222 Week 4 F /For WIZARD KIM

Potential for long-term sustainability

A visit of bidding objectives and strategies from maintenance contractor’s perspective

Chung Wai Keung Department of Civil and Architectural Engineering,

City University of Hong Kong, Hong Kong, Hong Kong, and

Tak Wing Yiu Department of Civil and Environmental Engineering,

University of Auckland, Auckland, New Zealand

Abstract Purpose – The purpose of this study is to develop a conceptual framework of bidding model for maintenance contractors. Sustainability is closely linked with the maintenance of facilities or infrastructure. From maintenance contractor’s perspective, one of their key business processes is to bid projects under fierce competition. Their competitiveness is critically affected by their bidding behaviours and bid makeup selections. Design/methodology/approach – This paper aims at identifying critical and important objectives of bidding and items affecting bidding strategies and developing a bidding model for maintenance contractors. Findings – With the questionnaire surveys of 50 maintenance contractors, two critical objectives of bidding have been identified. Likewise, a total of eight critical and 12 important items affecting bidding strategy have also been identified. A bidding model for maintenance contractors is presented. Research limitations/implications – This model formulates the maintenance contractors’ bidding behaviors in a rational manner, and acts as a guideline to new and less experienced maintenance contractors to have a brief understanding about the bidding process and to assist them for establishing their own bidding strategies. With this knowledge, clients or maintenance contractors themselves would become easier to achieve their sustainability goals. Originality/value – Many academic researches on contractor’s bidding strategy emphasized on the general building works, and less attention has been given to maintenance works. Because of the fact that the community is awash with sustainability, and sustainability development is closely related to maintenance work, the business operation of maintenance contractors should be understood. This shall contribute to the achievement of sustainability goals for the society.

Keywords Sustainability, Building maintenance

Paper type Research paper

Introduction It is self-explanatory that maintenance is the key way to sustain existing buildings or facilities (Lewis and Elmualim, 2011; Pulselli et al., 2007; Williams and Dair, 2006; Haapio and Viitaniemi, 2008; Johnson et al., 2004). Without proper maintenance, even the most efficiently designed building will not be sustained. As such, maintenance of existing buildings or facilities can substantially contribute to achieving sustainability

The current issue and full text archive of this journal is available on Emerald Insight at: www.emeraldinsight.com/0263-2772.htm

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Received 11 July 2013 Revised 2 January 2014

Accepted 9 February 2014

Facilities Vol. 33 No. 3/4, 2015

pp. 177-194 © Emerald Group Publishing Limited

0263-2772 DOI 10.1108/F-07-2013-0056

agenda. Similar propositions were specifically discussed by Wood (2006) that “sustainability cannot be achieved without addressing the existing building stock” and “each building can help ‘change the world’ a little”. To achieve sustainable housing development, the government proposed numerous incentive schemes to encourage building maintenance. For instance, the Hong Kong Housing Authority (HKHA) proposed a Total Maintenance Scheme to carrying out territory-wide inspection and maintenance of public housing units, the Hong Kong Housing Society launched a Building Management and Maintenance Scheme by providing financial and technical assistance to building owners, and the Building Department initiates the Mandatory Building Inspection Scheme to offer similar support to the owners of private buildings that have more than 30 years to undertake maintenance work. Hence, the government has made endeavours to promote maintenance of old buildings. A great number of maintenance projects in different scale and job opportunities are expected. Owning to the nature of maintenance works, the scope of works is difficult to be defined fully, as defects due to normal wear and tear or accidents are impossible to be identified in advance. As such, the contract strategy of maintenance works is not the same as new building works, and it is considered by maintenance contractors as risky business due to lack of a full picture of the scope. To bid the maintenance work successfully, the bid price submitted by maintenance contractors should be competitive. They tend to enter consistently low bids to keep their competitiveness (Drew and Skitmore, 1997, 1992). However, clients are often concerned with the performance of contractors, especially those who bid the contract at very competitive price. This is due to the fact that quality of works may be sacrificed by contractors in case the tender bid is far below their actual expenditure. This situation is particularly crucial for building maintenance works which may affect the safety of public. Thus, rational decision in bidding maintenance projects and appropriate strategy for outperforming the competitors are critical to contractors for winning the maintenance contracts.

Due to the fact that maintenance and sustainability are closely related, maintenance contractors would become the “key player” to achieve the sustainability agenda. Furthermore, most academic researches on contractor’s bidding strategy and contractor selection emphasize on the general building works and very less attention has been given to maintenance works (Tan et al., 2010; Seydel, 2003; Perng et al., 2006; Zavadskas and Vilutiene, 2006). As such, this research attempts to investigate the bidding strategies of maintenance contractors. The critical items affecting contractor’s bidding strategy for maintenance works and their correlations to bidding objectives are investigated.

