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Contractor selection at prequalification stage: Current evaluation and

shortcomings

Article  in  Jurnal Teknologi · November 2015

DOI: 10.11113/jt.v77.6403

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Jurnal
Full Paper
Teknologi
CONTRACTOR SELECTION AT Article history
Received
PREQUALIFICATION STAGE: CURRENT 2 July 2015
Received in revised form
EVALUATION AND SHORTCOMINGS 20 October 2015
Accepted
Pooria Rashvanda, Muhd Zaimi Abd Majidb*, Mahmoud 23 October 2015
Baniahmadia, Farzan Ghavamiradc
*Corresponding author
aFaculty of Civil Engineering, Universiti Teknologi Malaysia, 81310 [email protected]
UTM Johor Bahru, Johor, Malaysia
bUTM Construction Research Centre, Institute of Smart
Infrastructure and Innovative Construction, Universiti Teknologi
Malaysia, 81310 UTM Johor Bahru, Johor, Malaysia
cDepartment of Environment and civil Engineering, University of

Auckland, 1010, New Zealand

Graphical abstract Abstract

The selection of a suitable contractor for a construction project is one of the most
important decisions a client can make for the development of the project. Prequalification
Literature is a procedure to examine and gauge the competency and skills of contractors to
Review successfully complete a project if it is given to them. However, the evaluation employed for
some prequalification is still ambiguous or highly subjective. This study aims to investigate
the shortcoming of the current prequalification evaluation for contractor selection. The
methodology of the study is based on a comprehensive literature review and expert survey
Data Collection whereby the criticality of data, obtained from the literature was analysed using expert in
by 20 experts the field. Among the prequalification criteria, the current evaluation that employed for
management capability is highly ambiguous. Two important shortcomings of current
prequalification models regarding the evaluation of management capability were
identified. First, the models are not comprehensive since all the variables related to the
management capability are not included. Secondly, the models focused almost
Data Analysis exclusively on time and cost performance as outcome variables, which may not be
enough to evaluate the management capability of contractors. Better evaluation
methods have to be developed to assess the management capability prequalification as it
has a major impact on time and cost performance of contractors. Therefor future study
must be conducted to develop a model that evaluates the management capability of
Results and contractors based on the relative variables for the purpose of improving current
Discussion prequalification selection.

Keywords: Contractor selection, Prequalification criteria, Management Capability,

Management variables

© 2015 Penerbit UTM Press. All rights reserved

1.0 INTRODUCTION commonly tailored to select competent contractors.

Once a proper selection process has been
One of the most important tasks encountered by a completed, the client can then entrust the contractor
client who hopes for successful project outcomes is to carry out the project. Prequalification is a
selecting a capable construction contractor [1]. In procedure to examine and gauge the competency
many countries, the prequalification criteria are and skills of contractors to successfully complete a

