Purpose - The aim of this statement is to evaluate the impact of any financial recession on the current tendering techniques of UK companies.
Design/technique/approach - An comprehensive literature review of this issue was undertaken to form the research hypothesis and lots of research questions. This was further developed through two interviews with industry specialists which shaped the basis for cognitive mapping which when mapped may then assist in creating a questionnaire. A pilot review was conducted and upon receiving positive feedback the questionnaire study was completed.
Key findings - The results show that clients and contractors are reverting back to type and that the advancements created by the Latham and Egan accounts has stalled as price has become more important than quality once more. Public sector agreements have been detected to offer considerable opportunities for contractors as the client has a triple A score and the tasks are typically permanent which can help contractors to make it through the recession.
Implication for practice - The building industry cannot obstruct change but needs to accept it and adopt and improve existing procedures which can benefit all the stakeholders. Much like the Latham and Egan accounts, a new record needs to be completed which can aid the development industry so that the effects of this recession are experienced for the shortest time possible.
Originality/value - The books review and cognitive mapping provide a detailed insight into the topic but scheduled to time constraints the quantitative examination will not contain an sufficient amount of reactions to be relied upon.
The construction industry is continually evolving therefore of; a levelling of the trade pattern, methods of placing contracts, increased emphasis on quality, experience and improvements, increased competition among organizations and a change in clients buying behavior (Yisa, Ndekugri & Ambrose, 1996).
In addition to the changing attitudes of clients in construction which was marketed by the Latham and Egan reviews the economic local climate has taken additional difficulties to the industry. Clients have become more advanced and are constantly seeking improvements within the industry to meet there needs. They have also realised that during difficult times, they may use their dominance to acquire a better offer (Woods & Ellis, 2005, pp. 321).
This report presents a study aimed at assessing the impact of economical recession on current tendering practices of UK companies. The hypothesis of this research is;
"Which the development industry has adapted and improved in the last number of ages but must continue to do this in the face of new problems".
The research questions include;
- What are the key factors considered by companies when deciding to tender and how does an monetary recession alter these? e. g. Below cost tendering.
- How can trim construction, partnering and supply chain integration be utilized in construction to add value?
- How has an alteration in procurement methods been used to boost tendering practices in engineering?
It was decided to incorporate qualitative and quantitative research methods in order to receive a greater understanding of this issue. The approach applied is the fact qualitative research facilitates quantitative research by giving a hypothesis or helps measurement by recommending questions (Oyedele, 2009).
The hypothesis was proven through reading relevant journals and this originated further through undertaking two interviews which when mapped aided in creating a questionnaire. This questionnaire was completed by lots of industry staff to be able to facilitate further evaluation through factor examination which followed to regression research.
The report offers a detailed analysis of relevant books aswell as two comprehensive interviews with industry specialists. Due to time constraint nevertheless the quantitative analysis was limited by fewer questionnaires than would have been liked so the results are helpful but not to the typical that would be required for this report to be become significant to industry.
A future quantitative research is recommended in order to use the work up to now and complete the research.
2. Literature Review
2. 1 Tendering Practices
The building industry has changed greatly in the last number of ages which has been typically scheduled to changes in the economy and how the construction industry and others viewed it. There was an obvious need for change following earlier recessions and one common arrangement that the industry was failing to meet all the stakeholder's needs.
2. 1. 1 Development Industry Reports
The different accounts which have been published so that they can improve the construction industry and therefore tendering routines are discussed by Cooke & William's and shown below in Shape 2. 1. (Cooke & Willams, 2009, pp. 5).
Naoum (2003, pp. 72) highlights the Egan report which was shared in 1998 and exactly how it compares the development industry compared to that of the 1960's developing industry. This theme of the building industry lagging behind its industry counterpart is visible in not only tendering methods but many other aspects (Emmitt & Jorgensen, 2008).
Lathams (1994) main focus was that there needs to be a 'win-win' mentality between the client and the company whereas Egan (1998) concentrated about how quality and efficiency could be improved within the industry. This resulted in a more customer focused procedure which Oyedele & Tham (2005, pp. 53) feel aided in creating a more integrated process within building.
2. 1. 2 Changing Consumer in Construction
Awareness and competition between contractors has allowed your client to become more advanced also to seek improvements within the industry to meet there needs (Yisa, Ndekugri & Ambrose 1996, pp. 51). The client has realised that during difficult times, they can use their dominance to obtain a better deal (Woods & Ellis, 2005, pp. 321).
The largest consumer for the structure industry at present is undoubtedly the general public sector and this is reviewed by RICS in their third one fourth report for 2009 when they use the headline, "Public sector workloads continue steadily to support engineering activity'', (RICS, 2009).
This truth was also observed by Naoum in 2003 when she known that despite a decrease in public areas spending the general public sector was still the major consumer, (Naoum, 2003). The changing face of your client can be traced back again to the early 80's where there is a rapid privatization of government bodies like the NHS, prison services, normal water services, academic institutions, etc, (Yisa, Ndekugri & Ambrose, 1996, pp. 54).
These clients looked for further changes in tendering practices as their emphasis was on swiftness, value structured services and cost-time-quality performance and a move towards partnering (Langford & Fellows, 1993).
2. 1. 3 Current Tendering Practices
(Edum-Fotwe & McCaffer, 1999) discuss how tendering has changed from the 1960's whereby private and open public jobs were honored solely on competitive tendering to a predicament whereby a number of issues are evaluated. There has been an industry vast transfer from "lowest price is victorious" mentality to a "multi standards selection".
Naoum (2003, pp. 72) goes into further depth by outlining the drawbacks of using price-based competitive tendering. The traditional forms of agreement have been adapted (JCT 98 standard form - JCT 2005) to accommodate change in the industry but the Latham report deemed the NEC contract as having the best potential for achieving a good outcome for all your stakeholders, (Cooke & Willams, 2009, pp. 7).