Bidding strategies and bidding objectives of maintenance contractors Most building works are obtained through competitive bidding. There is no exception for maintenance contractors. From contractor’s perspective, the ultimate goal of bidding is to offer a bid price high enough to make reasonable profit and low enough to win the contract at the same time. Thus, contractor should assess the project’s risk margin and exercise appropriate bidding strategy for bid markup selection. Brook (2011, p. 301) defined bidding strategy as a board framework of methods and timing to achieve stated objectives by winning the contracts at prices which allow the organization to carry out work profitably. According to Mansfield (1986), any serious consideration of company strategies must be based on the organizational goals and organizational performance.

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Similarly, Brown (1998) appreciated that these strategies will generally be used to refer to the long-term plans to meet the challenges of the external environment, to accomplish organizational objectives and to achieve sustainable competitive advantage. Thus, an effective bidding strategy is allowable for contractors to achieve their objectives of bidding construction projects. In this study, seven objectives of bidding, which were identified from the previous studies of Friedman (1956), Mansfield (1986), Chua et al. (1999) and Brauers et al. (2008), were identified as objectives of bidding (Friedman, 1956; Mansfield, 1986; chua et al., 1999; Brauers et al., 2008):

• To sustain the operation of company. • To open oversea market. • To be a market-leading contractor in the industry. • To ensure the number of projects in hand. • To widen the nature of works. • To gain profit. • To develop and maintain a good relationship with clients and consultants.

Furthermore, competitive bidding involves complex consideration of multiple factors that affect bidding decision (Stone, 1983). It may be time-consuming and complicated to identify all these factors that form a rational basis for such decisions, analyze their individual strengths and then quantify their combined impact on the decision (Moselhi et al., 1993). According to Chua and Li (2000), bidding decision is a complex problem affected by numerous factors, so it is important to identify the underlying key determining factors to study how bid decisions are made. Ahmad and Minkarah (1988), Shash and Abdul-hadi (1992) and Shash (1993) identified a number of factors for the bid/no-bid and markup decision-making, and Flanagan and Norman (1982) identified factors affecting contractor’s bidding behaviour. In the maintenance field, some scholars proposed contractor selection criteria which attempt to offer clearer understandings for maintenance contractors in their bidding decisions (Zavadskas and Vilutiene, 2006; Brauers et al., 2008; Al-hammad and Assaf, 1996; Zavadskas et al., 2005). Based on these previous studies, 51 items affecting bidding strategy were summarized. These can be generally grouped into internal and external elements (Tables I and II) according to their characteristics. The relationships between the objectives of bidding and the items affecting contractor’s bidding strategy are modelled. These are proposed to be a conceptual framework of bidding model for maintenance contractor (Figure 1 refers). It is suggested that the objectives of bidding would significantly correlate with some of these items that would, in turn, affect maintenance contractor’s bid markup selection.

Data collection and analyses A questionnaire survey was designed to collect data from the listed maintenance contractors. The list of maintenance contractors is approved by the HKHA and a total of 46 contractors were qualified as the listed contractors by HKHA. Two copies of the questionnaire were received by each contractor under the approved list and a total of 92 questionnaires were sent. The suitability of the variables in the questionnaire was tested

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by pilot studies which were conducted by interviewing three senior practitioners in the building maintenance field. A draft questionnaire was distributed to the practitioners for review and comment. Afterwards, recommendations related to the appropriateness of the proposed questionnaire were received. Amendments were made to the questionnaire based on the feedback obtained, and the finalised version was considered valid for the building maintenance context. The questionnaire has three parts. Part I was designed to obtain background information of respondents. Parts II and III were designed to collect data on the seven bidding objectives and 51 items affecting bidding strategy, respectively. With the use of Likert scale from 1 to 7 (where 7 � most important and 1 � least important), the respondents were asked to indicate the degree of importance of each objective and item in relation to their bidding experience of previous maintenance projects. Previous literature suggested that both five- and seven-point Likert scales are comparable. However, the seven-point Likert scale tends to be a good

Table I. Items affecting bidding strategy– external elements

Groups Sub-groups Items

External (Stone, 1983; Flanagan and Norman, 1982; Shash and Abdul-Hadi, 1992; Ahmad and Minkarah, 1988; Shash, 1993; Chua and Li, 2000)

Client- and Consultant-related

Reputation of Consultant and Client Nature of Client (Private or Public) Special Requirement of Client Financial Condition of Client Previous Experience with Consultant and Client Project Available in the Market Number of Client in the Market

