provided the original work is properly cited.
 Effects of Lowest Bidding Bid Awarding System
in Public Sector Construction Projects in
Pakistan
Tariq Hussain Khan α & Abdul Qadir Khan σ

Abstract- Construction industry participants have started commercial and retail buildings, as well as industrial
recognizing that accepting the least price bid does not plants, and the replacement, maintenance, and
guarantee maximum value. Achieving a value-based

2015
restoration of the nation’s infrastructure and other
procurement approach is a challenge, particularly for the public facilities. Bid and Procurement issues are widely

Year
Pakistani public sector clients, who are limited in their ability to
related to the construction industry and its
evaluate the competitive bids based solely on the lowest-bid
award system. Persisting problems of inferior quality of participants so that striving to improve the
constructed facilities, high incidence of claims and litigation, procurement of construction by the public sector in 9
and frequent cost and schedule overruns have become the particular is in the best interest of both the community

Global Journal of Management and Business Research ( G ) Volume XV Issue I Version I

main features of Pakistan’s public construction works and the construction industry.
contracts. This research was undertaken to assess the Currently, the public sector procurement of
performance of public owned construction projects awarded construction is largely based on the lowest bid award
on a lowest bidder bid awarding system. Also, the objective system. The customary practice of awarding
was to seek construction professionals’ opinions about the contracts to a lowest bidder was established to
traditional bidding procedure and other alternative systems
ensure the least cost for completing a project. In public
for evaluation of bids and awarding contracts. An extensive
literature search was carried out to identify different construction works, this practice is almost universally
practices and a questionnaire survey was conducted accepted since it not only ensures a low price but also
among the different groups that make up the construction provides a way to avoid fraud and corruption (Irtishad,
industry in Pakistan. Five alternate bid evaluation and contract 1993). While the low-bid procurement system has a
award methods are discussed and presented in this research. long-standing legal precedence and has promoted
The questionnaire was distributed online as well as open competition and a fair playing field, a long-
through visits to contractors, clients and consultants. standing concern expressed by owners and some of
Additionally, 12 interviews were conducted with clients, their industry partners is that a system based strictly
consultants and contractors. In total 200 questionnaires were
on the lowest price provides contractors with an
distributed. The data were collected and 112 valid
questionnaires were analyzed by using MS Excel, PH stat, incentive to concentrate on cutting bid prices to the
SPSS-20 and Sigma XL. The study concludes that 70% of the maximum extent possible (instead of concentrating on
respondents consider the multi-parameter bidding method is quality enhancing measures), even when a higher cost
to be more effective than lowest bidding method and ranked product would be in the owner’s best interest, which
this method as best amongst all six selected methods. makes it less likely that contracts will be awarded to
Insights and discussions are given in the analysis. Finally, this the best performing contractors who will deliver the
work will provide valuable information to clients, consultants highest quality projects. As a result, the low-bid system
and contractors and other stakeholders who desire to improve may not result in the best value for money expended
bidding methods in construction in Pakistan.
or the best performance during and after
Keywords: bidding system, construction projects, public
construction. Moreover, the traditional low-bid approach
sector construction, public sector procurement.
tends to promote more adversarial relationships rather
I. Introduction than cooperation or coordination among the contractor,
the designer and the owner, and the owner generally

T
he construction industry is one of the major faces increased exposure to contractor claims over
sectors which involve substantial financial and design and constructability issues (Rizwan, 2008).
human resources. Design and construction play The study aims at analyzing the current status
a vital role in the national economy, including the of Bid and Procurement Strategies in the construction
development of residential housing, office, industry of Pakistan. In Pakistan, the most common
method of awarding the contract is the Least
Author α: Army Public College of Management Sciences (APCOMS), Responsive Bidder or Price Based method, which has
Affiliated with UET Taxilla, Khadim Hussain Road, Rawalpindi Cantt,
inherent flaws of high competition and minimum
Pakistan. e-mail: [email protected]
Author σ: COMSAT’S Institute of Information Technology Virtual performance. These incompetent practices pose a
Campus Islamabad, Pakistan. e-mail: [email protected] serious risk and problems. It is therefore, imperative to
© 20 15 Global Journals Inc. (US)
 Effects of Lowest Bidding Bid Awarding System in Public Sector Construction Projects in Pakistan

to assess the impact of competitive low-bid awarding innovation and modernization, to ensure they win bids
system on performance of major public work and maintain their profit margins. In addition, the
projects (in terms of schedule, cost, quality and safety) process is beneficial specifically to the public sector
in Pakistan construction industry. The study will forward because of the transparency and simplicity, an
recommendations and suggestions for developing a important criterion of public policy (Photios, 1993).
proposal for implementing alternative bid-evaluation However, allowing projects to be awarded based on the
and contract award procedures for the construction least price has inherent flaws. Delays in meeting the
industry of Pakistan. contract duration, increment of the final project cost
due to high variations, tendency to compromise
a) Research Scope
quality, and adversarial relationship among
Mainly, the scope of the study is to analyze
contracting parties are the major pitfalls associated
the performance of public owned construction
with responsive low bid award procedure (Thomas.,
projects which are awarded by the lowest bidder
2009). Moreover, the low-bid award system encourages
bid awarding system in Pakistan. A limited study of
2015

unqualified bidders in the competition and in contrary it

alternate bidding procedures followed in different parts
discourages qualified contractors to participate. In a
of the world is also covered in this study. However, this
Year

survey conducted in the Oromiya regional state,

research mainly covers public construction projects
non-existence of real competition during contractors
under the government of Pakistan. Private sector and
10 selection; excessive time overruns; compromising
other practices are given very little attention in this
quality; and escalation of the final project cost from
research and they may have slightly different results.
Global Journal of Management and Business Research ( G ) Volume XV Issue I Version I