77:16 (2015) 81–89 | www.jurnalteknologi.utm.my | eISSN 2180–3722 |

82 Muhd Zaimi Abd Majid et al. / Jurnal Teknologi (Sciences & Engineering) 77:16 (2015) 81–89

project if is given to them. The prequalification process ratio), technical performance (resources and
is conducting to ensure the client that their satisfaction experience), safety and health policy (compensation
criteria were considered [2]. paid to labor accidents, safety and health
The selection of construction contractor in general investment), and public work past performance (cost
contains two stage namely prequalification and bid overruns, schedule overruns, claims issued at executed
evaluations [3]. In the prequalification stage a large contracts). Trivedi et al. [3] named six prequalification
numbers of contractors are invited and analyzed, criteria which are financial turnover, manpower
based on predetermined criteria and a short listed resources, equipment resources, post experience, past
contractor is drawn by the clients. In the bid performance, and affordable relatable projects.
evaluation stage short listed contractors in the Manideepak et al. [12] proposed criteria such as a
prequalification stage are again invited and recommended bid amount, financial soundness,
investigated to select the appropriate contractor for technical ability, management capability, safety and
the project. Capability of each applicant will be health records, and reputation to be included in the
compared with the predefined sets of minimum process of assessing and deciding on a contractor.
values. The literature identifies several prequalification criteria
Prequalifying contractors is a critical element in which can be used in the selection process. The most
project planning because it can have a huge impact cited prequalification criteria for contractor selection
on the final outcome of the project. Despite of the from the literature are: management capability,
fact that the process of screening the potential technical ability, financial capacity, and occupational
contractors is an important feature of prequalifying, health and safety.
the current prequalification evaluations are often
inadequate. This study aims to investigate the 1.2 Practices for Evaluation of Prequalification for
shortcoming of the current evaluation of different Contractor Selection
prequalification criteria for the contractor selection at
prequalification stage. According to the literature, the current
prequalification contractor selection criteria are:
1.1 Prequalification Criteria management capability, technical ability, financial
capacity, and occupational health and safety [13-15].
Prequalification is a method to examine and gauge In contractor evaluation, numerous criteria are taken
the skills of potential contractors to determine if they into account, which, in turn, are characterized by the
can perform the project properly. Researchers, such as right sub criteria. In fact, the prequalification criteria
Hatush and Skitmore [4] and Ng [5] have done much were assessed based on the related sub-criteria. Table
research on the usage of the prequalification process. 1 displays the list of basic and sub-criteria of contractor
As a result of the prequalification process, there will be prequalification evaluation by Plebankiewicz, [14].
a directory for clients to refer to when they need to As can be seen in Table 1, most of the criteria are
invite contractors for tendering. To get their names on evaluated based on the evidence provided by the
the endorsed directory, a candidate must first send in contractors for each prequalification criterion.
an application to the client, after which the client will Prequalification criteria, such as financial capacity,
carry out the necessary steps to assess the contractors' occupational health, and safety and technical ability
financial status, management capability, are assessed by the evidence that are provided by
organizational structure, technical expertise and the contractors such as credit rating, banking
previous experiences of similar projects [6]. Hunt et al. arrangement, bonding and financial status for the
[7] assert that criteria that include the technical, issue of financial capacity; occupation health and
management and financial aspects of a contractor safety incident rates for the health and safety
should be accounted during prequalification performance of the contractor, questionnaire is
selection. Such criteria consist of the candidates' another method for the occupation health and safety
current and existing venue of business, capacity of performance; equipment by the resources and tools
plant and tools to carry out the project, sufficient funds for the technical ability. Anagnostopoulos and
to fulfill the project's needs, and aptness of technical Vavatsikos [11] established the criteria and sub-criteria
skills and experience. according to their hierarchy for the purpose of
Clients [8] and executive management [9] are prequalification evaluation which consist of financial
placing high value on contractors who are punctual in performance (credit ratio, current ratio, and asset
completing their construction projects. Besides that, turnover ratio), technical performance (resources and
other critical criteria were bid price, quality of work, experience), safety and health policy (compensation
contractor organization, previous and current paid to labor accidents, and safety and health
experience, and financial capability. Rashvand et al. investment), and management capability (cost
[10] suggested a list of prequalification criteria such as overruns, schedule overruns, and claims issued at
previous work experience, workloads, work records, executed contracts). These have been shown in Figure
completion time, technical knowledge, and cost. 1.
Anagnostopoulos and Vavatsikos [11] came up with From Table 1 and Figure 1, it can be concluded that
an extensive list of criteria which comprises of financial while the sub criteria are often based on direct
performance (credit ratio, current ratio, asset turnover
83 Muhd Zaimi Abd Majid et al. / Jurnal Teknologi (Sciences & Engineering) 77:16 (2015) 81–89