Project-related Type of Work Project Size Project Location Project Duration Complexity Project start time Site Constraint

Contract-related Completeness of the Tender Document Completeness of the Drawings and Specification Contractor Involvement in the Design Stage Tendering Duration Type of Contract Contract Condition Amount of Liquidated Damages Insurance Premium Amount Payment Terms and procedure Amount of Bond Tendering Method of Client

Market-related Number of Competitors within the Industry Strength of Competitors within the Industry Government Regulation Market Condition Difficulty for Getting Bank Loan Availability of equipment and plants in Market Availability of labourers/workers in Market Resource Price Fluctuation

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Objective 1 Objective 2 Objective n

Item 1 Item 2 Item 3 Item 4 Item n

Bid Markup Mark-up Decision

Items affecting bidding strategy

Objectives of bidding

Figure 1. Proposed framework

of bidding model

Table II. Items affecting

bidding strategy– internal elements

Groups Sub-groups Items

Internal (Shash and Abdul-Hadi, 1992; Ahmad and Minkarah, 1988; Chua and Li, 2000; Shash, 1993; Al-Hammad and Assaf, 1996; Zavadskas and Vilutiene, 2006; Flanagan and Norman, 1982)

Contractor-related Strength of the Contractor Reliability of Subcontractor Current Workload of Staff Need for the Job Quality of Bidding/Estimating Team Relationship with Client Strength of Project Partner Profit from the Project in the Past Head Office Overhead Reputation of Contractor Past Experience on Similar Project

Resource-related Possession of Qualified Workers in Contractor Firm Possession of Qualified Staff in Contractor Firm Possession of Equipment and Plants in Contractor Firm Possession of Reliable Subcontractors in Contractor Firm Possession of Reliable Suppliers in Contractor Firm Possession of Reliable Bidding/Estimating Team in Contractor Firm Financial Condition of Contractor Firm

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balance that can offer enough options for the respondents (Nunnally and Bernstein, 1994; Colman et al., 1997), and is considered more reliable statistically (Alwin, 1997). The collected data were analyzed by:

(1) Relative Importance Index (RII): Ranking critical and important bidding objectives and items affecting bidding strategy. The level of importance among bidding objectives and items affecting bidding strategy can be directly measured and analyzed by the RII. RII has been adopted extensively in previous researches to analyze respondent’s judgements (Tan and Shen, 2007; Olomolaiye et al., 1987; Shash, 1993). The RII for each individual objective or item is obtained from calculating the weighted average on collected data through the following formula (Tan and Shen, 2007):

RII � 100 � ( � aX)

7N (1)

Where “X” represents the frequency of the responses from the survey for a specific grade; “a” represents the weighting value (ranging from 1 to 7, where 7 is most important and 1 is least important) corresponding to a specific grade; “N” represents the total number of responses. If the objective or item with the RII value above 75 is recognized as a “critical” and those with RII in-between 70 and 75 are deemed to be an “important” (Tan and Shen, 2007). If two or more items happened to have the same RII value, then the one with relatively lower standard deviation is assigned to have the higher rank (Shen and Liu, 2003) based on the value of RII and standard deviation of each objective or item.

(2) Principal Component Factor Analysis (PCFA): Developing a taxonomy for items affecting bidding strategy of maintenance contractor. PCFA generally takes a large set of variables and looks for a way that the data may be “reduced” or summarized using a smaller set of factors or components (Pallant, 2005). Shen and Liu (2003) further indicate that PCFA is a common method to generate linear combinations of variables so that it can account for as much of variance present in the dataset. Such an analysis summarizes the variability in the observed data by means of a series of linear combination of “factors”.

(3) Correlation analysis: Relating the bidding objectives to the items affecting bidding strategy. Correlation analysis is often used to describe the strength and direction of the linear relationship between two variables (Pallant, 2005). Pearson product–moment coefficient is designed for interval level (continuous) variables. It can only take on values from �1 to � 1. The sign out the front indicates whether there is a positive correlation or a negative correlation. The size of the absolute value (ignoring the sign) provides an indication of strength of the relationship. A correlation of 0 indicates no relationship between two variables. In addition, Pallant (2005) further suggests the following guidelines when it comes to the determination of strength of the relationship:

• r � 0.10 to 0.29 or r � �0.10 to �0.29 represents the strength is small. • r � 0.30 to 0.49 or r � �0.30 to �0.49 represents the strength is medium. • r � 0.50 to 1.0 or r � �0.50 to �1.0 represents the strength is large.