The change in procurement methods are shown in the late 90's in Amount 2. 3 (Yisa, Ndekugri & Ambrose, 1996, pp. 55). This change can be added to the necessity for a more built in and less fragmented methodology as the key contractor is handling both design and building activities and can promote contractor led invention.
Risk, which is progressively important in a recession has been shifted from your client and for the contractor under Design & Build and Private Financing Initiatives.
2. 1. 4 Decision to Tender
A contractor's decision to tender can greatly affect their balance sheet by the end of a season. Projects have become more expensive and frustrating to tender for and the factors which have to be considered are outlined in Amount 2. 4 (Cooke & Willams, 2009, pp83-86).
Hughes (2004) found that the average service provider will spend 3% of turnover on earning work. He also suggets that traditional competitive tendering is much more costly than design and build as there is considerably more competition and less success rate.
Walwork (1999) argues that there surely is equivalent importance between "right job'' and "right price'' to make a revenue. Kometa et al, (1996, pp. 273) measure the need for the clients financial balance to be reviewed in greater detail. They draw focus on the risk lately payments or consumer insolvency.
This point is outlined by Shepherd (2009) when he declares in a correspondence that;
"Starting such large tenders, where procurement costs are north of Ј5m, takes a great deal of thought and consideration. The client will have to show, for example, they are organised and appear to be an efficient procurement authority. In the recession we will become a more discerning bidder as cash is tighter and assignments more popular. "
Happy to go over more as is fit.
2. 1. 5 Below Cost Tendering
Whitten (2009) writing for Engineering News explained the way the Civil Engineering Contractors Association has warned of any emerging trend of firms prices below cost.
They assume that for a few organizations this is a matter of short-term survival but that if it goes on you will see a rise in disputes and a decline in investment in training and technology. Client and contractor relationships have significantly advanced within the last a decade but;
"will be stretched to breaking point if we see clients take good thing about the recession and of declining workloads to push for bargain foundationment prices. "
Both Whitten (2009) and Scully (2009) argue the point that below cost tendering is unsustainable and can increase the threat of contractors facing insolvency. Reductions in materials and place costs have been exceeded by the drop in sensitive prices. Insolvencies are predicted to occur first of all among contractors who tender properly but fail to win the deal and then among those who succeed the agreement with unsustainably low bids (Whitten, 2009).
2. 2 Impact of any Financial Recession on the Construction Industry
A recession influences on every sector but nothing way more than the building industry as it is relies on large capital expenditure because of its lifeblood. This leads to a decrease in the amount of assignments along with an increase in the price tag on borrowing to repay loans and pay wages (Ren & Lin, 1996).
RICS reported lately on the website (1st October 2009) that tender charges for new structure work won't go up until 2011 and this pre-recession levels wont be seen within the next five years. It was mentioned that if general population spending was lower it would have a negative effect on the construction industry.
2. 2. 1 Monetary Recession in Construction
A recession can be induced by many factors but the primary reason is high inflation. The construction industry is labour rigorous and owing to union's demands for higher wages through federal government agreements, wages do not increase due to demand but public factors and move around in one direction. That is the main cause of inflation in construction costs. Ren & Lin (1996) demonstrate this romantic relationship in Body 3. 1. 1 going back recession of the late 80's and early 90's.
The UK Government's coverage has gone to provide a fiscal stimulus by increasing spending on large public projects so as to inject money into the economy that will filter down through all sectors (McFall, 2008). Green (2009) forecasted that the recession will match to the recession of the late 80's and early on 90's but that it will recover quicker. Once more public spending is the underlining reason behind the upturn but it is questioned whether the ongoing spending can be suffered.
The logical relationship between high inflation which causes a growth in borrowing costs and a reduction in construction investment and so a show up in the building cycle is shown below in Figure 3. 1. 2 (Ren & Lin 1996).
2. 2. 2 Trim Construction & Supply Chain Integration
Lean construction can be an adaptation of lean industry which can be used aggressively by large car manufacturers to great have an impact on (Emmitt & Jorgensen 2008). It is specifically relevant in a recession as it can be used at every level and its own main focus is to get rid of waste materials from the creation life routine so that value is added to each process, leading to lower costs, shorter engineering periods and increased earnings (Cartlidge, 2002).
It is shown below in Body 3. 2 how slim construction can be applied to different areas of the engineering industry (Cooke & Willams, 2009, pp. 105). Lean structure benefits tendering as it stimulates technology and off-site creation which reduces over-all costs and increased quality to the client.
Practices such as downsizing, out-sourcing, de-layering and re-engineering have been trusted within both building company's and specific projects (Thorpe et. al. , 1998). The usage of sub contractors has increased as you can find less overheads engaged (Langford & Men, 1992). The benefits of partnering can be applied to co-contracting (main contractor-sub contractor) and offer chain integration (contractor-supplier), (Edum-Fotwe & McCaffer, 1999). This allows greater flexibility as both associates will work for a goal and greater economies of range can be achieved when tendering as contractors will have their own set of preferred suppliers or sub contractors which allows those to price new assignments quickly and efficiently.
As suppliers take into account such a high percentage of creating costs their participation at an early on level should be welcomed as they can contribute new ideas, products or functions (Cartlidge, 2002). Green & May (2005) suggest that three models can be employed to the adoption of slim in development: a low fat model of waste products elimination, partnering and structuring the framework.
2. 2. 3 Partnering in Tendering
Partnering has been widely adopted in tendering in the last period of time as it provides the opportunity for enhancing the project final result aswell as benefiting the complete supply string (Dozzi et al. , 1996; Larson and Drexler, 1997). It utilizes each participant's know-how and resources so the required business aims can be met or exceeded (Bennett & Jayes, 1998).
Cooke & Williams (2009, pp. 45) high light the crucial elements of partnering that are reproduced in Amount 3. 3 and they note that without each one of these elements, it isn't partnering but merely an alliance. Partnering follows on from the previous sections as continuous improvement is achieved through lean construction, innovation and learning, problem image resolution is marketed through use of the NEC3 agreement and finally shared objectives relates to a contractors decision to tender which is extremely important so that the appropiate parties are working together.