the estimated cost were the major problems

b) Research Objectives associated with the existing approach of delivering
(a) To highlight the weaknesses, performance, projects (Lemma., 2006). Among many causes of
opportunities and implications of the public disagreements in the construction project, the project
owned construction projects that are awarded on delivery system selected is one of the significant
the basis of lowest bidder bid system in Pakistan. elements (Abera, 2005).
(b) To analyze the existing bid selection and a) Legal Framework (Bidding Procedures and Laws)
awarding system and to provide a comparative Government of Pakistan has statutes
study of different alternative bidding systems. requiring submission of competitive bids for
(c) To present conclusions and recommendations on construction projects. As per Pakistan Engineering
lowest bidding system performance based on Council (PEC) and Public Procurement Regulatory
analysis and results of this study. Authority (PPRA), it requires public organizations to
award such contracts to the “lowest responsive bidder.”
II. Literature Review Public works procurement as defined by PPRA is
“Save as otherwise provided hereinafter, the procuring
The latest developments and desires in
agencies shall use open competitive bidding as the
different aspects of human life, has directed the
principal method of procurement for the procurement of
professionals in construction industry to use
goods, services and works” (Rule 20, S.R.O.
alternative methods of project delivery systems.
432(I)/2004). Few definitions and outline of bidding
However, the bidding and project awarding systems are
procedure followed in public sector of Pakistan is
still largely in their basic form. If a client wishes to
discussed in this section.
muddle through these new trends and invite
acceptable bidders, it is necessary to clarify and i. Procedures for Competitive Bidding
develop pre-determined selection criteria and the (a) Single Stage – One Envelope Procedure
objective of the prequalification and bid evaluation Each bid shall comprise one single envelope
processes (Hatush et al., 1997). In Pakistan, major client containing, separately, financial proposal and technical
of construction industry is Government of Pakistan proposal (if any). All bids received shall be opened and
(GOP). And the most common procurement method evaluated in the manner prescribed in the bidding
is the lowest-bidder system in which contracts are document.
awarded to a responsive contractor who offers the least
price. In last twenty to thirty years, the prequalification (b) Single Stage – Two Envelope Procedure
criteria and bidding processes have not seen much The bid shall comprise a single package
advancement and are still in their old form. The client is containing two separate envelopes. Each envelope
provided by prequalification, with a list of contractors shall contain separately the financial proposal and the
that are invited to tender on a regular basis. There are technical proposal. Initially, only the envelope marked
unambiguous benefits and distinct pitfalls to the “TECHNICAL PROPOSAL” shall be opened. After the
lowest-bidder bid awarding system. It compels the evaluation and approval of the technical proposal
contractors to lower their costs, usually through the procuring agency, shall at a time within the bid
© 2015
1 Global Journals Inc. (US)
 Effects of Lowest Bidding Bid Awarding System in Public Sector Construction Projects in Pakistan

validity period, publicly open the financial proposals of proposal shall be opened at a date, time and
the technically accepted bids only. The financial venue announced in advance by the procuring agency.
proposal of bids found technically nonresponsive shall a. Award of the Contract
be returned un-opened to the respective bidders. The Subject to Clauses IB.30 and IB.34, the
bid found to be the lowest evaluated bid shall be Employer will award the Contract to the bidder
accepted. whose bid has been determined to be substantially
(c) Two Stage Bidding Procedure responsive to the Bidding Documents and who has
offered the least evaluated Bid Price, provided that such
i. First Stage bidder has been determined to be eligible in
The bidders shall first submit, according to accordance with the provisions of Clause IB.3 and
the required specifications, a technical proposal qualify pursuant to Sub-Clause IB 29.2.
without price. The technical proposal shall be evaluated
in accordance with the specified evaluation criteria b) Alternative Methods of Procurement
PPRA also allows the owners and clients to use

2015
and may be discussed with the bidders regarding
any deficiencies and unsatisfactory technical features. other methods of procurement in special circumstances.

Year
After such discussions, all the bidders shall be These special circumstances are well defined and
permitted to revise their respective technical spelled out in PPRA rules. A procuring agency may
proposals to meet the requirements of the procuring utilize the following alternative methods of procurement 11
agency. of goods, services and works, namely:-

Global Journal of Management and Business Research ( G ) Volume XV Issue I Version I

ii. Second Stage i. Petty Purchases
The bidders, whose technical proposals or Procuring agencies may provide for petty
bids have not been rejected and who are willing to purchases where the object of the procurement is
conform their bids to the revised technical below the financial limit of *twenty five thousand rupees.
requirements of the procuring agency, shall be invited Such procurement shall be exempt from the
to submit a revised technical proposal along with the requirements of bidding or quotation of prices. Provided
financial proposal. The revised technical proposal and that the procuring agencies shall ensure that
the financial proposal shall be opened at a time, date procurement of petty purchases is in conformity with the
and venue announced and communicated to the principles of procurement prescribed in rule
bidders in advance; and the revised technical
proposal and the financial proposal shall be ii. Request for Quotations
evaluated in the manner prescribed above. A procuring agency shall engage in this method
(d) Two Stage - Two Envelope Bidding Procedure of procurement only if the following conditions exist:-
iii. First Stage (a) The cost of object of procurement is below the
The bid shall comprise a single package prescribed limit of one hundred thousand rupees.
containing two separate envelopes. Each envelope (b) The object of the procurement has standard
shall contain separately the financial proposal and specifications.
the technical proposal. Initially, only the envelope (c) . Minimum of three quotations has been obtained.
marked “TECHNICAL PROPOSAL” shall be opened. The
(d) The object of the procurement is purchased from
envelope marked as “FINANCIAL PROPOSAL” shall be
the supplier offering the least price.
retained in the custody of the procuring agency without
being opened. The technical proposal shall be iii. Direct Contracting
discussed with the bidders with reference to the A procuring agency shall only engage in direct
procuring agency’s technical requirements. Those contracting if the following conditions exist, namely:-
bidders willing to meet the requirements of the procuring (a) The procurement concerns the acquisition of spare
agency shall be allowed to revise their technical parts or supplementary services from original
proposals following these discussions. manufacturer or supplier.
Second Stage
(b) Only one manufacturer or supplier exists for the
After agreement between the procuring
required Procurement.
agency and the bidders on the technical
requirements, bidders who are willing to conform to the (c) Where a change of supplier would oblige the
revised technical specifications and whose bids have procuring agency to acquire material having
not already been rejected shall submit a revised different technical specifications or characteristics
technical proposal and supplementary financial and would result in incompatibility or
proposal, according to the technical requirement. The disproportionate technical difficulties in operation
revised technical proposal along with the original and maintenance.
financial proposal and supplementary financial (d) In case of an emergency.