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Results and discussions A total of 50 completed questionnaires were received which represented a response rate of 54 per cent. According to the results, it was found that more than half of the respondents’ companies (62 per cent) are distributed over the first two groups (i.e. less than 50 employees and 51-100 employees). In addition, relatively few respondents’ companies (12 per cent) have more than 200 employees. The result reflects the fact that maintenance contractors are often small- and medium-size company and similar situation was found in other country (Zavadskas and Vilutiene, 2006). Moreover, most respondents (66 per cent) have over 10-year’s working experience in the building maintenance field and relatively few respondents (16 per cent) have working experience less than 5 years. Thus, the reliability of the results at reflecting the opinions of the building maintenance field is ensured.

The importance of the bidding objectives and items affecting bidding strategy Tables III and IV show the RIIs of the “objectives of bidding” and the “items affecting bidding strategy”, respectively. Objectives and items identified as critical or important are highlighted for further explanation.

Based on the principle suggested by Tan and Shen (2007), only two objectives of bidding, “to gain profit” and “to sustain the operation of company”, are recognized as critical (Table II refers). For the items affecting bidding strategy, 8 of them are recognized as critical and another 12 are recognized as important (Table IV refers). All of these critical and important items are further analysed by PCFA to develop the taxonomy of items affecting bidding strategy.

Items affecting bidding strategy – a taxonomy The Bartlett test of spericity is 647.421 and the associated significance level is 0.000, suggesting that the population correlation matrix is not an identify matrix. The value of the Kaiser–Meyer–Olkin measure of sampling accuracy is 0.857, which is higher than the threshold requirement of 0.5 and hence considered acceptable (Shen and Liu, 2003). As a result, the data are appropriate for PCFA. Factors were extracted based on the eigenvalues greater than 1 principle. These factors explain for 69.01 per cent of total variances. Each factor was named, and the detailed interpretations are given as follows.

Table III. Ranking of critical

and important objectives of bidding

Rank Objectives of bidding RII SD

1 CO1: To gain profit 87.43 0.98 2 CO2: To sustain the operation of company 78.86 1.27 3 IO1: To ensure the number of projects in hand 69.71 1.42 4 IO2: To develop and maintain a good relationship with clients

and consultants 69.43 0.99

5 IO3: To widen the nature of works 68.86 1.02 6 IO4: To open oversea market 51.43 1.46 7 IO5: To be a market leading contractor in the market 47.14 1.20

Notes: RII � 75 � critical objective (CO); RII in-between 70-75 � important objective (IO); The RIIs were calculated based on the Equation (1), this method does not test any significance

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Table IV. Ranking of critical and important items affecting bidding strategy

Rank Items affecting bidding strategy RII SD

1 CI1: Past Experience on Similar Project 80.57 1.27 2 CI2: Reliability of Subcontractor 79.71 1.20 3 CI3: Market Condition 78.29 1.46 4 CI4: Profit from the Project in the Past 77.14 1.02 5 CI5: Type of Work 76.86 0.99 6 CI6: Strength of the Contractor 76.29 1.42 7 CI7: Possession of Qualified Staff in Contractor Firm 76.00 0.98 8 CI8: Project Size 75.43 1.22 9 II1: Special Requirement of Client 74.29 1.31

10 II2: Financial Condition of Contractor Firm 74.00 1.16 11 II3: Reputation of the Contractor 74.00 1.35 12 II4: Relationship with Client 73.71 1.37 13 II5: Resource Price Fluctuation 73.43 1.24 14 II6: Strength of Competitors within the Industry 73.43 1.25 15 II7: Number of Competitors within the Industry 73.43 1.18 16 II8: Reputation of Consultant and Client 72.29 1.25 17 II9: Financial Condition of Client 72.00 1.24 18 II10: Current Workload of Staff 71.14 1.34 19 II11: Completeness of the Drawings and Specification 70.29 1.32 20 II12: Need for the Job 70.00 1.25 21 Completeness of the Tender Document 68.86 1.47 22 Possession of Reliable Subcontractors in Contractor Firm 68.29 1.30 23 Project Available in the Market 67.71 1.29 24 Complexity 67.71 1.67 25 Possession of Reliable Suppliers in Contractor Firm 66.29 1.51 26 Possession of Qualified Workers in Contractor Firm 66.00 1.21 27 Possession of Reliable Bidding/Estimating Team in Contractor Firm 66.00 1.28 28 Previous Experience with Consultant and Client 65.14 1.42 29 Possession of Equipment and Plants in Contractor Firm 64.57 1.26 30 Head Office Overhead 64.00 1.14 31 Contract Condition 64.00 1.36 32 Site Constraint 64.00 1.21 33 Number of Client in the Market 63.43 1.07 34 Payment Terms and Procedure 63.14 1.05 35 Quality of Bidding/Estimating Team 62.86 1.16 36 Availability of equipment and plants in Market 62.00 1.07 37 Amount of Liquidated Damages 61.71 1.24 38 Availability of labourers/workers in Market 59.43 1.24 39 Project Duration 58.29 1.30 40 Difficulty of Getting Bank Loan 57.71 0.86 41 Type of Contract 57.14 0.98 42 Strength of Project Partner 58.86 1.14 43 Government Regulation 55.14 0.91 44 Nature of Client (Private or Public) 55.14 0.89 45 Tendering Method of Client 54.29 1.21

(continued)

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With PCFA, the identified 8 critical and 12 important items affecting bidding strategy were grouped into 4 factors (Table V refers). The explanations of these factors are as follows.