The advantages to construction companies is that they can share the risk of tendering with another company who may in any other case be tendering against them and have skills in a certain area which would otherwise have to be paid for. As highlighted previously, future spending in development is heavily reliant on the general public sector which following the Latham and Egan reports is trying to look at a team-building approach which promotes partnering.
Due to the economic recession in UK structure, companies have been using partnering to expand into global markets that have not been as widely affected. In the bid to reduce risk most companies form local partnerships in order to utilize local knowledge as well as reducing the expenses associated with labour transfers (Edum-Fotwe & McCaffer, 1999).
While a more open relationship now prevails between different participants of any construction project Lumber & Ellis (2005, pp. 324) estimate that it'll still be time before a completely genuine relationship is available as there is an engrained culture of mistrust and deception. Successful partnerships offer the chance for do it again work however the client must be assured that tenders remain competitive within the relationship of trust.
2. 2. 4 Strategic Tendering & Project Mix
Strategic tendering and project mixture become even more essential to a companies success during times of a recession. As the private sector seems the impact of an recession firstly and then for a marginally longer period it is in a company's long-term interest to handle a more intense bidding policy towards the general public sector (Ren & Lin, 1996). Another advantage of the general public sector is its transparency and openness through the tender stage. While the general public sector may be susceptible to mal-practice, construction companies know that they can be impartially assessed and receive responses under new regulations (Statutotory Instrument, 2006).
Strategic planning can be very beneficial as it seeks to align a business in a certain direction. In todays climate contractors need to evalute your client when deciding to tender as much contractors have commenced focus on a project and then instructed to withdraw as the funding has been restricted (Edum-Fotwe & McCaffer, 1999). A number of contractors have also begun to take on jobs at cost or perhaps a loss in order to win use the opportunity of repeat work. Also this continues the company name in circulation and also to hold onto respected staff that may otherwise have to be made redundant.
Shepherd, the bid manager for Building Schools for the Future (BSF) is of the thoughts and opinions that;
"Large procurement projects, such as BSF, lose a few of the benefits of group procurement by being so expensive to procure. This creates a hurdle to entry, which in some ways may have an impact on the worthiness in the procurement. The flip area is that for a contractor, you know you will be involved with a procurement process where you have a realistic chance of earning and that your scale offers value".
2. 2. 5 Creativity & Learning in Construction
One of the most revolutionary changes in tendering has been the use of e-tendering which has been used especially on the multibillion pound development for the Olympic Games in London 2012. Creativity in tendering can offer many advantages as it provide substantial resource personal savings to a major area of the supply string, with the key benefits being improved communication, time cost savings and reduced costs (Stephenson & Tindsley, 2008). They have aided smaller companies in allowing them to contend with their greater counterparts in certain areas. Thorpe et. all (1998) claim that building has yet to get the full good thing about IT advancements compared to other industries.
Due to the competitive culture in the construction industry, until recently there has been a lack of "organisational learning" which helps bring about the sharing of knowledge and experiences between companies (Barlow & Jashapara, 1998). There has been hardly any research into organisational learning but Poyner and Powells (1995) statement emphasised its importance in providing competitive edge which is particularly relevant within an financial recession.
3. Research Methodology
The research objective is to evaluate the impact of your economic recession on the existing tendering practices of UK contractors. In order to receive a better understanding of the topic we are combining qualitative and quantitative research methods. The methodology employed is the fact qualitative research facilitates quantitative research by providing a hypothesis or helps measurement by suggesting questions (Oyedele, 2009).
The research hypothesis was founded through reading relevant publications and this originated further through undertaking two interviews with industry specialists which when mapped may then assist in building a questionnaire. A pilot research was conducted and after receiving positive responses the questionnaire study was completed.
Figure 3. 1 Research Strategy.
The literature review was sourced in the Queens, university or college library from textbooks, databases, journals, periodicals and the internet. This source was specifically valuable as it allowed the author gain instant access to a huge selection of websites, on-line articles, magazines, current news etc.
3. 1 Unstructured Interview
Following on from the prior chapter, two unstructured interviews were completed by industry specialists. The primary aim is to build up a greater knowledge of the subject in addition to the literature review and stumble upon any differences between the two. This type of interview does not have any set in place format beyond the opening question however the interviewer may have some key questions that they can use to keep carefully the interviewee on this issue. The interviewer is receptive to the interviewee's reactions and the interview comes after a conversational style.
Both interviewees have employment with the most significant privately owned construction company in the UK with offices also in India, Australia and the United Arab Emirates. The company has an designed functionality thus allowing a all natural view of development.
The first interviewee is a task manager who may have connection with tendering with Lagan and Farran structure and happens to be working alongside NIW on a large PFI project respected at around Ј130 million.
The second interviewee is a bet director for on the building classes for the future framework (BSF). He is leading a team on a project well worth over Ј1 billion with a budget of Ј5. 6 million.
3. 2 Qualitative Research - Cognitive Mapping
Yin (1989) observes that in qualitative research the broadest question should be mentioned so that data can be drawn from lots of sources such as: archival data, immediate observation, documents, interviews, participant observation and physical artefacts. Qualitative research is any type of research that produces studies not arrived at through statistical strategies or other means of quantification (Strauss and Corbin, 1990). The interviews form the basis for the cognitive mapping and invite a greater knowledge of the subject.
3. 3 Quantitative Research - Questionnaire Survey
Creswell (2003) discussed quantitative research methods are being used to check or verify theories or explanations identify factors to study, relate variables in questions or hypotheses use statistical specifications of validity and trustworthiness, and utilize statistical procedures for analysis. The next step was to formulate an initial questionnaire based on the main topics brought up in the books review and interviews which was used to carry out a pilot analysis.