© 20 15 Global Journals Inc. (US)

 Effects of Lowest Bidding Bid Awarding System in Public Sector Construction Projects in Pakistan

iv. Negotiated Tendering Pakistan is normally based on the lowest-bidding

A procuring agency may engage in negotiated method. In this method, the firm which is responsive and
tendering with one or more suppliers or contractors with submits the lowest bid, gets the right for the
or without prior publication of a procurement notification. construction project. The main advantage is that
contractors continuously try to reduce costs by adopting
c) Contract-Award Procedures in Construction
technological and managerial innovations which can
Bidding procedures are mainly negotiated and
save costs (Photois, 1993). This saving is then
competitive. Mostly, the other methods are either
transferred to the owner through this competitive
variant of, or somewhat between these two
bidding process.
significant types. In competitive method, the work is
If a bid submitted by a contractor is
awarded to the least-bidder, if he/she is proved to be a
drastically lower than the engineer estimate or client’s
responsive one. In negotiated method of
expectation and the other bidders, it is hard to
procurement the cost is discussed and negotiated
comprehend that how the contractor would complete
with selected constructor. Some modifications have
2015

the project profitably. Such bids are defined as

been proposed for minimizing the concerns and
‘Abnormally Low Tenders’ by (Thomas, 2009). An
implications of these two extreme types, and tried
Year

Abnormally low tender is a bid whose price seems

in many countries. In this research, following contract-
significantly low than all of or the average of total bids in
award methods are studied and considered:
12 the same tendering procedure. The European Union
(a) Competitive Lowest Bidding Method (Price-basis). made a legislation to permit government sector clients
Global Journal of Management and Business Research ( G ) Volume XV Issue I Version I

(b) Competitive Average Bidding Method (Price-basis). with the choices of awarding a project either by
(c) Multi Parameter Bid Method (Basing on quality, adopting traditional lowest bidding or the Economically
time, price and “other” factors) . Most Advantageous Tender (EMAT). The legislation
permitted public clients to minimize the risks of
(d) Negotiated Bid Method (Competitive).
some of the unpleasant results of abnormally low
(e) Negotiated Bid method (Non-Competitive). tenders (ALT). It includes:-
(f) A+B Method. (a) Undesired quality because of the need of
i. Lowest Bidding Method (on Price basis) construction costs reduction (Winch).
This is the most commonly used procedure to (b) Predatory pricing and unjust competition which
obtain and select contractors/construction firms for distorts the construction industry, affecting other
execution of construction projects. In broad-spectrum, bidders negatively (Alexanderson et al, 2006).
the aim of competitive bidding (price-based) is to obtain
A report on “Prevention, Detection and
the least possible price for a particular project, service
Elimination of ALT in the European CI” by European
or facility. Competitive bidding method tries to ensure
Commission’s Europe states that a bid is
that everyone gets an equal chance to bid, minimizes
considered abnormally low if by comparing it with
collusion, and saves the public money. It focuses on
the client’s Engineer estimate and all the bids
honest competition to obtain the finest work and
submitted, it seems to be abnormally low by not
supplies at the lowest possible cost. It also
keeping a margin for normal level of profits. Also the ALT
necessitates protecting against nepotism, favoritism,
cannot be justified by economy of the selected
extravagance, corruption and fraud (Sweet., 1989). For
method, the chosen technical solution, extremely
the procedure to be fair and workable, it is required
favorable conditions on hand to the tender, or the
to have a clearly defined criterion to help the bid
originality of the proposed work (Thomas, 2009).
evaluating officials determine whether bids are
responsive and the bidders seem to be responsible. In b. Assumptions Vs Implications
the competitive lowest-bidding method, the prequalified The assumptions upon which competitive
and responsive bidder who submits the least bid, lowest bid method is based and their implications are
meeting the specifications must be winner of the discussed as following:-
contract. (a) Competitive lowest bid assumes that the projects or
a. Implications and Concerns services can be independently evaluated or
It is generally accepted that competitive lowest compared before the award decision. This is not a
bidding method saves public money and protects public simple task. To avoid these inherent problems, it is
interest; this conventional method has been criticized in usually stated in ITB that for consideration, bids
last two decades or so mainly because of low/inferior should be responsive and the bidders must be
quality, incorporation of many changes/change orders, responsible.
establishment of negative relationships, schedule (b) It assumes that the submitted bids are free and
overruns, and increasing cost of the overall project. The there is a true competition, whereas, often there is
tendering process for award of construction projects in collusion among the bidders for the purpose of

© 2015
1 Global Journals Inc. (US)
 Effects of Lowest Bidding Bid Awarding System in Public Sector Construction Projects in Pakistan

taking turns and fictitious bids are submitted. By those areas that may provide chances of change
collusion, objective of obtaining the lowest price orders and claims at some stage in the project
cannot be accomplished. (Dowle et al., 1990). These contractors can use
(c) The success of competitive lowest bid method this knowledge to submit a low bid with the
depends on the integrity and capability of the anticipation of retrieval of the money later. In such
bidder, which is normally difficult to gauge since the cases the ALT is not true reflection of the final
tendency is to take into account the price only. contract cost or the unanticipated costs incurred
by the client when dealing with number of
(d) Another concern of competitive tendering is the
change orders and claims.
complexity of involving the contractor during the
design phase. Inflexible specifications also make d) Competitive Average Bidding (Price-based)
competitive bidding method less effective because One of the variations of the competitive
it doesn’t provide the contractors a chance to lowest bidding method of awarding construction
come up with multiple options. If specifications do works is based on the principle that the bid closest to

2015
not allow for alternative products and a feasible average of all the bids is considered to be the best bid,
method for substitutes, competitive cost may be and not the one which is minimum or maximum.

