Deakin Research Online

1 Deakin Research Online This is the published version: Mills, Anthony 2005 , Client and contractor attitudes to prequalification, in aace . international transactions ; 49th Annual Meeting, American Association of Cost Engineers international ., aace international , Morgantown, W. Va., pp. Available from Deakin Research Online : :30037057. Reproduced with the kind permissions of the copyright owner. Reprinted with the permission of aace international , 1265 Suncrest Towne Centre Dr., Morgantown, WV 25605 USA. Phone 800-858-COST/304-296-8444. Fax: 304-291-5728. Internet: E-mail: Copyright 2005 by aace . international ; all rights reserved. Copyright : 2005 , The Authors 2005 aace international transactions Client and Contractor Attitudes to Prequalification Dr. Anthony Mills his Research is concerned with identifying prequalifica- attitudes of clients and contractors, and assumes that both parties T tion criteria that both clients and contractors believe are good indicators of future construction performance.

2 Criteria used in the past have been developed in a largely idiosyncratic manner with little or no consultation with the contractors affected. As a result, contractors are faced with a can contribute to the success of the project. It is not surprising that clients use a vast range of prequalifi- cation criteria for deciding which contractors are rejected or accepted to bid for their projects. Past prequalification Research by Holt et al. , (1993) agreed suggesting that prequalification and variety of calls for information by prequalifiers, the collection of "selection experience appears to vary considerably from (client). which can be quite costly. This is leading to expensive duplica- organisation to organisation. The dissimilarity may result from the tion of effort by contractors in providing what is often similar infor- different organisational goals, or may simply be the result of the mation but in different formats. individual idiosyncrasies of diverse clients". p 170. Furthermore, previous Research has shown that the benefit of In a study of construction owners, the majority were found to the information to prequalifiers is uncertain: many prequalifiers be utilising various bespoke methods.

3 This individualistic analyse the information in only a cursory manner. What is need- approach means the even the good outcomes of the prequalifica- ed is some form of analysis to be carried out which will establish tion process are not shared to the benefit of all (Holt et al. , 1993). a common set of criteria for all to use. Past Research into prequalification criteria has shown that there is This Research compares the different attitudes of both pre- a lack of universal approaches. In other words, there are consider- qualifiers and contractors to prequalification criteria commonly in able differences in the criteria used by clients (Holt et al. , 1994b). use in the Australian building industry. The purpose is to discover According to Ng and Skitmore (1999) "a crucial task in con- if those differences reduce the effectiveness of prequalification. tractor prequalification is to establish a set of decision criteria This was carried out via a postal questionnaire involving 49 con- through which the capabilities of contractors are measured and tractors and 15 prequalifiers across Australia.

4 Judged. However, there seems to be no nation-wide universal The results show that clients and contractors have divergent guidelines that govern the selection of decision criteria for con- opinions on the importance of some criteria currently in use. The tractor prequalification." Instead the decision criteria tend to be possible reasons for these differences are discussed and the most established on an ad-hoc basis. important prequalification criteria are identified. Moreover, Ng and Skitmore (1999) state that contractors are assessed differently by different clients, with over 90% of clients currently using their own idiosyncratic decision criteria in prac- tice. In addition, Barda and Thompson (1996) indicated that most In the past most Research work in this field has concentrated government agencies in Australia had not fully implemented the on criteria that clients believe are important and very little atten- recommendations of the Construction Industry Development tion has been given to the views of contractors.

5 In many respects Agency (CIDA) recommendations with regard to the use of stan- this is an understandable situation, because clients are be in the dard prequalification criteria. This also suggests that general appli- best position to judge their own needs. The axiom "he who pays cation of universal criteria may be a difficult goal to achieve in the piper calls the tune" neatly sums up that principle. practice. Some clients do have well developed and sophisticated The prequalification process has been researched by a num- processes in making their decisions, while others use ad-hoc or ber of different authors and the underlying assumption has been informal methods. This has resulted in contractors having to that only clients can affect the process. Contractors are also stake- accommodate a diversity of prequalification criteria. CIDA (1995). holders in the construction industry, and their actions have an suggest that universal criteria can provide contractors with the fol- important impact on the success of construction projects.