Slight improvements were made following pilot research and a final questionnaire was produced which has thirty eight factors that may be considered as significant in impacting on the tendering techniques of UK contractors. Inside the questionnaire, the ranking of the factors was done over a five point range which range from 1 to 5, where 1 represents "strongly disagree", and 5 represents "strongly agree". Respondents who experienced no opinion regarding the factors could select the answer of "indifferent".
The third portion of the questionnaire will be utilized in our regression evaluation and it includes establishing a relationship between different factors of our analysis. The ultimate section allows respondents to write additional comments on any fantastic issues which was not raised in the questionnaire but which they noticed were important.
A total of forty one respondents replied to the questionnaire and not surprisingly being lower than was wished, credited to time constraints the statistical research needed to be completed nonetheless. Shown below in Stand 3. 1 are the final number of respondents and a break down of their characteristics.
4. Qualitative Results and Evaluation - Cognitive Mapping
Cognitive mapping allows the examination of large amounts of qualitative information and may be used to structure messy or complicated data for problem solving. It is especially useful as a note taking method during interviews and helping the process by increasing the understanding of the subject (Ackermann et al. , 1992).
Decision explorer is an instrument which allows associations to be pictured associated with a subject. Data entrance is provided using "ideas", which record the core areas of a notion. The concepts are then associated with show the partnership and factors worth focusing on between ideas (Brightman, 2002).
Figure 3. 1 shows the three methods which is often used to question where a idea is leading towards. For the purpose of this analysis the method Action - End result was utilised as it was thought that it is suitable to exploring the topic and learning about the goals/outcomes. Once completed, controversy and reflection may then follow on the main factors which have been established.
4. 4 Research & Discussion
Using the maps in the last section the primary factors can be reviewed and their effect on other principles.
4. 4. 1 Central Principles Analysis
- Change in Builder & Consumer Attitudes
- Contractors Using below Cost Tendering
- To Remain Trim and Competitive Through the Recession
- Economic Recession
- Increased Probability of Repeat Work
20 from 39 Ideas.
19 from 35 Concepts.
15 from 31 Concepts.
14 from 32 Ideas.
14 from 29 Concepts
All these top five principles are straight related as the economical recession and change in attitudes has resulted in contractors using below cost tendering and lean construction to remain competitive during the recession with the increased probability of duplicate work.
The main concern/driver talked about in the interviews was the monetary recession which as stated in my literature review impacts greatly on the development industry as there's a reduction in the number of tasks along with the cost of borrowing to repay lending options and pay wages increasing (Ren & Lin, 1996). This reasonable relation was discussed in my books review and is also illustrated in Number 4. 1.
The change in behaviour from both the contractor and consumer was also talked about with Latham (1994) attempting to look at a "win-win" mentality and Egan (1998) concentrating on increasing quality and efficiency and creating a "movement for change". This change from the 1960's mentality whereby private and general population jobs were awarded entirely on competitive tendering to a predicament whereby a number of issues are assessed (Edum-Fotwe & McCaffer, 1999) has put additional pressure on contractors forcing those to keep quality and task time but reduce their tenders to below cost if required.
Clients are experiencing a greater contribution and have wanted a less fragmented strategy which has resulted in an alteration of contracts to a far more regular use of design and build (Yisa, Ndekugri and Ambrose, 1996).
Interviewee No. 2 feels that clients are manipulating the existing climate to be able to find the same quality of work done cheaper whereas Interviewee No. 1 is of the thoughts and opinions that it's the contractors who are quick to adopt below cost tendering in order to hold onto personnel as other assignments are completed.
The idea of remaining slim and competitive through the recession is really important and is talked about in great fine detail in my books review. Cartlidge (2002) describes how slim construction eliminates misuse so that value is added to each process, resulting in lower costs, shorter construction periods and higher profits.
The concept of leanness includes reduced bid rate of recurrence as overheads need to be reduced. Walwork (1999) and Interviewee No. 1 both stress the need for contractors to choose the "right task" which will then give a greater chance of success. Technology can keep your charges down through "organizational learning" (Barlow and Jashapara, 1998) but both interviewees experienced that as overheads have to be reduced invention should come from your supply string which have costs for research and development. As talked about in my books review suppliers involvement should be welcomed at an early stage in order to add new ideas, products, or operations (Cartlidge, 2002).
Increased probability of repeat work was sensed by Interviewee No. 1 to come through partnering which allows a greater outcome for your supply string (Dozzi et al. , 1996; Larson and Drexler, 1997). A better final result is achieved as the required business targets can be found or exceeded (Bennett & Jayes, 1998). Interviewee No. 2 believed that early involvement with your client allowed links to be set up thus leading onto repeat work.
4. 4. 2 Site Concepts Analysis
- 8 Links around
- 6 Links around
1 Change in service provider & customer attitudes
2 Contractors using below cost tendering
3 Increased open public spending
4 Partnering and increased communication
5 To remain lean and competitive during the recession
The previous central results determined the ideas with the best influence on the complete map and therefore it follows that these should have the highest volume of links.
Changes in behaviour, below cost tendering and trim structure were central to my literature review and interviews which is why they are highlighted here. The individuals for change are changing attitudes and below cost tendering with low fat construction providing lots of strategies to improve through off-site production, innovative design and assemblage, pre-fabrication, supply chain integration and pre-assembly (Cooke and Williams, 2009).
The government's insurance policy of increased general public spending was known by both interviewees and McFall (2008) in my own literature review as supplying a company technique to survive the monetary recession. RICS (1st Oct 2009) reported that tender charges for new development work won't go up until 2011 and that if the general public spending was trim it would have a negative effect on the structure industry.
This is further reinforced in my literature review which claims that proper tendering and task combine is even more vital during a recession. Ren and Lin (1996) judge that it is in a company's long term interest to carry out a more extreme bidding insurance plan towards the public sector. The problem of evaluating clients was emphasised by both interviewees as a number of private clients have simply wound up their jobs. Both start to see the open public sector as a safe wager for investment both in a boom and much more so in a recession as they have got a triple A ranking by the score agencies.
