CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Generally, by direct negotiation with the owner or his representatives as well as by competitive tendering are the two major ways by which construction contracts can be secured in our society today (Shash, 1993; Ashworth, 2001). No doubt, nomination or negotiation is a process by only one organization tenders for a work and the concept of competition is eliminated (Ramus, 1981). Competitive tendering requires an owner to invite a carefully selected number of contractors to challenge for the construction project. This process of tendering is regarded as the most popular way by which the contractors obtain works, and the dominant means of allocating construction contracts (Ward, 1979; Yusif and Odeyinka, 2000; Ashworth, 2001; Hiyassat, 2001; Harris and McCaffer, 2001; Shen et al., 2004). Clients as well as promoters of the construction sector in the public rely heavily on competitive tendering to justify the award of contracts.
Hiyassat (2001) opined that the major usefulness of the competitive tendering system is that it gives room for public interest in obtaining suitable quality of construction work at the most reasonable, acceptable and feasible price. It also compels contractors to continually work at reducing their costs through adopting new technologies and managerial techniques, and is believed to be the fairest to all parties concerned (Ashworth, 2001). Contractors tendering process and procedure require two crucial decisions (Shash, 1993). Whether or not to tender is the first decision faced by contractors during tendering in construction while the second is attributed to the determination of the tender price. The decision to tender is complicated, dynamic and requires many factors, and the selection of the most appropriate project for which to tender is important to the commercial success of building contractors. The preparation of a bonafide tender commits the contractor to some expenditure, which is only recovered if the tender is successful (Lowe and Parvar, 2004; Ward, 1979). Construction organizations are therefore encouraged to be selective, choosing which work they will tender for from a continually changing array of potential projects (Lowe and Parvar, 2004). Therefore, contractors carefully select the contracts they tender from those at their disposal at an early stage in a bid or no-bid decision.
The construction sector in Nigeria accounts for sizeable percentage of the Gross Domestic Product. Although, directed labour are used to execute some construction works but the larger parts are contracted to independent construction organizations. It is widely noted that wrong tendering practice is a major drawback to the efficiency of construction industry. Yusif and Odeyinka (2000) emphasised that an unguided, non-selective approach to tendering by a contractor inevitably waste precious estimating effort. Improvement in tendering practice in Nigeria therefore has the potential to enhance the industry’s performance and save the nation millions of naira in avoidable waste (Yusif and Odeyinka, 2000) and contribute to the survival and growth of the construction industry (Adegbile, 2004).
Shash (1993) emphasised that researchers have not paid adequate attention to the issues of contractors’ decision to tender. For over a decade the situation did not change as Lowe and Parvar (2004) reiterated again that there has been comparatively little objective research into contractors’ decision to tender or not to tender for project. It is Evident that this decision is determined in a subjective way rather than getting objective information. Going by the assumptions o these scholars, then it is important for this study to provide adequate information on the analysis and evaluation of contractors’ tender process and procedures in Nigerian construction projects by using Enugu State as a case study.
1.2 Statement of the Problem
The mistakes made by contractors in tendering are unforgivable as it is clearly mentioned in the contract, that the contractors should burden the risk that is transferred to him and they should acknowledge the disclaimer provided in the contract. When the contractors make mistake, most often they will charge a higher price than previously established to cover for their mistakes. Also, when they are at fault, they normally want to represent themselves as the innocent party who unintentionally made the mistakes and claim those blunders as misrepresentation.
Estimating the error in tendering can result in cost overrun while the project is being executed as the contractors would only realise that they are making mistakes after encountering financial difficulties during the execution of work (Michael Stone 2011). Most often, the lowest tenderer is the person who is likely to commit mistakes and resulting in delay of the project, only then the contractor would realise that they have miscalculated, as they have submitted unreasonable low bids that is insufficient to carry out the works to the project completion (Griffith, Knight and King, 2003). The tendering method used is to provide competition and to reduce the cost of the project, therefore, many inexperienced contractors or low bidder who participate in the tendering and bump into financial difficulties, would automatically force the client to pay additional cost to recover the default.