Factor 1: Extraneous impact. The seven items affecting bidding strategy included in this factor are all related to external elements. These elements are often not controllable by the contractors but have significant impact on bidding strategy. These factors include “resource price fluctuation”, “special requirement of client”, “reputation of consultants”, “strength of the Contractor”, ”financial condition of client”, “project size” and “type of work”. According to Zavadskas et al. (2005), successful implementation of maintenance projects requires the evaluation of the capabilities of the project participants and the influence of the external environment on its efficiency. Thus, maintenance contractors should evaluate the degree of impact of these factors in order to ascertain the risk during the bid/no-bid stage.

Factor 2: Business partners and rivals competence. This factor consists of the following items affecting bidding strategy. These are:

• completeness of the drawings and specification; • reliability of subcontractor; • number of competitors within the industry; • reputation of the contractor; and • strength of competitors with the industry.

This factor reveals that maintenance contractors should investigate the competence of each partner and rival to know their positions in the business environment when they decides to bid the project. According to Zavadskas and Vilutiene (2006), there is high competition in the building maintenance market, and maintenance contractors should rely on sufficient information to achieve efficiency of their performances. Being a competent maintenance contractor, it is advised to ensure the sufficiency of tendering documents (which means the completeness of drawings and specification) so as to reduce the disputes and variations aroused. Trust from client can be defined as a relationship of reliance between client and maintenance contractor. In essence, maintenance contractors repair building defects and upgrade facilities to meet the expectations of building clients or users. Thus, they should establish and maintain business partnership with clients to secure award of maintenance contracts (Goh et al., 2005).

Table IV.

Rank Items affecting bidding strategy RII SD

46 Tendering Duration 55.43 0.89 47 Amount of Bond 52.86 1.15 48 Insurance Premium Amount 51.43 1.05 49 Contractor Involvement in the Design Stage 47.43 1.23 50 Project Start Time 47.14 0.94 51 Project Location 37.71 0.80

Notes: RII � 75 � critical item (CI); RII in-between 70-75 � important item (II); The RIIs were calculated based on the Equation (1), this method does not test any significance

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Factor 3: Contractors’ assets. Maintenance contractors’ competence is more or less reflected by the sufficiency of resources in hand. As such, they should secure the assets to keep competitive advantage in the industry. This factor, namely, Contractors’ Assets, includes following items affecting bidding strategy:

• financial condition of contractor firm; • possession of qualified staff in contractor firm; • relationship with client; • need for the job; and • past experience on similar project.

These shall be considered while deciding to bid a project because a maintenance contractor’s selection is based on multiple criteria associated with the contractor’s characteristics, such as its financial background, past experience and capable human resources (Brauers et al., 2008).

Factor 4: Financial condition. Factor 4 refers to the financial condition of contractors. It includes “profit from past projects”, “current workload of staff” and “market condition”. Maintenance contractors should scrutinize the financial account to ascertain the amount of profit required and secure health cash flow after commencement of the project. According to Zavadskas and Vilutiene (2006), financial status of maintenance contractors is one of the risk elements because they

Table V. PCFA component matrix

Component 1 2 3 4

Resource Price Fluctuation 0.776 0.020 0.164 0.201 Special Requirement of Client 0.725 0.335 0.016 0.293 Reputation of Consultant and Client 0.686 0.224 0.352 0.141 Strength of the Contractor 0.633 0.491 0.270 0.001 Financial Condition of Client 0.631 0.349 0.280 0.221 Project Size 0.595 0.395 0.149 0.486 Type of Work 0.562 0.253 0.442 0.400 Completeness of the Drawings and Specification 0.169 0.792 0.226 0.110 Reliability of Subcontractor 0.065 0.764 0.221 0.152 Number of Competitors within the Industry 0.367 0.726 �0.124 0.299 Reputation of the Contractor 0.403 0.613 0.186 0.281 Strength of Competitors within the Industry 0.504 0.611 �0.047 0.235 Financial Condition of Contractor Firm 0.204 0.085 0.717 0.347 Possession of Qualified Staff in Contractor Firm 0.210 �0.035 0.672 0.402 Relationship with Client 0.562 0.150 0.618 �0.129 Need for the Job 0.066 0.382 0.554 0.001 Past Experience on Similar Project 0.478 0.153 0.508 0.503 Profit from the Project in the Past 0.468 0.149 0.087 0.743 Current Workload of Staff �0.074 0.339 0.382 0.660 Market Condition 0.304 0.326 0.184 0.600