Partnering was handled after by both interviewees nevertheless they had a different point of view with Interviewee No. 1 sense it has opened up a forum for communication and along with the new engineering deal there is a "win-win" mentality proven as encouraged by the Latham survey (1994).
Interviewee No. 2 was sceptical however and felt that clients and contractors were both reverting to type with contractors using below cost tendering and looking for variants while consumer were manipulating the local climate by disregarding frameworks in order to tender ever before project and get increased savings.
Woods and Ellis (2005) as mentioned in my literature review accepted a more open relationship now is out there but that it will take time before a fully genuine relationship will be in place due to an engrained culture of mistrust and deception.
4. 4. 3 Cluster Evaluation No. 1 (Changes Resulting in Partnering & IncreasedCommunication)
As stressed in my books review and illustrated below in Shape 4. 2 the monetary recession has brought on an increase in public spending which plus a change in company and client behaviour has led to a "win-win" mentality, different procurement methods and therefore the use of partnering and increased communication which relates back to the Latham and Egan reviews.
Another aftereffect of the economic recession has been a reduced range of contracts which in turn causes increased competition and a reduced consistency of bidding scheduled to higher tendering costs (Cooke and Williams).
The final evaluation revolves around contractors need to get work which combined with the recession causes them to change their attitude and use below cost tendering which reduces personnel numbers and increases the workload thus impacting on quality, environmental and H&S expectations.
4. 4. 4 Cluster Evaluation No. 2 (Required Procedures for Strong Company Position)
Both interviewees drew focus on increased exposure to risk which can cause a contractor to move bankrupt credited to too little cash. The necessity to evaluate customer financial steadiness was established in my own books review (Kometa et al. , 1996).
Besides financial risk exposure there is also the chance associated with H & S, environmental and CSR which require investment to be able to promote a favourable client and public conception which leads onto the goal of a strong company position.
The other examination involves utilizing technology to gain a competitive benefits which may be accomplished through trim development and pressurising the resource chain which both interviewees feel have the research and development capabilities and budgets to provide services thus allowing contractors to adopt their processes. Once more, this allows the business to remain lean by adopting required practices and also to be in a strong position following recession.
4. 4. 5 Cluster Evaluation No. 3 (Increased Probability of Repeat Work)
The final cluster analysis targets the goal of increased odds of duplicate work and becoming the company of first choice which is part of the interviewee's company perspective and both interviewees described it. It specializes in the concept that building is continually growing and that contractors need to progressive and adopt so that stakeholders are satisfied.
It pertains to a number of factors such as trying for a much better end result for both client and company and aligning your company to the most beneficial sector through proper project mixture which many contractors see coming from PFI tasks as they have a assured source of income for several years.
4. 4. 6 Questionnaire Design
The questionnaire design was completed following the cognitive mapping and because of the extensive literature review most issues were touched upon previously. The stages involved in creating a questionnaire include;
- Identifying the first thought questions.
- Formulating the ultimate questionnaire.
- Wording of questions.
It was made a decision to use closed down questions as they are quick to answer and their research is straightforward (Nachmias and Nachmias, 1996). One drawback however is the fact that they may bring in bias as they can either induce a respondent to choose replies which might not exactly of in any other case have been selected. A total of forty questions were contained in the questionnaires that have been felt to provide an in depth analysis of the topic.
5. Quantitative Results and Analysis - Questionnaire Survey
Statistical Program for the Friendly Sciences (SPSS) is a popular statistical and data management request for experts and research workers used to present and analyse data established in a case-by-case composition. It is used in disciplines as diverse as chemistry, sociology, economics and psychology. Mostly it is utilized to analyze questionnaires by using correlation, factor analysis, cluster research and regression modelling.
5. 1 Mean Testing
Shown below in Desk 5. 1 will be the top five factors from our questionnaire with the highest mean with the complete table for all your factors available in the appendices. These factors are the actual respondents noticed were the most important in impacting on tendering routines of UK contractors.
These factors have been outlined both in the books review and the interviews. As reviewed by Whitten (2009) and Scully (2009) companies are pricing contracts at levels below cost in order to ensure short term success. Scully (2009) describes how competition has become so fierce that contractors are bidding for work up to 20% below cost which is contract with interviewee No. 2 who views this as contractors "buying work". A lot of the respondents felt that was the most significant contractors are quite happy with breaking even through the recession.
The second factor which the questionnaire outlined was that the lowest price not always representing the cost effective for money ties in with Latham (1994) and Edum-Fotwe & McCaffer (1999) who discuss how tendering has changed from the 1960's whereby private and open public jobs were awarded only on competitive tendering to a situation whereby a number of issues are evaluated. There has been an industry vast switch from "lowest price is victorious" mentality to a "multi criteria selection".
Interviewee No. 1 mentioned how client's have realised that the "lowest sensitive price" is not always the least expensive in the permanent as sometimes security, quality and environmental aspects are an issue. This may leave your client with a tarnished reputation if something unforeseen occurs credited to reduced staffing or adjustments.
The third factor of the upsurge in exposure to associated risk for contractors relates to below cost tendering which both Whitten and Scully (2009) claim the point that it's unsustainable and will increase the threat of companies facing insolvency.
Reductions in materials and place costs have been exceeded by the drop in tender prices. Insolvencies are predicted to occur first of all among contractors who tender correctly but neglect to win the deal and then among those who succeed the agreement with unsustainably low bids (Whitten, 2009). Interviewee No. 2 talked about how the general population systems which he works with have seen a 20% land in tender prices which they happily go out and procure limited to the contractor to travel bust due insufficient cash flow.
There can be an increased requirement for contractors to investigate the problem of deciding to tender before any resources are allocated as projects are becoming extremely costly to tender for. Walwork (1999) argues that there is similar importance between "right job'' and "right price'' in order to make a earnings. Kometa et al, (1996, pp. 273) evaluate the need for the customers financial balance to be discussed in greater detail.