Year
restricted. Tenders which are bid far lower than the average are
(e) Another problem associated with this competitive considered unrealistically underbid. The bids which are
13
method is that when the bidders are as large in greatly higher than the mean are considered
number as is the case in a slow economy, a client unrealistically overbid. On the basis of this principal

Global Journal of Management and Business Research ( G ) Volume XV Issue I Version I

accepts a significant risk of choosing a contractor some methods are evolved and these are generally
that might have accidentally or deliberately known as European Methods (Irtishad, 1993).Generally,
submitted an unrealistic lower price (Photois, the best contractor based on the average-bidding
1993). A contractor may not stick to such a low method is the bidder whose bid satisfies a particular
price where, at the same time, it is expected to correlation with mean of all the bids. For average-
complete the project as per schedule and bidding method, different measures are used for
specifications, and also make a rational profit. The calculation of the average, or use different criterion for
usual result is excessive claims and disputes that evaluating the best bid. But point to remember is that
lead to time over runs, compromises in product this method takes into account the price only.
quality, and ultimately shooting costs. For example, some countries use typical
arithmetic average while few use weighted average. This
(f) Although lowest bidding method is supposed to
method is mostly used in Taiwan. Another approach of
promote innovations by forcing contractors for
obtaining the average includes the elimination of all the
continuous effort to reduce costs by adopting
bids which differ largely (more than a specified
managerial and technological innovations which
percentage) or the outliers and then the mean of the
are cost-saving yet it is criticized for
remaining bids is calculated. The winner could be the
discouraged innovation (Irtishad, 1993). Nicolson
one whose price is nearest to the mean, or the other
asserts, lower bids provide lesser margin for a
whose bid price is closest but less than the average.
builder to implement latest techniques or improve
This method is widely used for construction projects in
the quality of his new product.
Italy (Photios, 1993).
(g) It has also been criticized for not offering any In Europe, a formula to calculate a realistic
incentive for the high quality construction of a offer from a number of competitive bidders was
completed project at a reasonable cost. developed which is known as “Danish” system. This
(h) Another concerning practice of a contractor is system right away rejects the highest and the lowest
that they intentionally submit an artificially low offers and rest of the bids are considered only (Irtishad,
bid in expectation of making the profit through 1993). The formula is similar to the PERT and stands as
changes and construction claims (Thomas., following:-
2009). Some bidders carefully review the bid Where,
documents to search for mistakes and doubts in
NA = (NH + 4A +NL) / 6 {NA = New average; NH = New high; A = Average of all offers &NL = New low}
The first bid which is above this NA is then The fundamental idea of the average bidding
treated as rational, reasonable and acceptable. The method is that the best bid is the one closest to a
method is not effective unless the minimum number of defined average, neither the minimum nor the maximum.
bidders is eight and this is the key limitation of Danish These competitive cost- based average bidding
system. methods are mainly used to make sure that the selected

© 20 15 Global Journals Inc. (US)

 Effects of Lowest Bidding Bid Awarding System in Public Sector Construction Projects in Pakistan

contractor is responsible, to minimize project failure, and difficult to ensure in the way bidding is practiced when
to avoid disputes and construction claims. sub-bids are accepted till last minute. Additionally,
The basic principle is that the bidders should current laws don’t restrict main contractors to retain
get a reasonable and practical cost of their work. It is a preselected group of subcontractors.
assumed that with a fair price, the contractor would Some pitfalls of the competitive lowest
ensure quality needs of the project, would finish on bidding method can also prevail with the average
schedule, and will not have any adverse relationship bid system. As in case of the lowest bid method,
with the client, consultant and engineer. collusion among the bidders and the absence of
prequalification may negate its intent and undesirable
i. Implications and Concerns results will be produced (Ioannou et al., 1993).Higher
In average bidding methods, as described profitability of contractor and better relationships
above, all the features of open bidding system are between the client and the contractor cannot be
retained. The only variation is that the selected ascertained in the countries which are practicing
contractor is the one whose bid is close to the average average bid method. Evidence is not enough to
2015

of all the submitted bids. The major risk of the lowest- conclude that incidence of construction claims is less in
Year

bidding method is the likelihood of awarding a contract European countries (that practice average bid
to a person or firm that submits, accidentally or method) as compared to those countries that are
14 deliberately, an unrealistic low bid. Such an occurrence not following this method (Irtishad, 1993).
may lead to the owner’s disadvantage by promoting
disputes, increase in costs, and delays in schedule. To e) Multi-Parameter Bidding Method (Based on price
Global Journal of Management and Business Research ( G ) Volume XV Issue I Version I