Most contractors nowadays are too confident and greedy in pursuing projects, although, as contractors they should verify and make sure that all the information or document that they receive are correct. If the contractor did not clarify the discrepancy before the submission of the tender, any mistake in the contract will be at his own risk. Therefore, all the errors shall be checked, corrected and confirmed before the submission of the tender as the profit or loss of the contractor depends on his meticulousness during tendering. Mistakes in tendering are a nightmare to the contractor as the probability of being stuck in financial quandary is very high because of the mistakes. Most of contractors who are facing problems due to their mistakes, do not know how to tackle those faults when they are finally being disclosed. In their point of view, the most common cause of dispute in construction is cost overrun, therefore the easiest solutions they can come up with to conceal their error, are to withdraw the bids, terminate the contractor, flee from the project and try to manipulate claim and variation order. In this situation communication plays the biggest role as both client and contractor need to contribute the best outcome for the finest solution.
1.3 Objectives of the Study
The aim of this research is to analyze and evaluate contractors’ tender process and procedures in Nigerian construction projects in Enugu State. The aim of this research can be broken down into the following objectives:
- 1. To identify the factors affecting contractors’ decision to tender in Nigeria
- 2. To examine the factors influencing tendering duration stipulations in Nigeria
- 3. To understand the types of tender and tendering process in construction in Nigeria
1.4 Research Questions
The study will try to analyze and answer the following main research questions
- 1. To identify the factors affecting contractors’ decision to tender in Nigeria?
- 2. To examine the factors influencing tendering duration stipulations in Nigeria?
- 3. To understand the types of tender and tendering process in construction in Nigeria?
1.5 Research Hypotheses
The following research hypotheses will be formulated for the analysis of the study
- 1. There is a significant influence of tendering duration stipulations on the performance of construction organizations in Nigeria
- 2. There is a significant relationship between tender and tendering and the performance of construction organizations in Nigeria
1.6 Significance of the Study
This study will help contractors become aware of what the factors which need to be considered when they intend to submit tenders for different projects. This research will also provide the information that would be used by any contractor to create a competitive bidding strategy. This study will also give a clear insight into the various ways in which profit and efficiency from contracts and contracting can be increased and how the challenges facing contract tendering can be properly tackled. The study also gives a clear insight into the various factors affecting tenders and their effects on contractors’ efficiency and chances of winning a contract in Nigeria. The findings and recommendations of the researcher will help in building a strong and better contract policy and tendering guideline for contractors, especially small scale contractors in Imo State other construction companies in Nigeria.
1.7 Scope of the Study
This study focuses mainly on the evaluation of contractors’ tender process and procedures in Nigerian construction projects in Enugu State. Results and recommendations may not be used to generalise other construction companies or contractors in other parts of Nigeria, as the researcher could not cover a wider scope due to financial and time constraints. Based on the findings of this study other possible researchable areas may include studies on the various effects of other aspects of contracts such as contract laws in Nigeria and contract management and control.
1.8 Limitations of the Study
The only limitation faced by the researcher in the course of carrying out this study was the delay in getting data from the various respondents. Most respondents were reluctant in filling questionnaires administered to them due to their busy schedules and nature of their work. The researcher found it difficult to collect responses from the various respondents, and this almost hampered the success of this study.
1.9 Definition of Terms
The following terms were used in the processing of carrying out this study:
Tender: According to Simmons (2002), a tender refers to an offer (usually by a contractor or a vendor) to undertake a job or supply goods
Contract: Erikson (2002) defined Contract as an agreement that creates an obligation binding upon the parties thereto. The essentials of a contract are as follows: (1) mutual assent; (2) a legal consideration, which in most instances need not be pecuniary; (3) parties who have legal capacity to make a contract; (4) absence of fraud or duress; and (5) a subject matter that is not illegal or against public policy.
Contractor: According to Simmons (2002), a contractor refers to an organization or individual that contract with another organization or individual (the owner) for the construction of a building, road or other facility.
Construction/Projects: In the fields of architecture and civil engineering, construction is a process that consists of the building or assembling of infrastructure. Far from being a single activity, large scale construction is a feat of human multitasking. Normally, the job is managed by a project manager, and supervised by a construction manager, design engineer, construction engineer or project architect. For the successful execution of a project, effective planning is essential. Involved with the design and execution of the infrastructure in question must consider the environmental impact of the job, the successful scheduling, budgeting, construction site safety, availability of building materials, logistics, inconvenience to the public caused by construction delays and bidding, etc. (Marshall 2001).a