objective evaluation, However, the evaluations monitoring and training program which is not
employed for some prequalification processes are still comprehensive.
inadequate or highly subjective [14]. Huang [15], for
example, noted that questionnaires can be used to Table 1 Prequalification Evaluation [14]
collect the required data for the prequalification
process, argued that contractors may be tempted to Criteria Sub-criteria
answer the questions to their best advantage. For Financial Standing 1. Financial stability
example, the contractor may bluntly answer ‘yes’ to a 2. Turnover, profit, obligations,
question that asks whether a safety issue is the top amounts due
3. Owned financial funds
priority in their businesses, though it is actually not
Technical Ability 1. Experience
being practiced. In another study conducted by Aje 2. Plant and equipment
[16] on the impact of contractors’ prequalification on 3. Personnel
project performance, results showed that the Management 1. Past performance and
evaluation of the contractor’s technical ability is not Capability quality
applicable because the contractors had gone out of 2. Quality control policy
their way to prove that their manpower resources 3. Project management system
were sufficient to execute and complete the project. 4.Experience of technical
personnel
However, upon qualification and selection, it became
5.Management knowledge
clear that many contractors, wishing to maximize Health and safety 1. Accidents
profit, did not engage enough workmen on site, 2. Health and safety
resulting in serious project delays. Also in a construction management system
prequalification questionnaire [17] published by British 3. Insurance policy
standard institution, the contractor management Reputation 1. Past failures in completed
capability as one prequalification was not evaluated projects
completely as only few variables relating to this 2. Number of years in
construction
prequalification were considered i.e. quality
3. Past client relationships
4. Cooperation with contactors

Criteria

Financial Technical Health and Management

Performance Performance Safety capability

Cont ractor ye ars in Investment in Attitude towards

Asset turnov er ratio Resource
business health and safet y claim

Candidate
Training prog ram Indemnities paid fo r Cost overrun at
Current ratio experience in similar
for personnel project labor ac cident execute d cont racts
Employed Cont ractor activity Schedule overrun
Credit ratio engineers three during last three at execut ed
years years contracts
Return on net worth Equipment by t he Cont ractor ye ars in
ratio owner business

Ratio of fix asset

Figure 1 Contractor Selection Criteria [11]

Management capability of contractors is an knowledge; past performance and quality achieved;

important prequalification criterion that has not been and number of workforce in the company. According
considered enough among the prequalification to Wong et al. [19], control and monitoring
criteria although it is an undeniable requirement during procedures, ability to manage risks and adequacy of
the prequalification process to assess the capabilities information technology knowledge are also the key
and competence of potential contractors [16]. variables of management capability. According to
Different variables were identified to evaluate Hatush and Skitmore [13], past performance and
management capability. According to Aje et al. [18], quality, project management organization,
the variables of management capability, based on experience of technical personnel and management
the analysis of respondents’ ratings, are: contractors’ knowledge are the variables of contractor
experience; quality control program; management management capability; however, the evaluation
84 Muhd Zaimi Abd Majid et al. / Jurnal Teknologi (Sciences & Engineering) 77:16 (2015) 81–89