tackle this problem, some countries have adopted the and “other” factors)
average-bidding method and the contract is awarded to This is a model based competitive bidding
the contractor whose price is near the average- bid which not only on caters for cost but also considers
price. Average bidding method finds its relative merits other parameters as proposed by Herbs man and Ellis;
over lowest-bid method (Photois, 1993). they named it the multi-parameter bidding procedure
The major advantage of this method is that (Herbsman et al., 1992). They suggest that the major
it safeguards a client from signing a contract at an parameters should be cost, time and quality with minor
unrealistic low bid price that will certainly lead to parameters on the discretion of the client. The amount of
adversarial relationships during construction (Ioannou time proposed in the bid to complete the project can
et al., 1993). This method also provides shelter to have an impact on cost. For example, a construction
contractors for not honoring a bid containing an company which can complete a building project three
oversight or a gross mistake. months earlier than its closest bidder may save the
The basic disadvantage of the average- owner some additional rent cost. By factoring this cost
bidding method is that it doesn’t promote saving in the bidding process, a better reflection of the
competition that leads to lesser costs for the client. total costs can be estimated. Similarly, the impact of
A breakthrough (technological or managerial) resulting better quality may also be included in the contract
in major money savings will not necessarily be passed award decision. The costs of repair and maintenance
on to the client in the form of lower costs, unless all are directly associated with the quality of the built
participating bidders are known to have this facility being constructed. In Multi-Parameter Bidding
breakthrough. It has been criticized that average bid Method, estimation of quality may be calculated by the
method results in considerably higher profits in kind of materials and type of equipment proposed to be
construction projects (Irtishad, 1993).When such high used, the past performance of the main contractor and
profits are earned throughout the industry, bid prices the subcontractors which are proposed in the bid. In
are expected to fall gradually and the savings will Multi-Parameter Bidding Method, time and quality
eventually be passed to the client. It has been parameters are assigned a maximum number of
claimed that the average bid method would attainable points. The bids are then evaluated and
increase contractor profitability and it has the potential ranking is made basing upon these points, as well as
to improve relationships between the owner and the the bid cost.
contractor. Some other parameters may also be included in
From the above discussion, it is obvious that the model as desired by the owner. Other factors may
most of the apparent benefits of the average method include safety records, past working experience with
may only be applicable in the long run. Some of these client, history of disputes and claims, defect
benefits are intangible in nature. The success of this rectification history etc. In this method a “total combined
method is also dependent on the need that cost “will come up after applying all these factors
subcontractors of prime contractor are also selected on (Tarricon, 1993). The total combined costs of all the bids
the same average-bidding method. It would be very are then compared to pick the best bidder.

© 2015
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 Effects of Lowest Bidding Bid Awarding System in Public Sector Construction Projects in Pakistan

i. Implications and Concerns professional services needed in addition to their

In this method factors other than cost are complexity and scope.
considered before contract award decision is made. a. Implications and Concerns
This is done in a more meticulous fashion than the Request for proposals and/or request for
traditional practice of prequalification procedure. qualification for a particular project are typical
Technical merit, time and quality factors are given more examples of competitive negotiated method. Proposals
emphasis in a bid evaluation. Some people stress that from more than one contractor are scrutinized for factors
the innovation is needed for the sake of time and high such as technical capability, project schedule as well as
quality, to get better value for the public money, to cost. These methods are usually engaged when the
minimize life-cycle costs of a product for the public project is planned to be built under a design/build
department, while maintaining a reasonable profit for the contract. Promoters of competitive negotiated bidding
contractor. method claim that this method saves time, improves
For many years, the element of time was not the quality and reduces number of claims. The main pitfalls

2015
most important factor of construction projects in many of this method are:-
countries. The element of cost was the most important
(a) The cost and time spent by the contractor for

Year
one. In the last two to three decades, the CI of Pakistan
preparing a proposal is higher.
has involved in both building of new roads and
construction of new facilities. These construction (b) The system lends itself to a situation where the 15
projects are mainly in urban areas and cause substantial contractor is reserved to propose any new or
innovative ideas because preconceived ideas of the

Global Journal of Management and Business Research ( G ) Volume XV Issue I Version I

problems to the public. Also, high volumes of traffic
cause delays in completion of the projects. For evaluators may not fit in the particular situation;
instance, in U.S.A, a few innovative procurement contractors are required to disclose confidential
systems for “buying time” were introduced in order to commercial and financial information that should
minimize such delays (Zohar et al.). The common not be released outside the company.
denominator of all those procurement system is the (c) The owner may try to get cost-saving ideas from the
ability of the contractor to procure the time for competing contractors during the interviews and yet
completion of the project. may choose not to award the project to the
ii. Competitive Negotiated Bidding contractor whose ideas would later be utilized; and
At times it becomes necessary to obtain bids the processes of evaluation turn out to be subjective
from a selected group of builders who possess known rather than objective (Kelley, 1991).
technical, managerial and financial capacity to complete b. Non-Competitive Negotiated Bidding
a multi dimensional complex project. Some classified The non-competitive negotiated procedure is
projects may also require only those contractors who essentially the process of negotiating a bid with a single
can perform work at some specific place. In such source, usually a preselected contractor. For this reason
circumstances, competitive price-based open bidding it is also known as sole-source negotiation. The cost to
may not be suitable. On the other hand, single-source be paid, and the product or goods to be procured by
negotiation method is very hard to put into practice in the owner are normally the items of negotiation. The
public sector as this may lead to allegations of firm, that is known to be prequalified and having
corruption and favoritism. To stay away from these expertise, can be chosen without any notification or
problems with single-source negotiated bidding many tendering advertisement. This saves additional effort,
organizations and clients are using variations that time and money but chances of favoritism and
include features of both competitive and negotiated corruption are increased.
methods. Different countries have different rules and
To modify pure negotiated method, increase regulations regarding direct procurement, but mostly
in the number of construction companies/contractors to these rules are similar in nature. In most of the cases,
negotiate with, provides multiple options for selecting when there are no competitors available for technical
amongst the contractors. In few cases, based on reasons or if the required product can only be provided
previous experience or reference, some companies or constructed by one contractor/organization, non-
which are well known to be professional and competitive negotiated bidding method is adopted.
competent to complete a construction project, are Also, when there is a need of similar service or repetition
contacted by the owner or client (Irtishad, 1993). The of works from a firm, this method may be adopted. In
owner may negotiate a tender with the most qualified Pakistan, for some classified projects or for projects
company for professional services at compensation which have security concerns due to geographical
which the organization determines are fair, competitive, location of the project site, this method is adopted.
and reasonable. In making such decision, the public Direct procurement is usually common in the
body must conduct an analysis of the price of the form of variations or change orders in the