They draw attention to the risk lately payments or customer insolvency which both interviewees highlighted as being important and this there company always evaluates your client and where there funding is via. This is why they have seen a shift towards public sector projects that have a high credit rating.
The fourth factor was the increase in competition for the available deals which as mentioned in the books review by RICS (2009), tender prices are continually falling because of the increased competition for the reduced levels of assignments. It was mentioned that if open public spending was cut it would have a detrimental effect on the building industry.
Both interviewees reviewed how the economical recession has brought on a decrease in available financing which has meant less work available with additional competition for companies who previously wouldn't have tendered for such projects.
Finally the problem of squeezing the resource string was found by the respondents and interviewee No. 2 as a way of achieving a decrease in the tender price. As suppliers account for such a high percentage of creating costs their participation at an early on stage should be urged as they can contribute new ideas, products or procedures (Cartlidge, 2002). Suppliers can also offer companies innovative products which allow them to adopt old techniques so that money can be kept.
5. 2 Factor Analysis
Factor analysis is a technique for identifying groups or clusters of parameters (Field, 2005). Its main uses include;
- To understand the composition of a couple of variables.
- To construct a questionnaire to assess an primary variable.
- To reduce a data established to a far more controllable size while retaining as much of the original information as you possibly can.
Following the factor examination on the data, we will then test the data for its suitability for factor research, the extraction of the factors, the rotation of the factors and lastly label each band of factors that the factor analysis gives us.
5. 2. 1 The Test for Suitability of Data for Factor Analysis
The test for suitability of the data placed for factor evaluation involves determining the Kaiser-Meyer-Olkin (KMO) measure of sampling adequacy and Bartlett's test sphericity. The test signifies the strength of the partnership among variables and a minimum standard that needs to be passed for a factor examination. Shown below in Stand 5. 2 will be the principles and ratings for the KMO.
The list of factors was inputted from excel into SPSS and the factor research was performed but didn't give a KMO value or Bartlett's test of sphericity. The next two factors which achieved the lowest mean value were omitted.
The Bartlett's test of sphericity examines the null hypothesis that the correlation matrix can be an identity matrix which would point out that the factor model is limited. The Bartlett's test has a relevance value of 4. 16e - 15 which is less than the maximum value of 0. 05.
5. 2. 2 The Extraction of the Factors
For the factor analysis a constraint of eigenvalues having to be greater than 1 was inputted. SPSS then uses Kaiser's criterion to extract these factors. As shown in Stand 5. 3, eleven factors have been extracted after seventeen iterations which means that these eleven factors explain relatively large amounts of variance over the others and that there will be eleven sets of factors. This amount also compliments the Scree story below shown in Shape 5. 2 which shows the curve falling sharply at the start and finally levelling out by the time it grows to eleven.
5. 2. 3 The Rotation of the Factors
Rotation is performed so as enhance the interpretability of factors. It maximizes the launching of each varying using one of the extracted factors whilst minimizing the launching on all the other factors (Field, 2005). It really is beneficial also as it creates it much clearer which variables relate to which factors.
The Varimax method can be an orthogonal rotation method that minimizes the number of variables which may have high loadings on each factor (Oyedele, 2009).
As shown in the print out out for the rotation of the factors, we could kept with eleven communities manufactured from up thirty three factors. All thirty three variables are above 0. 5 among the constraints was to reduce any variable under 0. 5. The list is also stated in the region of size of their factor loadings because we called for the result to be sorted by size. Any changing that shows up on several group is deleted as this can't be used.
5. 2. 4 The Labelling of Each Factor Group
Labelling the factor groupings effectively is important as allows a typical theme to be developed among the highly loaded factors (Field, 2005). The eleven teams are divided as follows with the group name as the heading.
1. Increased Focus on Community Sector Contracts
- Public sector/administration tenders are being targeted by contractors.
- Contractors looking to secure more long-term contracts, i. e. PFI.
- Pressurising supply chain for advancement and cheaper prices.
- Squeezing the source chain to ensure best sensitive price.
- There are less tenders available.
- There is increased competition for these.
- There can be an increased emphasis on the PQQ stage.
- Increased need for early client involvement.
- Contractors tendering for smaller projects to ensure fast cashflow.
- Location of job impacts decision to bid.
- There is an increased focus on value executive.
- Price has become more important than quality.
- Respect should be retained for the other party at all times.
- Once a contract is tendered for below cost it hardly ever finishes in revenue.
- Increase of consumer evaluation by companies.
- Clients demand same quality for a lower price.
- Material prices have increased while tender prices have reduced.
- Increased company knowing of importance of client & public perception when tendering.
- Contractors counting on variations to recoup low tender costs.
- Clients often ignore unrealistically low bids anticipated to associated risk concerns.
- Cannot afford to price for management fees in tender bid.
- Contractors going into receivership as a result of reduced cashflow.
- There has been a rise in selective tendering.
- Getting onto pre approved sensitive lists is becoming more difficult.
- Profit margins have been reduced when contending for tenders.
- Contractors taking deals below cost to maintain business.
- Reduced staff quantities leading to increased workload.
- There is a change from traditional procurement to other forms
2. Adoption of New Tactics Because of Reduced Tenders Available
3. Increase Emphasis on Client
4. Price vs. Quality
5. Overall Transfer in Tendering Practices
6. Increased Pressure on Contractors
7. Contractors Known for Low bidding won't Win Tenders
8. Contractors Private to the Cost of Tendering
9. Overall Difficulty of Tendering has Increased
10. Contractors Tendering to Maintain Core Staff
11. Shift away from Traditional Procurement Methods
5. 2. 5 Discussion of Top Five Factor Groups
Using the eigenvalue as a measure of performance of the factor categories, it is clear that "Upsurge in Public Sector Agreements" is the most crucial factor to which companies feel have impacted on tendering routines. It gets the highest value of 5. 12 followed by "Adoption of New Practices Due to Reduced Tenders Available" at 4. 15, "Increase Emphasis on Client" at 3. 18, "Price vs. Quality" at 2. 6 and "Overall Move in Tendering Practices" at 2. 13.