6 It is sug- lowing advantages: gested that both clients and contractors have a significant impact on the prequalification process. This Research concentrates on the 2005 aace international transactions Consistent basis upon which to tender or negotiate for work, greatly simplified as there will be a consensus between the groups. and, If they are not so like-minded, then it may be necessary to find A basis for marketing their abilities measured against an ways of incorporating these differences into the process, or elimi- objective framework. nating the criteria from the list. As mentioned above, very few studies have considered non- If a universal basis for prequalification can be found this may client stakeholder views to date. Russell et al (1992) analysed the assist contractors in providing a more reliable way to market their attitudes of three types of client organisations: public owners, pri- abilities, and also this may assist clients compare contractors over vate owners and construction managers with results that ".

7 Indi- time. The difficulty has been that although there have been many cate a significant statistical difference among public owners or calls for the adoption of universal criteria for the selection of con- construction managers, while public owners and construction tractors in Australia (CIDA, 1993; CIDA, 1993a; CIDA, 1995b; managers responded similarly." A study by Jennings and Holt CIDA, 1995a) and overseas (Hatush and Skitmore, 1997a; Hatush (1998) compared the views of contractor's opinions of prequalifi- and Skitmore, 1997b ); Holt et al. , 1994a) but very little has been cation criteria. Their Research concluded that contractors were actually achieved in practice. dissatisfied with the frequency and adequacy of current prequali- It must be noted that clients are entitled to conduct prequal- fication regimes. The only other study to include non-clients was ification in the manner that they see fit, and have the right to that of CIDA, who developed prescriptive criteria that were "sub- choose with whom they to do business.

8 However, the issue to be ject to a broad industry consultation" CIDA (1993) and therefore investigated is whether existing prequalification schemes improve can be assumed to incorporate some degree of stakeholder views. the success of construction projects and whether they do so effi- The principal objective of this Research is to determine if ciently, without causing unreasonable costs to the industry as a clients are best meeting their needs during the contractor pre- whole. This Research concentrates on the issue of the most signif- qualification phase. One of the themes of this Research is to con- icant criteria used for the prequalification of contractors for con- sider the views of other stakeholders in the process. It is suggested struction projects. The purpose is to discover if there are differ- that by appreciating the attitudes of both client and contractor that ences in the views of contractors and clients, which reduce the it may be possible to develop more suitable prequalification crite- effectiveness of prequalification.

9 Ria. The next section of this paper describes the Research instru- Identification of suitable prequalification criteria A num- ment that was used to measure the importance of commonly used ber of past researchers have attempted to construct universal sets prequalification criteria. As previously mentioned, it would be of prequalification criteria. This section examines some of the almost impossible to use every conceivable criterion available in Research undertaken in the United States, United Kingdom, Hong any prequalification decision. Consequently, the 39 CIDA criteria Kong and Australia which have identified prequalification crite- have been chosen as the set that is the most relevant to the ria. Australian industry. Anecdotal evidence suggests that each unsuccessful tender adds a little to the project acquisition costs of bids and the net Research METHODOLOGY. result is an industry overhead which is ultimately be passed back to the clients in the form of increased tender price levels.

10 What is The use of universal prequalification criteria seems to be a needed is some form of contractor procurement process that pro- widely researched "utopian" ideal, but at this stage it does not duces the most cost effective outcome . seem to exist in practice. The purpose of standard prequalification There have been several studies into the importance of crite- criteria is to provide more consistency across the industry as a ria in the prequalification decision from the clients point of view, whole. The 39 CIDA criteria were used in this Research as the including; Liston (1995), Russell et al (1992), Holt et al (1994b), basis for an attitudinal survey of clients and contractors. (see Table CIDA (1995) and Hatush and Skitmore (1997a). Each author 1). developed a list of criteria that they considered contained the The Research instrument was a postal questionnaire based on most significant factors used for decision-making. After exhaus- the CIDA criteria which was sent to groups of contractors and tively compiling an aggregated list of all possible criteria, it was clients.