employed for this prequalification relies mainly on the model. Secondly, the models have focused almost
time and cost performance of a project which is not exclusively on time and cost performance as outcome
enough to evaluate the management capability of variables, which may not be enough to evaluate the
contractors. Management capability consists of management capability of contractors. This
objective (experience, quality control policy, project shortcoming can be found in studies by [11], Wong
management system) and subjective criteria (past [23] and Plebankiewicz [14] whereby the evaluation of
performance and management knowledge). The past performance for management capability was
evaluation of objective criteria is based on the related to the time and cost performance of the
evidence provided by contractors; however the previous projects.
evaluation of subjective criteria is highly ambiguous Although time and cost performance are important
since there is no indication for evaluation of good and elements in identifying competent contractors, solely
bad practices. relying on these metrics may give an incomplete
The evaluation of management capability is critical picture of their performance capability, particularly
as it can support the identification, evaluation and when time or cost overruns occur for reasons outside of
screening of other prequalification criteria approved the contractors’ control. The overrun of time and cost
by the client. To illustrate with an example: an overrun in the project are usual and can be the result
important management capability is being equipped of other stakeholder’s faults. Therefore, it is important to
with the resources and tools to ensure the evaluate the management capability of the
prequalification of strong technical ability that can be contractor based on the related variables rather than
monitored by the resource management. time and cost only. The Impact of Contractors’
Management Capability on Cost and Time
1.3 Evaluation of Management Capability Performance of Construction Projects. Hatush and
Prequalification Skitmore [13] recognized financial capability, technical
skills, management capability, and health and safety
As can be concluded from the previous section, the performance of contractors as the most popular
prequalification criteria were assessed based on the criteria during the selection of contractors. From the list
related sub-criteria. Management capability, as an of criteria, the delivery of construction materials is
important prequalification criterion, has both mostly affected by the management capability of
subjective and objective variables. The objective contractors since they are the party who controls the
variables include years of contractor experience and construction resources. Ajibade [24] and Odusami [25]
quality achieved [15; 18]. These variables are assessed define management capability as the competency of
with evidence from the contractor’s previous contractors to manage the assets and resources
performance to certify and confirm the quality of work responsibly to ensure that the project is kept on track
done, the nature of the project, and years of financially and within the specified duration and
experience in similar projects. On the other hand, quality. Budget Monitoring and Price Intelligent Unit
subjective variables typically include monitoring and [26] rated management capability as the critical
controlling ability, problem solving skills, team criteria for contractor selection. Aje [18] studied on the
development skill, management knowledge, and impact of the contractor management capability on
resource management. The evaluations for these time and cost performance of construction project.
variables are ambiguous. Statistical data have proven that contractors'
Table 2 is the collection of various studies conducted management capability have a strong influence over
between 2000 and 2009 that indicates the contractor’s the assessment of the prequalification and tendering
selection models. From Table 2, two important of contractors, expenditure performance, and project
shortcomings of the previous model which is related to duration. This is the reason why management
the evaluation of subjective management capability capability is a critical factor in the prequalification
have been identified. Firstly evaluating the process as the cost and time performance is highly
contractor’s ability to realize a given project, should affected by the management capability of the
take into consideration with different variables of his contractors. Aje [18] suggested that the cost and
capabilities. This shortcoming can be found in studies duration of the project can be estimated by using
by Fong and Choi [20], Cheng and Li [21] and Turskis et predictive models which are based on the
al. [22] where the interaction between client and performance of the management capability of
contractor was considered as the only subjective contractors. By doing so, the clients will be able to
management variable to evaluate this have an early indication of the contractors'
prequalification. The management capability of performance. This practice will substantially improve
contractors consists of both subjective and objective the selection process of construction contractors.
variables; whereas only a few variables of this
capability were considered in the current evaluation
85 Muhd Zaimi Abd Majid et al. / Jurnal Teknologi (Sciences & Engineering) 77:16 (2015) 81–89

Table 2 Review on Contractor Selection

Authors Model Shortcoming

Lam et al. [35] Evaluate the suitability of The linguistic evaluation were applied in the model
using the artificial neural for the issue of management knowledge and past
network (ANN) model for performance as two variables related to
contractor pre-qualification management capability. However, the evaluation is
and selection. ambiguous since the indication of good, fair and
poor performance is not properly defined.
Fong and Choi [20] Using AHP model for In the model, the interaction between the client and
contractor selection which is contractor is the only subjective variable related to
not specifically based on contactor’s management capability. Firstly, this
the lowest bid price. criterion is not sufficient to show how effective the
contractor’s management capability is. Secondly,
the evaluation of past performance as another
management capability variable was based on the
time and cost overrun that are not the right indicators
for management purposes.
Wong [23] Outlines the use of clients’ The contractor’s past performance evaluation as a
tender evaluation variable in management capability is based on time,
preferences for predicting a cost and quality from previous performances. This is
contractor performance via not appropriate since faults from other stakeholders
a Logistic regression (LR) can lead to the extension of time and cost as well.
model.
Cheng and Li [21] The multi-criteria decision The model is not comprehensive since the client-
making (MCDM) is contractor relationship was the only subjective
suggested to be a viable variable for management capability considered in
method for contractor the model. In addition, the indicators for past
selection. The AHP model performance are time and cost overrun and there is
has been used as a tool for no indicator defined for the client-contractor
MCDM. relationship in the model.
Anagnostopoulos and Proposing a MCDM In the contractor selection process, the management
Vavatsikos [11] approach, based on the capability of a contractor is evaluated against a
AHP model for supporting number of important decision variables. One such
public authorities in criterion is past performance. The evaluation related
contractor prequalification. to past performance is schedule overruns and cost
overruns in executed contracts, as well as attitude
towards claims.
Turskis et al. [22] This article proposed an The model is used different values such as -
assessment model for construction time; quality of performed projects; bid
contractor selection based estimates and communication with stakeholders.
on the multi-attribute Communication with stakeholders is the only
methods in a competitive subjective variable for contractor’s management
and risky environment. capability used in the proposed model which is not
comprehensive.
Plebankiewicz [14] Contractor prequalification The prequalification criteria such as management
model using fuzzy sets capability, technical ability, etc. are evaluated
models. based on the objectives of the client which is time,
cost and quality. These may not be valid since the
extension of time and cost may be the result of other
complications.