1. Increased Focus on General public Sector Contracts
Many contractors have experienced poor dealings with private companies who have found themselves in financial trouble and cannot pay their obligations. Public sector deals will offer companies a guaranteed income source for upto 25 years.
The most contractors have adopted their project mix as the private sector seems the impact of your recession firstly and for a marginally longer period it is in a company's long-term interest to carry out a more aggressive bidding coverage towards the public sector (Ren & Lin, 1996). Also the united kingdom Government's policy has been to provide a fiscal stimulus by increasing spending on large public assignments to be able to inject money into the economy which will filter down through all sectors (McFall, 2008).
Another good thing about the general public sector is its transparency and openness during the tender stage. While the public sector may be susceptible to mal-practice, structure companies know that they will be impartially assessed and receive reviews under new laws.
Both interviewees noticed that pressurising the source chain can provide the best chance of contractors to lower their tender price. Material costs and wages have reduced and along with progressive products which contractors can use to look at their practices, improved sensitive prices can be published for general public sector deals.
The largest consumer for the construction industry at present is undoubtedly the general public sector and this is mentioned by RICS in their third 1 / 4 article for 2009 when they use the headline, "Public sector workloads continue to support structure activity'', (RICS, 2009).
2. Adoption of New Practices Due to Reduced Tenders Available
Contractors have realised the need to conform, innovate and improve due to less tenders being available and an elevated competition for these. This corresponds to the research hypothesis of the engineering industry implementing and improving within the last number of years and that it'll continue to have to do so.
Below cost tendering has been employed by contractors in an effort to win contracts but both Whitten (2009) and Scully (2009) dispute the point that is unsustainable and can increase the risk of companies facing insolvency which is why contractors have appeared to make cost savings through squeezing their supply chain to ensure the best tender price.
Both interviewees drew focus on the option of fewer tenders because of the reluctance of financial institutions to provide private clients with money.
3. Increase Focus on Client
This factor can be traced back to Latham (1994), where he sought to attain a "win-win" mentality between the client and service provider. Understanding and competition between companies has allowed your client to become more advanced and seek improvements within the industry to meet there needs (Yisa, Ndekugri & Ambrose 1996, pp. 51).
Many companies have spent significant time and resources increasing their PQQ to be able to reach another stage of a project. Interviewee No. 2 highlighted the importance of early consumer involvement that allows savings for both client and company. Clients typically look to preferred bidders who they know from prior experience or through reputation can deliver. Interviewee No. 1 defined how some contractors concentrate a part of their project combine on smaller assignments which allows a fast cashflow and reduced risk.
4. Price vs. Quality
The industry large shift from "lowest price is victorious" mentality to "multi requirements selection" has been slowed up with the starting point of the monetary recession. Edum-Fotwe & McCaffer (1999) reviewed how tendering altered from the 1960's whereby private and general population jobs were granted only on competitive tendering to a predicament whereby a number of issues were examined.
However more recently, both interviewees outlined how below cost tendering has been adopted by many contractors as many clients have desired to utilize their dominance to acquire a better package (Woods & Ellis, 2005, pp. 321).
There has been increased emphasis on decision to tender with the positioning of a task an integral factor. Where organizations once before would of set up a new office in order to win a deal they now focus on projects which can be found nearby in order to reduce overhead costs.
Value engineering consists of improving value for money by making certain the final design meets requirements without over-specification, at the lowest possible cost (Cooke & Williams, 2009).
5. Overall Transfer in Tendering Practices
Edum-Fotwe & McCaffer (1999) discuss how tendering has altered from the 1960's whereby private and public jobs were awarded solely on competitive tendering to a predicament whereby a variety of issues are evaluated. There's been an industry extensive move from "lowest price wins" mentality to a "multi criteria selection".
Naoum (2003, pp. 72) switches into further depth by outlining the down sides of using price-based competitive tendering. The original forms of deal have been adapted (JCT 98 standard form - JCT 2005) to accommodate change on the market but the Latham report considered the NEC contract as getting the best prospect of achieving a good outcome for all your stakeholders, (Cooke & Willams, 2009, pp. 7).
Latham (1994) suggested that considerable savings can be produced by reducing confrontations between contractors and clients to be able to increase the performance of the look and construction stage.
Below cost tendering runs against this view as it motivates contractors to consider substantial variations in order to break even or make money.
Kometa et al, (1996, pp. 273) measure the need for the clients financial stableness to be mentioned in greater detail. They draw attention to the risk of late payments or consumer insolvency. Interviewee No. 1 comment ted that;
"Your client must show, for example, that they are organised and appearance to be a competent procurement authority. Inside a recession we can be a more discerning bidder as cash is tighter and jobs more sought after. "
5. 3 Regression Modelling
Multiple regression can be an extension of simple regression as it allows several or even more predictors to be used (Field, 2005). Because of this research it was decided to do a total of four regression models which are summarized overleaf.
The first model (b) used No. 40; "Your enterprise will make it through the economical recession", as the reliant varying with the eleven factors that have been extracted through the factor examination as the independent variables.
The second model (c) used No. 39; "Overall the economic recession has already established a negative impact on tendering your practices", as the based mostly variable with the eleven factors that have been extracted through the factor examination as the unbiased variables.
The third model (e) used No. 39; "Overall the monetary recession has had a negative impact on tendering your practices", as the centered variable with the thirty eight original factors as the impartial variables.
The fourth model (f) used No. 40; "Your small business will endure the economic recession", as the centered adjustable with the thirty eight original factors as the unbiased variables.
The results for model (e) and (f) will be described in greater detail as they produced the best results using the original thirty eight factors as opposed to the eleven factors that have been found through the factor analysis.