Notes: Rotation: Varimax; The RIIs were calculated based on the Equation (1), this method does not test any significance

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become exposed to high financial risks in the market due to lack of resources in providing building maintenance. Thus, gaining the profit is one of the ultimate bidding objectives of maintenance contractors. To maximize the profit and minimize the risks, maintenance contractors have to consider all relevant impact, whatever from external or internal condition, so as to determine profit markup. Meanwhile, maintenance contractors should consider the current workload of staff as it might affect the profit. If the current workload of staff is so huge that they cannot take up any new projects, then maintenance contractors should consider whether they should employ more staff or give up to bid the project.

Correlation analysis The strengths of relationship between those critical objectives of bidding and critical or important items affecting bidding strategy are determined by correlation analyses, measuring the correlation coefficients of each pair of these variables (Table VI refers).

The results showed that the critical objective, CO1: To gain profit, contains large strength of relationship with the following items:

• CI5 – Type of Works (Pearson Correlation: 0.613). • CI8 – Project Size (Pearson Correlation: 0.572). • CI1 – Past Experience on Similar Project (Pearson Correlation: 0.574). • CI4 – Profit from the Project in the Past (Pearson Correlation: 0.526). • CI7 – Possession of Qualified Staff in Contractor Firm (Pearson Correlation:

0.618). • II9 – Financial Condition of Client (Pearson Correlation: 0.548).

The critical objective “To gain profit” contains a very strong strength of relationship between the items “Type of Works”, “Project Size”, “Past Experience on Similar Project”, “Profit from the Project in the Past”, “Possession of Qualified Staff in Contractor Firm” and “Financial Condition of Client”. As previously mentioned, gaining profit for every contractor is one of the ultimate objectives of bidding. When maintenance contractor determines the level of markup, there are three major aspects that maintenance contractor should concern during the bidding process. These include “client’s financial condition”, “profit mark-up” and “capability of contractor”. All of these items seriously affect the amount of profit which would be gained by maintenance contractors. These heavily influence the profit gained by maintenance contractors and also indicate the suitability of certain project to maintenance contractors. It is because these two major items indicate the capability of maintenance contractors in certain kind of maintenance project. If maintenance contractor is not capable to handle certain size and type of maintenance project, it means that maintenance contractor cannot bid that project probably. In addition, these also affect the amount of profit gained by maintenance contractors because the characteristics of maintenance project are unique which cause the profit from different size and type of maintenance projects will be very different. Likewise, the extent of markup in maintenance contract is directly proportional to the net profit of maintenance contractor. To make an appropriate decision on the profit markup, the items “past experience on similar project”, “profit from the project in the past” and “possession of qualified staff in contractor firm” are extremely essential and critical resources for maintenance contractors to make appropriate bid so as to

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Table VI. Correlation matrix Pearson correlation

It em

de sc

ri pt

io ns

C O

1 C

O 2

C F

1 C

F 2

C F

3 C

F 4

C F

5 C

F 6

C F

7 C

F 8

IF 1

IF 2

IF 3

IF 4

IF 5

IF 6

IF 7

IF 8

IF 9

IF 10

IF 11

IF 12

C O

1 1

0. 72

0 0.

57 4

0. 20

9 0.

40 9

0. 52

6 0.

61 3

0. 46

5 0.

61 8

0. 57

2 0.

39 0

0. 47

9 0.

37 4

0. 37

5 0.

34 3

0. 24

1 0.

25 6

0. 47

1 0.

54 8

0. 32

1 0.

34 6

0. 36

6 C

O 2

1 0.

57 0

0. 47

8 0.

48 8

0. 50

1 0.

55 0

0. 54

5 0.

47 3

0. 57

9 0.

37 2

0. 37

1 0.

48 5

0. 43

2 0.

32 7

0. 37

4 0.

45 8

0. 41

6 0.

44 0

0. 39

7 0.

60 1

0. 44

8 C

F 1

1 0.

36 6

0. 53

7 0.

63 5

0. 71

0 0.

54 7

0. 61

8 0.

65 4

0. 56

1 0.

63 2

0. 54

7 0.

51 2

0. 55

0 0.