1.4 Management Capability Variables for on the analysis of respondents’ ratings, are
Contractors contractors’ experience, quality control program,
management knowledge, past performance and
Management encompasses the organizing, quality achieved, and number of workforce in the
planning, controlling, and leading processes company. According to Wong et al. [19], control and
executed to achieve the project objectives [27]. It monitoring procedures, ability to manage risks, and
also involves other aspects such as the recruitment, adequacy of information technology knowledge
allocation of resources and funds to produce an were regarded as the key variables.
outcome [18]. Contractor should equip their According to Hatush and Skitmore [13], past
company with qualified and skilled staff with project performance and quality, project management
management skills. The term “management” is very organization, experience of technical personnel and
ambiguous in definition so, it is nearly impossible to management knowledge are the variables of
find agreement of its nature. According to Aje et al. contractor management capability. McCaffer [28]
[18], the variables of management capability, based concluded that the effective use of the plant and
86 Muhd Zaimi Abd Majid et al. / Jurnal Teknologi (Sciences & Engineering) 77:16 (2015) 81–89

equipment can significantly impact the contractor’s

Table 3 Contractor Management Capability Variables
time performance and if it is managed well,
successful projects can be delivered. Table 3 depicts
the management capability variables listed in

Monitoring and

Problem Solving

Organizational
different studies. As can be seen in Table 3, problem

Management

Management

Management
Development

Knowledge
solving skill and management knowledge, in contrast

Controlling
Authors

Resource

Planning
with other variables obtained the highest ranks by

Team
seven out of 10 authors. The second highest ranked

Skill
was belong to ‘Monitoring and controlling’, as
mentioned by six authors. ‘Resource management’ McCaffer    
and ‘Team development skill’ are ranked third by [28]
four citations and the least related variables were Lam et al.  
‘organizational management’ and ‘planning which [35]
were cited by three and two authors respectively. Abiola    
From Table 3, the seven most cited management [27]
capability variables are monitoring and controlling, Fong and 
planning, problem solving, team development skill, Choi [20]
management knowledge, organizational Wong et    
management and resource management. al. [19]
Wong     
[23]
3.0 METHODOLOGY Turskis et 
al. [22]
The methodology is based on extensive literature Plebankie 
review followed by data collection, data analysis, wicz [14]
discussion, and conclusion. A literature review was Aje et al.      
conducted using different tools such as books, [18]
Journal and etc. related to the topic. For data Huang     
collection, beside the literature review, expert survey [15]
was conducted to assess the criticality of the data Total 6 7 4 7 4 3 2
gathered from the literature. This was done to ensure citation
that the current shortcomings are exists in real
practice.

The expert survey was conducted with 20 directors

of top construction consulting firms in Malaysia. The
directors were the key members of the firms to be
involved in the selection of eligible contractor to
award the contract. These individuals have, on
average, more than 30 years’ experience in
supervising contractors’ performance. The consulting
firms are the representative of client for the
prequalification contractor selection process [29].The
companies have been accredited with the
prestigious MS ISO 9001 certification by the Standards
and Industrial Research Institute of Malaysia (SIRIM)
for the provision of consultancy services in the design
and supervision of civil and building works. From the
expert survey questionnaire, the experts were asked
to rate the importance of each criteria from (5)
“absolutely important” to (1)”the least important”.
The importance index of the individual criteria was
calculated using equation 1 [30].
n