5. 3. 1 Regression Model (e)
As shown in the last web page and below in Desk 5. 5, four possible models were produced for model (e). The coefficient of willpower (R2) will be used to guage the predictive suitability of fit of the model. It offers the proportion that "Overall the monetary recession has already established a negative effect on tendering your practices", which is accounted for by the self-employed parameters (extracted factors), reflecting the entire precision of the predictions.
The regression model five was chosen as it gets the highest value for R2 of 0. 582. This means that the model can clarify 58% of the variance in the end result. The modified R2 shows how well the model generalizes and is adequate being as it is 0. 582 - 0. 536 = 0. 054.
The standard error of estimation with a value of 0. 69713 implies that dispersion for the regression model's prediction power is average. The Durbin Watson informs us about if the assumption of unbiased error is tenable and really should be below and near to two. As our value is somewhat over two at 2. 252 it implies that there is a negative relationship between adjacent residuals.
The analysis of variance (ANOVA) in Stand 5. 6 lab tests whether the model is a significant fit of the data overall and really should be less than 0. 05 value level. The F value signifies the ratio of the improvement in prediction that results from fitted the model, relative to the inaccuracy that still is accessible in the model (Field, 2005). In cases like this we have an F of 12. 6 and at significance level of 0. 000.
5. 3. 2 Regression Model (f)
As shown in the last webpage and below in Table 5. 7, five possible models were produced for model (f). The coefficient of conviction (R2) will be used to guage the predictive suitability of fit of the model. It offers the proportion that "Your business will survive the economic recession", which is accounted for by the 3rd party variables (extracted factors), reflecting the overall precision of the predictions.
The regression model number five was chosen as it gets the highest value for R2 of 0. 678. This means that the model can make clear 68% of the variance in the result. The changed R2 indicates how well the model generalizes and is enough being as it is 0. 678 - 0. 632 = 0. 046.
The standard error of estimate with a value of 0. 33362 demonstrates dispersion for the regression model's prediction vitality is low. The Durbin Watson informs us about whether the assumption of self-employed error is tenable and should be below and near to two.
As our value is somewhat over two at 2. 023 it means that there could be a negative correlation between adjacent residuals. The analysis of variance (ANOVA) in Table 5. 9 lab tests whether the model is a substantial fit of the data overall and really should be significantly less than 0. 05 value level.
The F value signifies the proportion of the improvement in prediction that results from appropriate the model, relative to the inaccuracy that still prevails in the model (Field, 2005). In cases like this we've an F of 14. 74 with significance level of 0. 000.
The table overleaf shows the in depth maximum regression results composed of the regression coefficients (), standard error, t-results and collinearity figures. All the five factors were statistically significant predictors of whether the economic recession has had a negative effect on your tendering techniques (significantly less than 0. 05).
The VIF which suggests whether a predictor has a solid linear marriage with other predictors indicating multicollinearity, should be less than 1 for a good model while the tolerance statistic should be greater than 1. Evaluation of the results in Desk 5. 7 show that multicollinearity may be biasing the regression model as none of them of the tolerances are above 1 and nothing of the VIF beliefs are below 1.
This section will contain a discourse of the critical factors that have surfaced from the qualitative and quantitative results and data. The overall implication of the critical factors for the structure industry will assessed.
6. 1 Critical Factors
Regression model (e) and (f) produced the best results and attached in best with both the literature review and cognitive mapping.
6. 1. 1 Regression Model (e)
Regression model (e) which used "Overall the economical recession has already established a negative effect on tendering your methods" as the based mostly adjustable. Model No. 4 produced the best variance value with 58% and the four factors which it comprised the following;
- Material prices have increased while sensitive prices have decreased.
- Contractors tendering for smaller assignments to ensure fast cashflow.
- There is an increased exposure to risk for contractors.
- There is a differ from traditional procurement to other styles.
These factors relate back to research questions statistics 2 and 3 which raise the question of what methods contractors are utilizing and what sort of change in procurement methods been used to improve tendering practices in structure.
The first factor above was discussed by Whitten (2009) and Scully (2009) as they both elevated the problem of reductions in material and seed costs being exceeded by the drop in sensitive prices.
In order to earn contracts they must therefore use below cost tendering which is unsustainable and will increase the risk of contractors facing insolvency. Insolvencies are predicted to occur firstly among contractors who tender correctly but fail to win the agreement and then among those who succeed the agreement with unsustainably low bids (Whitten, 2009). Interviewee No. 2 referred to how contractors are evaluating clients at span in order to see the risk involved in entering a agreement with them.
The issue of tendering for smaller jobs to ensure an easy cashflow is well founded as much contractors who are making a earnings are still processing for liquidation as they do not have enough cash available to pay their obligations as they fall season due. By bettering the cashflow they may have less money tied up in long term projects which might have a retention. Also it allows contractors to hold onto valuable and experienced personnel who may usually have to be made redundant and allows the company to maintain a strong position following the recession.
The change in procurement methods are was mentioned in the literature review by Yisa, Ndekugri & Ambrose (1996). This change can be added to the need for a far more involved and less fragmented approach as the key contractor is managing both design and construction activities and can promote builder led advancement. Risk, which is increasingly important in a recession has been shifted away from the client and for the service provider under Design & Build and Private Money Initiatives.
6. 1. 2 Regression Model (f)
Regression model (f) that used "Your organization will make it through the economic recession" as the dependent changing. Model No. 5 produced the best variance value with 68% and the five factors which it comprised listed below;
- Profit margins have been reduced when competing for tenders.
- Contractors counting on variants to recoup low tender costs.
- Material prices have increased while tender prices have lowered.
- Contractors tendering for smaller jobs to ensure fast cashflow.
- Price has become more important than quality.
These factors connect back to research questions volumes which discusses the primary factors considered by contractors when deciding to tender and how does an economic recession alter these? e. g. Below cost tendering.
The first factor was talked about by Whitten (2009) writing for Engineering News explained the way the Civil Anatomist Contractors Connection has warned of your trend
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