Keywords

1 Introduction

Construction projects are normally awarded through the practice of competitive bidding. Competitive bidding occurs when the client invites contractors to bid for a project. The invitation is usually made through public advertisement. Bidding is the process of submitting a bid proposal to the client for undertaking the construction project at a certain price. During the bidding stage, the contractor analyses the project documents and submits the bid price along with the required deliverables to the client. The client evaluates the contractor bid submittals, and ultimately awards the project to an eligible contractor. With low-profit margins required to win bids in tight and competitive construction markets, careful and accurate bidding is necessary for contractor success (2009). The contractors’ ability to win the right project at the right price level is important for survival and making a profit (Oo et al. 2008). Competitive bidding allows all capable contractors to bid for the offered projects. Shash (1995) defined competitive bidding as a system in which the contractor is selected based on specific criteria to perform a set task. This style of bidding is considered a stable bidding practice in the construction market and is the most familiar method of distributing construction contracts among contractors (Harris and McCaffer 1995). Direct competition through bidding is the most common method of job distribution in the construction industry (Oo et al. 2008).

The construction industry witnessed an increase in the size and complexity of construction projects during the past years (El-Sayegh and Al-Haj 2017). Contractors adopt various competitive bidding strategies in order to meet specific objectives (Tan et al. 2010) and to improve their chances of winning projects (Drew et al. 2001). Bidding strategies differ from one construction firm to another, where each contractor will have a different degree of sensitivity towards the factors affecting their bidding decisions (Oo et al. 2010). The lowest bid strategy is one of the main strategies used by contractors. Submitting a lowest bid is usually accepted as being the key to winning a contract (Oo et al. 2008). However, the lowest bidders may not be competent enough to carry out the task (Halpin and Senior 2012). Enshassi et al. (2013) considered that the selection of the lowest bidder is the main cause of problems in the construction industry. El-Sayegh and Rabie (2016) stated that choosing a contractor based on the lowest price may not be the best approach as it may lead to delays and/or quality problems. Risk management is vital for successful project completion (El-Sayegh 2014).

The UAE is one of the largest construction markets in the Middle East. The construction industry is still productive despite the decline in the number of offered projects. Due to the high number of contractors in the market, the competition for winning projects remains fierce. During recessions, contractors are forced to become more competitive (Odusami and Onukwube 2008). It is found that competition between contractors to bid becomes brutal in bad years when few projects are available (Assaf and Al-Hejji 2006). The current economic situation has resulted in high competition between UAE construction companies to win projects locally and internationally. Therefore, effective bidding strategies should be implemented to compete profitably in the UAE and international markets. The objective of this paper is to assess the effectiveness of the competitive bidding strategies for UAE construction companies, in both local and international markets.

2 Methodology

The first step was to identify the common competitive bidding strategies based on the review of related literature. Seventeen strategies were identified. A questionnaire was used to get the perceptions of construction professionals in the UAE construction industry. Sixty-five questionnaires were collected. The respondents were asked to indicate the effectiveness of the identified strategies using a 5-point Likert scale. The scale ranged from 1 (not effective) to 5 (very effective) to measure the effectiveness of the different strategies. There were separate questions for competitive strategies in the local and international markets. The weighted average of the responses was then calculated for each strategy. The Spearman rank correlation coefficient was used to study the strength of relationships between the competitive strategies in the local and international markets.

3 Results

The bidding strategies were examined in terms of their effectiveness. The effectiveness is defined as winning the contract as a result of implementing a particular competition strategy in bidding (Tan et al. 2010). Table 1 shows the weighted averages and rankings of the effectiveness of the bidding strategies in the UAE and international markets.

Table 1 Bidding strategy effectiveness
Full size table

4 Discussion

For the UAE market, the lowest bid strategy is the most effective way to guarantee winning project’s bid, especially when the contractor is dealing with familiar client. The second most effective strategy is the value management strategy indicating the importance of value management in terms of bidding. By applying this strategy contractors save cost and time which allow them to compete effectively. The third effective strategy is achieving combination of price and performance. This strategy allows the contractors to meet the client’s requirements (apart from the lowest bid price), such as the technical submissions. The lowest effective bidding strategy is clearly random bidding when work level is low. Overall, responses from UAE construction market disagree with private finance options strategy.

Achieving combination of price and performance strategy is the major strategy used and most effective while bidding for international projects. The results indicate that in the international market, complying with clients’ requirements is the most effective strategy. The lowest bid price comes in second place. This is where the contractor has an experience in the market environment, as he will be in the safe side when submitting a reasonable low bid price. Value management is very effective strategy, as it saves cost and time, which allows the contractor to remain competitive. Application of high technology and public relation strategy is clearly explained by the fact that the international market is highly competitive. Applying high technology on the bidding process or on construction methodology attracts clients and enhances a contractor’s chance to win the bid. Public relation strategy also operates as an effective strategy to win bids, especially when coupled with a good reputation and relationship with construction parties, e.g. the client, designer, etc. On the other hand, the analysis shows the most ineffective three strategies are random bidding (when work level is low), claim back strategy and private finance options.

As shown in Table 1, lowest bid is the most accepted strategy used as bidding strategy for winning local construction projects in UAE, while in bidding for international projects the main applied strategy is achieving combination of price and performance. A further analysis of the strength of relationship between the UAE and international market was performed using the Spearman Rank Correlation Coefficient analysis. The correlation coefficient is 0.92 which indicates a strong positive correlation between the two rankings. The comparison between the UAE and international market shows that the lowest bid was ranked as the most effective strategy in the UAE market, while it was ranked 2nd in the international market. This difference is due to the uncertainty of the international market and the clients’ multi-requirements for submitting the bid. A major discrepancy is the sustainable and environmental practices strategy. For UAE projects, it ranked 9th while for international projects it ranked 13th. This is because the UAE municipality and government are deeply concerned with sustainability applications, with most projects containing sustainability application. Thus, the contractors frequently use these applications as a strategy to gain the client’s attention. However, for international projects, not all countries apply sustainability practices, thus limiting this strategy’s effectiveness. Another discrepancy is the joint venture strategy. For the UAE market, it was ranked 12th while it was ranked 6th for the international market. In order for a contractor to enter a new country and be able to know how to deal with the new environment, a joint venture partner is highly complementary, increasing the chance of winning a project in the international market. For the UAE market, JV is not as effective, as the contractor may only need a partner when bidding for a large, complex project that needs other contractors’ support.

5 Conclusions

The UAE is one of the largest construction markets in the Middle East. Due to the current global financial recession, the number of available projects declined, while the number of contractors remained relatively constant. This has led to an increased competition between contractors to win projects. As a result, UAE contractors are currently concerned with developing effective bidding strategies that can potentially increase their chances in winning projects.

In terms of effectiveness, the top five common effective strategies in the UAE market are lowest bid, value management, achieving combination of price and performance, application of high technology, and technology transfer. The top five effective strategies in international market are achieving combination of price and performance, lowest bid, value management, application of high technology and public relationship strategy.

This paper provides an in-depth focus on the effectiveness of the competitive bidding strategies in the UAE and the international construction markets. This is particularly useful for international contractors who want to enter the UAE construction market. Due to the changing economic conditions, contractors need to adapt their competitive bidding strategies to increase their chances of winning project. Contractors need to pay special attention to the clients’ requirements. There is a shift towards sustainable construction practices in the UAE and contractors need to capitalise on that as they compete for projects. This paper helps contractors formulate the appropriate and effective bidding strategies in local and international markets.