7 - 13 March 2001

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building & construction

Competitive bidding, is it killing our industry?

By Pio Vassallo
Vassallo Builders Ltd.

Construction industries in Europe, particularly the British construction industry, have come to realise the drawbacks and shortfalls of the most popular form of procurement, one that has been in use for the past 50 years – competitive tendering.

The process of the traditional form of procurement very often referred to normally involves the client approaching an architect who would, in turn, prepares all the necessary documents for a call for tenders to be made.

Once all tenders have been collected and adjudicated by the architect, the daunting stage of negotiations begins. The price of the lowest bidder is normally used as a leverage or bargaining power against the more expensive contractors, when called in by the client to negotiate. In this way, the contractors are forced to lower their prices, sometimes by a considerable amount, to secure work.

Depending on the state of the economy and of the industry, the contractors would decide on the mark up they would be willing to undertake the job for - in difficult times, these are normally close to breakeven or, even worse, below cost. A contractor winning the job below cost would then adopt a strategy during the project, whereby money is made on claims and variations.

This is normally the basis of the ‘blame culture' in which contracts are based on conflict and liability. Nevertheless, the employer and architect fail to appreciate this and the decision to award tenders is normally based on the tender sum alone. This is done because the architect is confident that all contractual documents are in place to safeguard the client's interest against any future claims.

However, enforcing a very onerous contract on the contractor might not be the right solution to safeguarding the best interest of the client. Insolvency of a contractor, especially on a large contract, is a great risk and cost for the employer as well. On the other hand, when the lowest bid is accepted, this can easily result in the employer awarding the contract to the builder who has the least appreciation of the complexities of the project; or the greatest willingness to take risks; or the lowest current workload of all the bidders. It would be unusual, or even lucky, if these factors resulted in the best value for money for the client.

The experience of the UK construction industry has been a sour and costly one in this respect and the industry has been trying to move away from the traditional form of procurement. Common interests are being formulated into new forms of procurement, whereby an open book approach is being adopted – ‘partnering' is the new buzz word and the way forward in the UK.

This new form of procurement is still very alien to Malta and will continue to be that way for a number of years to come. The experience of similar industries abroad cannot be ignored and should serve as a basis for discussion by the respective authorities and organisations representing the stakeholders of the industry, being architects, clients and contractors.

Competition is good and healthy but should be limited. In this regard, the classification of contractors presently being discussed by the BICC is a first step in the right direction. New ways of saving costs to the employer should be found and this should not be merely limited to reducing the contractor's profit or to force the latter to lose money in certain circumstances.

The present tendering strategies currently being used on the Maltese market are doing just that, forcing the contractors to work under very tight and onerous conditions - a situation which is killing our industry and one that is not very sustainable in the long

The Business Times, Network House, Vjal ir-Rihan San Gwann SGN 07
Tel: (356) 382741-3, 382745-6 | Fax: (356) 385075 | e-mail: editorial@networkpublications.com.mt