W i
Eqs(1)  RII  i 1

A* N

Where, RII is Relative Important Index, Wi is Weight of

the criteria (i) given by respondents ranged between
87 Muhd Zaimi Abd Majid et al. / Jurnal Teknologi (Sciences & Engineering) 77:16 (2015) 81–89

1 to 5, A is the Maximum weight given by

respondents and N is the Number of respondents. Table 5 Relative Importance Index of Each Management
Based on equation (1), the relative important index Capability Evaluation Criteria
(RII) can be calculated ranging from 0 to 1. For data
Evaluation of management Importance Rank
analysis, the importance of each criterion from the
expert survey was investigated. From these analyses, capability index
a conclusion was drawn. Past performance (time and 91% 1
cost overrun)
Experience of technical 85% 2
personnel
2.0 RESULTS AND DISCUSSION Quality control policy 71% 3
Attitude towards claim 68% 4
In this part, the data obtained from a questionnaire
Management knowledge 51% 5
survey distributed among the top management
team of the construction consulting firms in Malaysia
were analysed. The relative importance of each
prequalification criterion for contractor selection and
current evaluation of management capability as the Table 5 shows that time and cost performance of a
critical prequalification criteria at the prequalification contractor in a project is the favorite indication used
stage were investigated. to evaluate management capability of a contractor.
As was discussed in the literature, causes of time and
Prequalification Criteria for Contractor Selection: cost overrun is usual and can be the result of other
The aim of the question is to investigate the stakeholder’s faults. Therefore the current method of
importance of each prequalification criterion. evaluation of management capability is
Respondents were requested to rate the degree of inappropriate and it is important to evaluate the
importance of the five prequalification criteria management capability based on the relative
currently used for contractor selection in Malaysia variables rather than time and cost only. In addition,
through selecting one of the following terms: the contractor or subcontractor can become more
extremely important, very important, important, not motivated in performing their job since their
important, and extremely not important. Table 4 performance is monitored more completely.
illustrates a summary of relative important index (RII) Various prequalification models for contractor
of each prequalification criterion. selection have been identified however two
As can be seen in Table 4, financial standing was important inadequacies of these models regarding
considered as the important criteria during the the evaluation of subjective management capability
prequalification process followed by technical ability were identified which are as follow. First, the models
and management capability with 97%, 94% and 85% are not comprehensive since all the variables relating
important index respectively. Contractor reputation to the management capability are not included.
and health and safety performance were ranked Secondly, the models have focused almost
lowest although performed as one prequalification exclusively on time and cost performance as
for contractor selection. outcome variables, which may not be enough to
evaluate the management capability of contractors.
Current Evaluation for Management Capability: The Although it has been confirmed by Aje et al. [18] that
aim of this question is to examine the current the management capability has the highest impact
evaluation for management capability. Respondents on time and cost performance, it does not
were requested to rate the degree of importance of necessarily mean conversely that overruns in time
the five criteria currently used for the evaluation of and cost are indicative of bad management
management capability through selecting one of the performance of the contractors. For example, in
following terms: extremely important, very important, Assaf and Al-Hejji [31] study, 76% of the contractors
important, not important, and extremely not and 56% of the consultants indicated that the
important. The five sub-criteria were highlighted in average overrunning time was between 10% and
Table 4 Relative Important Index of Each Prequalification 30% of the original duration. [32; - 34]. Assaf and Al-
Criterion Hejji [31] mentioned that the most common cause of
delay identified by all the three parties (contractor,
Prequalification Criteria Importance Rank
client, and consultant) is “change orders”, which is
Index
most often initiated by the client. Therefore
Financial standing 97% 1 measuring the management capability of
Technical ability 94% 2 contractors only through time and cost performance
Management 85% 3 is inappropriate. Management capability has both
Capability
subjective and objective variables embedded in its
Reputation 54% 4
Health and safety 54% 4
meaning. However, the evaluation of subjective
variables used in the prequalification models are
88 Muhd Zaimi Abd Majid et al. / Jurnal Teknologi (Sciences & Engineering) 77:16 (2015) 81–89

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