40 0

0. 41

7 0.

58 6

0. 52

1 0.

49 1

0. 36

6 0.

35 C

F 2

1 0.

26 7

0. 29

6 0.

40 9

0. 51

1 0.

26 8

0. 44

2 0.

34 1

0. 27

4 0.

54 5

0. 22

8 0.

24 8

0. 42

4 0.

54 9

0. 34

0 0.

36 6

0. 44

0 0.

64 0

0. 21

9 C

F 3

1 0.

56 9

0. 56

4 0.

34 5

0. 35

6 0.

56 9

0. 47

8 0.

36 9

0. 51

9 0.

34 6

0. 34

7 0.

50 0

0. 50

9 0.

41 4

0. 57

6 0.

48 8

0. 39

6 0.

37 3

C F

4 1

0. 65

1 0.

45 9

0. 42

9 0.

72 4

0. 57

0 0.

41 2

0. 48

3 0.

30 2

0. 54

9 0.

44 8

0. 47

6 0.

39 5

0. 47

6 0.

49 7

0. 35

5 0.

17 5

C F

5 1

0. 55

8 0.

53 1

0. 76

1 0.

51 1

0. 51

2 0.

54 6

0. 50

7 0.

53 3

0. 50

1 0.

42 7

0. 76

7 0.

60 5

0. 40

6 0.

45 1

0. 42

9 C

F 6

1 0.

35 2

0. 58

8 0.

67 4

0. 37

0. 55

1 0.

54 4

0. 47

6 0.

52 7

0. 49

8 0.

59 7

0. 61

9 0.

25 8

0. 60

2 0.

25 1

C F

7 1

0. 41

1 0.

26 6

0. 58

6 0.

33 5

0. 38

6 0.

33 5

0. 19

4 0.

13 2

0. 39

4 0.

39 1

0. 37

2 0.

18 2

0. 29

7 C

F 8

1 0.

70 8

0. 40

0 0.

65 2

0. 40

1 0.

51 7

0. 56

2 0.

56 7

0. 64

7 0.

59 8

0. 39

9 0.

58 5

0. 28

5 IF

1 1

0. 32

0. 54

6 0.

40 4

0. 56

6 0.

57 9

0. 52

0 0.

53 9

0. 70

9 0.

33 1

0. 43

3 0.

21 8

IF 2

1 0.

35 5

0. 54

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maximize the profit and determine profit markup. For example, during the bidding process, profit from past project and past experience on similar maintenance project will be used as a reference material to establish the profit markup, whereas, this kind of decision are normally made by the qualified staff. Moreover, “financial condition of client” is an indicator to predict the financial condition of the client, which may affect the regular issue of payment during post-contract stage. When it comes to maintenance term contract, it may seriously affect the amount and value of works orders to be issued by the client. Therefore, it may eventually affect the profit gained by maintenance contractors. In the case of public maintenance works, if the client like HKHA is facing a very big financial problem, it may seriously influence the number and amount of work orders to be issued during the term contract period. Hence, it will affect the profit gained by maintenance contractors, as the concept described before. To conclude, for those new and less experienced maintenance contractors, it is better to consider these six items specifically when their major objective of bidding is to gain as much profit as possible.

Moreover, the critical objective CO2 (To sustain the operation of company) contains a very strong strength of relationship between the following six items:

(1) CI8 – Project Size (Pearson Correlation: 0.579). (2) CI5 – Type of Works (Pearson Correlation: 0.550). (3) CI1 – Past Experience on Similar Project (Pearson Correlation: 0.570). (4) CI6 – Strength of the Contractor (Pearson Correlation: 0.545). (5) CI4 – Profit from the Project in the Past (Pearson Correlation: 0.501). (6) II11 – Completeness of Drawings and Specification (Pearson Correlation: 0.601).

The critical objective “To sustain the operation of company” contains a strong strength of relationship between the items “Project Size”, “Type of Works”, “Past Experience on Similar Project”, ”Strength of the Contractor”, “Profit from the Project in the Past” and “Completeness of Drawings and Specification”. To sustain the operation of company, maintenance contractor should get as many jobs as possible and ensure the profit is sufficient to sustain the operation of company. In fact, there are four aspects to be considered by maintenance contractors during the bidding process, these incorporate “capability of contractor”, “completeness of drawings and specification” and “profit markup”. Items such as “types of works” and “project size” seriously influence the capability of maintenance contractor as if they are extremely over the capability of maintenance contractor that maintenance contractor is incapable to handle the maintenance project. Likewise, it will affect the profit which varies from different size and type of maintenance projects. Similarly, items such as “past experience on similar project” and “profit from the project in the past” are both extremely essential and critical resources for maintenance contractors to make appropriate bid so as to maximize the profit and determine the profit markup. The item, “strength of the contractor”, means the technical capability and experience of maintenance contractor in certain type and size of maintenance projects. This technical experience of maintenance contractor is often considered by the client during the pre-qualification stage. Therefore, items heavily affects the capability of maintenance contractor, which means if a maintenance contractor is incapable to handle certain type and size of works, then the contractor probably cannot win that maintenance project and the resource spending on the bid preparation will be totally wasted. Moreover, “completeness of drawings and