© 20 15 Global Journals Inc. (US)

 Effects of Lowest Bidding Bid Awarding System in Public Sector Construction Projects in Pakistan

construction industry. This method is very common made. The results obtained are concluded and some
in new construction projects in the private sector like recommendations are made basing on these results.
housing, commercial buildings, private schools,
a) The Questionnaire
hospitals and industries etc. However, in government
The questionnaire form consisted of two parts.
construction projects, it is almost nonexistent.
Part I was designed to study the performance of
c. A+B bidding Method lowest bidder bid system in public sector of
In this method contractors bid on the cost (part Pakistan Part II of the questionnaire was designed to
A) and on the time (part B), and the lowest combined make comparison with some other methods of
bidder (A+B) is awarded the project. In the last tendering used in different parts of the world. A five-
decade or so, many departments of transportation point likert scale, with 1 being very low and 5 being very
around the United States have experimented with high, was utilized to judge the performance parameters.
using the A+B bidding method. A survey of 101 The questionnaire was distributed in hard form as well
projects was conducted and it was analyzed by as it was uploaded through “Google Drive” for online
2015

comparing the projects which were awarded using A+B filling and submission. A total of 120 questionnaires
bidding method with similar projects that were bid were invited online and 80 were sent to different firms
Year

using conventional methods (cost only). The and organizations. Out of these 200 questionnaires sent
conclusion from the research shows that substantial out, 117 were received. Five incomplete questionnaires
16 savings in construction time have been achieved when are excluded, so final analysis is carried out basing on
using the A+B method with almost no addition in 112 questionnaires. Respondents to this survey include
Global Journal of Management and Business Research ( G ) Volume XV Issue I Version I

cost. This was achieved by better planning and 32 clients, 21 consultants and 59
management skills of the contractors that were using contractors/subcontractors.
the time factor as part of their bid strategy.
b) Sample Size
III. Research Methodology There were 112 valid replies out of 200 showing
an overall response rate of 56%. In the construction
The research was started with extensive
enterprises, a good response rate is around 30% (Black
literature review in the form of previous studies, research
et al., 2000). Therefore, the response rate in this
papers, books on the subject and few case studies. The
research is acceptable.
methods for collecting and generating research data are
the questionnaire survey and interviews. A total of 35 c) Pilot Study
parameters were identified for study of performance of Before distribution of a questionnaire among
lowest bidding bid system and then these were respondents or a detailed study, a pilot study was
shortlisted to 26 keeping in view the Pakistani carried out to check the workability, practicality and
environment and culture. Basing on these parameters realism of proposed questionnaire form and also to
the questionnaire was prepared with 26 parametric find out the resources required for the research study. It
questions and 5 opinion of the respondent based was also aimed at to check the effectiveness of
questions. sampling frame and the level of success which was
A pilot study was carried out from 12 desired to be achieved through proposed techniques.
construction experts with their interviews to finalize the Five detailed interviews were carried out from renowned
questionnaire. For exploratory study 5 methods other professionals in the country belonging to public and
than the lowest bidding bid system were selected and academic sectors. The government officials from
part II of the questionnaire was designed. 10 Ministry of Finance and NHA were interviewed to
parameters were selected for comparison of these discuss the proposed research procedures and data
methods. The questionnaires were further reviewed and analysis techniques. In private sector, FWO, NLC, MES
finalized after making necessary adjustments. The and NESCOM were consulted to check the validity and
questionnaires were then distributed in different reliability of the questionnaire form including its
segments of construction industry as well were arrangement, language and time required to answer
floated on line through Google Drive. the questions. In academic sectors, renowned
The collected data was analyzed using MS professors from UET Lahore and NUST were interviewed
excel and Statistical Package for the Social Sciences to find out any weaknesses in research plan or in data
(SPSS-20). Tests for normality and consistency of data analysis techniques.
were applied. All the selected parameters were analyzed
d) Data Collection
individually and a comprehensive rating of performance
The main part of the research study was
was measured. Similarly, for comparison of other
collection of required data, which was obtained
tendering methods all the parameters were assigned
through filling of questionnaire forms and carrying out of
a numbers on likert scale and their comparison is
personnel interviews from targeted population. Out of
200 identified respondents, 117 were received back. On
© 2015
1 Global Journals Inc. (US)
 Effects of Lowest Bidding Bid Awarding System in Public Sector Construction Projects in Pakistan

scrutiny, five were rejected due to different reasons weight for a certain factor. In this research, the RII is
and 112 were kept for analysis. renamed as parameter index (PI) and is used to rank
each parameter in CI of Pakistan.
e) Comparison study of alternative methods
For comparison study, of lowest bidder bid Parameter Index = ∑p / ( A * N )
system with different methods used in some countries
PI = [0 n1 + 1 n2 + 2 n3 + 3 n4 + 4 n5 ] / [A * N]
of the world, Part II of the questionnaire was
developed. 5 Alternate methods were selected after where;
extensive literature review on the subject. To assess p : weighting given to each parameter by the
these methods, 10 parameters were selected pertaining respondents ranging from 0 to 4.
to the performance of contractors for execution of a n1 : number of respondents for impossible.
project. Instead of using "Yes/No" answers, a five point n2 : number of respondents for less likely.
likert scale was used, to explore the complete range of n3 : number of respondents for likely.
possible replies between "Yes" and "No" (Fellow and Liu, n4 : number of respondents for very likely.

2015
2003). In this study, questionnaire survey was n5 : number of respondents for almost always.
administered as it is the most appropriate method for A: highest weight i.e. 4.

Year
this kind of study (Naoum, 2007). For questionnaire N: sample size or number of samples.
survey same methodology was adopted as explained All 10 parameters were assigned a weight and
17
above in this chapter. The main consideration for using then their weighted average was calculated to establish
likert scale is to establish the extent to which the best ranking of these five methods. After calculating

Global Journal of Management and Business Research ( G ) Volume XV Issue I Version I

respondents agree or deviate with a particular the parameter index of all parameters, weighted value
parameter (Cormack, 2000). The responses to each for each method was calculated to rank the five
statement/question are then used to calculate RII methods as under:-
ranging from 0 to 1. RII method has the limitation that it
may capitalize on skewed data thus inflating the relative
Ranking Index = (2PI1+3PI2+PI3+PI4+PI5+2PI6+2PI7+PI8+PI9+PI10)/15

Where, PI1, PI2, PI3 …………………….. PI10, are parameter Indices of parameters 1 to 10 respectively.
IV. Result Analysis and Discussions strong internal consistent reliability between the scores
submitted by respondents in ranking of various bidding
To check the quality, normality, reliability and
methods.
authenticity of questionnaire surveyed data which was
received from various categories of respondents across c) Kruskal-Wallis Test for Reliability
the country pertaining to performance of lowest bidder, It is a non parametric test, used to determine
the following basic data analysis tests were performed whether three or more independent groups e.g. client,
on the received data. consultant, and contractor are identical or diverse on
some variable of interest. If asymptotic significance <
a) Measurement of Normality of Data
0.05, it means there is significant difference between
The type of data used for the research study
ratings or perceptions. If asymptotic significance > 0.05,
was on ordinal scale and more precisely it was based
it means no significant difference between ratings or
on the Likert scale measurement involving various
perceptions. The test was conducted for two sets of
categories of respondents across the country
group. Firstly, it was done to check between client,
therefore. The Shapiro-Wilk test for normality of the
consultant, and contractor. The results showed less than
surveyed data showed no normal distribution like
.05 for only one parameter i.e. lowest bidder is selected
parametric data behavior so it was treated as ‘non
among the qualified bidders. It shows that perception of
parametric’ for its further analysis and statistics study.
three groups was not same. To identify the group whose
b) Measurement of Reliability of Data (Non-Parametric) perception is different from others, Mann-Whitney test
To estimate the internal consistency of scale was conducted. The same test is applied for experience
data given by respondents as per Likert scale, of the respondents. Five groups of experience are made
Cronbach’s Alpha (ɑ) was used to measure its reliability i.e. 0-5 years, 6-10 years, 11-15 years, 16-20 years and
or viability or correlation before its interpretation. The 20+ years. The difference in perception of the
value of “ɑ” ranges from negative infinity to one, where a respondents was observed in two parameters. The
score closer to one would indicate a higher degree of result shows that the parameter “response to changes
reliability (Cronbach, 1951). By using SPSS, the value of by the lowest bidder” was perceived differently by the
Cronbach Alpha was calculated as 0.968, it can be different experience level respondents. Further to check
interpreted that there was high level of uniformity or this difference, Mann-Whitney test is conducted.

© 20 15 Global Journals Inc. (US)

 Effects of Lowest Bidding Bid Awarding System in Public Sector Construction Projects in Pakistan

d) Mann-Whitney Test for Rejected Null Hypotheses Kruskal-Wallis test. The results show that which groups
This test is conducted to check for a certain differ in perception from other groups. The results are
parameter for which the Null hypothesis is rejected by tabulated below:
Null Kruskal- Mann-Whitney Asymptotic Significance Value
Hypothesis Wallis Sig level .05
Test Consultant-client Client-contractor Consultant-contractor
Sig
value
Lowest bidder .005 .858 .005 .001
is selected
amongst the
selected
contractors
Null Kruskal- Mann-Whitney Asymptotic Significance Value
2015

Hypothesis Wallis Sig level .05

Test -5 & 0-5 & -5 & -5& -10 & -10 & 6-10 & 1-15 & 1-15 6-20 &
Year

Sig value 6-10 11-15 16-20 20 11-15 16-20 20+ 16-20 & 20+
+ 20+
18 Response .138 .497 .001 .00 6 .892 .062 .049 .382 .675 .434
to changes .029
Global Journal of Management and Business Research ( G ) Volume XV Issue I Version I