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specification” are normally applicable in the type of lump sum maintenance contract. It is understandable that if the drawings and specification is not yet completed during tendering stage, then it may arouse a series of claims, disputes and variations during the course of works. It may eventually cause substantial loss if maintenance contractor is not entitled to any monetary compensation. Hence, maintenance contractor should pay particular attention to this item, and issue tender query for the uncertainties about the drawings and specification during the tender briefing session hold by the client like HKHA.

Based on the above findings, a proposed bidding model for maintenance contractor was developed (Figure 2). The model suggests that maintenance contractors should identify their own critical objectives of bidding first. These objectives are often stemmed from the company’s mission, policy and organizational goals.

This study reveals that most critical objectives of bidding for maintenance contractors are to “gain profit” and ”to sustain the operation of company”. Bidding strategy is one of the competitive strategies which involves in a complex decision-making process. Having analysed the correlation between the objectives of bidding and items affecting bidding strategy, each critical objective is found has strong relationship with certain items which can be defined as external and internal elements.

The proposed bidding model was developed by incorporating the objectives of bidding before considering the various items in the bidding process. Maintenance contractors should identify the critical objective of bidding and consider the corresponding items for determination the markup of bidding. This is important for the maintenance projects that require advanced technology to repair or rehabilitate buildings. However, if the two objectives identified in the proposed bidding model are considered not critical by maintenance contractors, they can pursue the four factors recognized in the PCFA and consider those factors in priority for their bidding decision. In fact, bidding decision is a complex issue affected by numerous variables. The development of proposed bidding model can formulate the contractors’ bidding behaviour in rational thinking and reduce the number of factors to be considered during the bidding process. As shown in Figure 2, the model explains the flow of bidding decision from the bottom level (objectives of bidding), then middle level (items affecting bidding strategy) and finally goes to the top level (markup decision) of the model. It indicates that the level of markup is determined through the bidding strategy formulated by identifying the underlying key determining factors and objectives. It is expected that the model can offer a guideline for those new and less experienced maintenance contractors to have clearer understanding about the bidding process and to assist them for establishing their own bidding strategies. As discussed, the role of maintenance contractors is one of the cores to achieving sustainability goals. This study provides insights into the bid preparation of maintenance contractors.

Conclusions Maintenance contractors often play a vital role on sustaining existing buildings or facilities. This study aims at studying the bidding strategies of maintenance contractors in Hong Kong. The results of this study indicate that two objectives of bidding are recognized as critical by maintenance contractors, they are “to gain profit” and “to sustain the operation of company”. Obviously, gaining profit is one of the critical objectives for every business as every entrepreneur wants to make profit. It has already

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been shown that a considerable part of the industry’s workload is let by competitive tender and therefore contractors can secure most of its income by submission of successful tenders. Based on the results of correlation analyses, it was found that these two critical objectives of bidding contained strong strengths of relationship with items affecting bidding strategies. Finally, a bidding model was proposed for maintenance contractors. This study offer maintenance contractors a holistic approach to competitive bidding, particular the new and less experienced contractors. First, the proposed bidding model was developed by incorporating the objectives of bidding before considering the numerous items in the bidding process. Maintenance contractors are recommended to identify the critical objective of bidding and consider the corresponding items for determining the markup of bidding. Second, if the two identified critical objectives are not considered by the maintenance contractors in the bidding process, they can pursue the four factors and consider those factors in priority for their bidding decision. Finally, the empirical results of this study formulate maintenance contractors’ bidding behaviours in a rational manner and enable them to establish their own bidding strategies in their maintenance businesses. This can also help maintenance contractors to perform quality standard of works. Eventually, public safety can be guaranteed due to their quality performance. The public can also enjoy the benefits of achieving sustainability developments.

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To Gain Profit

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Company

Bid Markup

Type of Works

Project Size

Financial Condition of Client

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Past Experience on Similar Project

Profit from the Project in the Past

Strength of the Contractor

Possession of Qualified Staff in Contractor Firm

Internal Element

External Element

Figure 2. The bidding model

for maintenance contractor

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Corresponding author Tak Wing Yiu can be contacted at: [email protected]

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