The result shows that the perception of based questions. To improve the project performance, 5
contractors is different from clients and consultants as new methods were identified which are already in use in
regards to the parameter of selection of lowest bidder. different parts of the world. 10 performance parameters
Similarly, the perception of low experience professionals were identified and performance index (PI) for each
is different from those having more experience in the CI parameter of the five methods was calculated. After
as regarding response to changes. doing this through survey questionnaire, RI of all the
methods was calculated on the basis of weighted
e) Analysis of Lowest Bidder Bid System
parameters. This concluded to the best possible option
In public sector, the lowest bidder bid system is
against the lowest bidder. This study of comparison of
widely used in construction projects of Pakistan. The
different methods has provided the basis to undertake
detailed survey was carried out to ascertain different
more elaborate studies for actual comparison between
conditions associated with this system followed in
different alternatives. The obtained results, conclusions
different parts of the country. The questionnaire survey
or recommendations may be sent to PEC or PPRA for
(part I) consisted of three main sections followed by few
further evaluation and consideration.
opinion based questions. Analysis of the different
parameters and conditions selected after thorough a) Conclusions
literature review is given in this section. It includes In this research, the performance of public
analysis of performance parameters for the projects owned construction projects awarded on the least
executed by the lowest bidder. Data obtained through bidder bid evaluation and contract award system were
questionnaires was not normally distributed but it was assessed. Additionally, it has been tried to investigate
reliable. The analysis shows the medium level of opinions of construction professionals from public
performance by lowest bidder regarding cost, time, organizations about the current method of bid award
quality and other parameters. The perception of procedure and other alternatives. The following
contractors is found to be different from clients and conclusions are drawn based on the assessment made
consultants regarding award of contract to the lowest on information gathered through questionnaires from
bidder. Similarly less experience professionals have a construction professionals.
different perception than experienced professionals. (a) It can be concluded from the research that least
Five alternative methods of bidding were selected for responsive bid evaluation and contract award
comparison with traditional lowest bidding method. procedure is the main method of awarding public
Around 70% of the respondents appreciated and constructions works contract. Almost 83% of all the
supported the idea of multi parameter bidding. public projects are awarded to responsible and
responsive bidders with the least price offers in CI of
V. Conclusions and Recommendations
Pakistan.
The first objective of the research was to study (b) Collusion/Bid shopping is a malpractice in almost all
and analyze the performance of the lowest bidder in the construction industries of the world. The
public sector of Pakistani CI. This was achieved through phenomenon is also prevailing in Pakistani CI. The
identifying 26 performance parameters and transforming result shows that this practice prevails in 62 % of the
them into a questionnaire along with some opinion cases. This not only affects the spirit of the
© 2015
1 Global Journals Inc. (US)
 Effects of Lowest Bidding Bid Awarding System in Public Sector Construction Projects in Pakistan

competitive bidding process but also escalates the advantages i.e. early finish and least cost. If the
bid price because of the unrealistic Bid quoted by quality and other aspects of the project can be
the Bidders for the project. controlled by the supervision consultant, this
(c) Quality of the completed projects by the lowest method can obtain rich dividends. Substantial
bidders was found to be just satisfactory (index savings in construction time can be achieved.
rating of 59%) and not the optimum. During (m) The initial cost of the project in all five methods
interviews on few project sites, lower rates were the discussed in the study appears to be more than the
main reason given by the contractors for not conventional lowest bidding method. But, in long
finishing the job with optimum quality. term comparison these methods have lesser life
(d) Almost half of the public owned projects overrun the cycle cost with better quality and standards.
time stipulated for their completion. Lowest bidder (n) It is discovered in the research that the progress as
cannot put in extra resources to boost the project as per the schedule of most projects awarded on the
it costs more and profit margin is reduced. responsive least bidder bid award procedure was

2015
Ultimately the project is delayed as a whole and not satisfactory.
WBS is also not followed in letter and spirit.

Year
(o) Traditional bidding procedure has been criticized
(e) Cost is the major factor around which the whole
that it might guarantees the lowest cost project, but
process of bidding and construction revolves 19
not the best.
internationally in general and in Pakistani CI in
particular. Except for few exceptions in the world, (p) The perception of lesser experienced professionals

Global Journal of Management and Business Research ( G ) Volume XV Issue I Version I

mostly the lowest bidder bid system is followed was different from the experienced ones regarding
mainly because of saving the cost. But, at the same response to changes by the lowest bidder.
time, it is concluded that more than 50% of the b) Recommendations
construction projects overrun the budget and end Findings of this research show the moderate
up with a higher cost. level of performance of public construction projects
(f) No design can be perfect. Changes during or after executed by the lowest bidders in most of the cases.
the execution phase of the project are almost The researchers of this thesis strongly recommend the
inevitable. More than half of the lowest bidders are Federal Government of Pakistan to look for other
normally reluctant to accept change orders, unless it alternative bidding methods for evaluation and award.
is more profitable. (a) Keeping in view the inherent weaknesses of the
(g) Defects are generally observed in the more than lowest bid system it should be improved by taking
60% of the built facilities within the warranty period. following measures:-
Contractors are often called upon to rectify the
i. Quality assurance team of the lowest bidder should
defect and their response is generally good.
be a pre requisite during the execution on public
(h) More than 90% of the construction professionals construction projects.
opine that Construction projects should not be
ii. System of incentives and penalties should be strictly
always given to the lowest bidder and the quality of
imposed and implemented for scheduled
the finished project will be improved if performed by
completion of the projects.
the non lowest bidder and project can be
completed before stipulated time. iii. Projects should be planned in a way that changes
are minimized. However, changes made during the
(i) Study of alternate methods for bidding is supported
execution of the construction project should be well
by the construction professionals. It was
worked out and it should be incorporated in a way
appreciated that new methods in the field must be
that contractor accepts it voluntarily and a
tried to get ultimate results.
reasonable profit to the contractor be kept in mind.
(j) Multi parameter bidding method was appreciated
by most of the construction professionals as it iv. Safety infrastructure of the firm should be given
appears to be more comprehensive and more adequate importance at the time of bid evaluation.
useful in selection of the best bid. It can contain as (b) Flexibility in method of awarding the project should
many parameters as desired by the client. It may lie with client in the best interest of the project
have edge on the traditional lowest bidding method. keeping in view the life cycle analysis and nature of
(k) Competitive negotiated bidding is also a method the project.
which can bring upon positive changes as (c) Multi parameter bidding method was appreciated
compared to the lowest bidding. by most of the respondents. It can be adopted on
(l) A+B method includes only cost and time. The trial basis and subsequently adopted if the results
project, in this case, may have only two major are better than the lowest bidding method.

© 20 15 Global Journals Inc. (US)

 Effects of Lowest Bidding Bid Awarding System in Public Sector Construction Projects in Pakistan

(d) Bidding procedure should be made more fair and Construction Management, College of Engineering
transparent. and Design, Florida International University, Miami,
(e) Percentage of Performance and insurance bonds Florida.
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Global Journal of Management and Business Research ( G ) Volume XV Issue I Version I

14. Sweet, J. (1989). Legal Aspects of Architecture,

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