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PRICING STRATEGY IN THE INDONESIAN CONSTRUCTION INDUSTRY (Krisna Mochtar)

PRICING STRATEGY IN THE INDONESIAN CONSTRUCTION


INDUSTRY

Krishna Mochtar
Indonesia Institute of Technology, Department of Civil Engineering, Serpong, Tangerang 15320

ABSTRACT

Issues related to pricing strategy in the Indonesian construction industry are covered, including
problems of current pricing strategy in construction, exploration of pricing strategies with a market-
based approach, and survey findings of the top Indonesian contractors regarding their current
pricing practices and the applicability of market-based pricing strategy models developed by Mochtar
and Arditi. Comparisons with similar survey findings of the top U.S. contractors are conducted
whenever possible. In conclusion, the belief that current pricing strategy in construction is
predominantly cost-based is confirmed by the survey findings; indeed, in setting the markup, most
contractors rely on subjective assessment of the competition. Using simulated bidding scenarios, it
is discovered that Indonesian contractors tend to be more market-based as they know more about the
owner's characteristics, competitors' characteristics, and market demand. Consequently, the
implementation of bidding procedure proposed by Mochtar and Arditi is supported. To maximize the
benefits of market-based pricing strategies, the bidding procedure change should be explored by all
parties involved in the Indonesian construction industry.

Keywords: Cost-based pricing, market-based pricing, pricing variables, bidding procedure.

INTRODUCTION First, pricing is too cost oriented. Second, once


an offer is made, price is not revised to
In setting project prices, construction companies capitalize on market conditions or to feud off
have to meet two requirements to be successful. competitive pressures. Third, price is not set as
First, the prices have to reflect sufficient profi- an intrinsic element of a market-positioning
tability for the company to conduct business. strategy. And fourth, price is not adjusted
Second, the prices have to reflect sufficient enough for different clients, project types,
value to the customers for them to engage in amount of work at hand, equipment ownership,
purchase transactions. Both conditions have to etc.
be met to make it viable for the producer and
buyer to mutually benefit from the transaction. There are basically two extreme pricing stra-
Either one without the other will likely result in tegies: cost-based pricing and market-based
an aborted sale. Price is one element of mar- pricing [2], consequently any other pricing stra-
keting mix that produces revenue; the other tegy is always in between these two extremes.
elements (product, place/distribution, and pro- Cost-based pricing starts by establishing the
motion) produce costs. Price is also one of the total cost of making a product. The product is
most flexible elements of the marketing mix, in then sold with additional cost-based markups,
that it can be changed quickly, unlike product commonly a desired profit. There are two
features and subcontractor/supplier commit- problems with this pricing logic. First, it is
ments. The number one problem encountered by possible to grossly underprice a product using
most marketing executives is price competition. cost-based pricing and forgo even greater levels
Yet many construction companies do not handle of profitability. The second possible consequence
pricing well. There are at least four common of cost-based pricing is overpricing. Since the
mistakes made by marketing executives [1] if price is set based on internal cost and margin
one transposes to the construction industry. requirements, the price that results could be too
high or too low relative to competing products of
comparable quality and reputation. Had the
Note: Discussion is expected before November, 1st 2002. The pricing started with the market (customer,
proper discussion will be published in “Dimensi Teknik competitors, and product position), a business
Sipil” volume 5 number 1 Maret 2003. would know what cost reductions would be

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DIMENSI TEKNIK SIPIL VOL. 4, NO. 2, September 2002 : 85 - 93

needed to achieve a desired level of profit. And alternative strategy. There are models publi-
if those cost targets could not be met at the shed by researchers concerning bidding strate-
market-based price, then perhaps an alternative gies in the construction industry [13,14,15,
positioning strategy would have to be developed. 16,17,18,19] that, to a certain extent, include
Or perhaps the project should not be pursued market information. However, the use of these
since the profit potential is not likely to be models in the industry is very limited because
achieved. However, there are conditions under most of these bidding strategy models require
which cost-based pricing does make sense and sensitive information about competitors, such as
needs to be used: in commodity markets where their minimum and maximum markup, and
competitors face the same cost of supply; and in some of them require sensitive information
competitive bidding markets, where pre-qual- about customers/owners; most of the time this
ified bidders are selected on the basis of low information is not readily available.
price [2]. A review of pricing strategies both in
general and in construction can be found in [3].
PROPOSED PRICING STRATEGY
This paper presents several issues related to MODELS IN CONSTRUCTION
pricing in construction. First, problems with
current pricing strategies in construction are Considering the problems with a cost-based
explored. Second, a pricing strategy with a strategy model and the benefits of more market
market-based approach is discussed. Third, oriented concepts, a series of market-based
survey findings of current pricing practices and pricing models are developed for use in the
findings related to the applicability of the construction industry [4]. For clarity, the models
proposed strategy of the top Indonesian contrac- will be summarized as the followings, Model 1 is
tors are presented. Comparisons with survey a purely cost-based pricing strategy model. The
findings of the top U.S. contractors [4] are typical procedure in cost-based pricing involves
presented whenever possible. The comparisons estimating the project cost based on project
are justified because they are both the top documents (drawings and specifications), then
contractors in each country, so that similar applying a markup for profit.
characteristics and responses are expected.
Finally, conclusions are drawn and recommen- Model 2, a hybrid-pricing model is a variation of
dations are made regarding pricing strategy in the purely cost-based pricing approach. The cost
the Indonesian construction industry. optimization process in this model involves
adjusting the estimated costs to fit the price
range allowed by the market. In this model,
PRICING IN CONSTRUCTION detailed project cost estimating tasks are
performed independently of market data collec-
The construction industry in most countries in tion. A decision is then made whether to bid or
the world is one of extreme competitiveness, not to bid, based on whether the company can
with high risks and low margins of profit when achieve cost levels that are within the market
compared to other areas of the economy. price range. Once a decision to bid is made, the
Consequently, pricing is one of the most risk policy of the company is decided. The com-
important aspects of marketing in construction. pany could decide wether to skim or penetrate
But unlike in other industries, transactions and the market. Skimming involves pricing the bid
contracting in construction are conducted offer relatively higher than what the market
through the competitive bidding process, so that would allow based on the belief that the
pricing mostly takes place in the bidding company enjoys competitive advantage over the
process. Currently, the pricing approach used in other bidders in terms of delivering the owner's
construction is cost-based. This strategy is most important requirements and providing the
commonly used in the U.S. construction indus- owner with best value. Skimming aims to
try [4]. The typical procedure in cost-based maximize a company's profit. On the other
pricing involves estimating the project cost, then hand, penetration is the opposite of skimming.
applying a markup for profit. Many researchers Penetration involves keeping the profit margin
propose bidding strategies based on this deliberately and consistently lower than the
approach [5,6,7,8,9,10,11,12]. There are however market standard in order to outbid competitors
problems with this pricing logic [2]. already entrenched in a particular sector of the
industry. This policy aims at penetrating a
Market-based pricing, developed mostly in the sector for the sake of securing a foothold in that
context of manufacturing industries, is an sector even though it is known that the project

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PRICING STRATEGY IN THE INDONESIAN CONSTRUCTION INDUSTRY (Krisna Mochtar)

will generate minimal profit or maybe a small an organization of Indonesian top contractors
loss. and has 122 members. It is believed that the
nature of bidding (external variables), combined
Model 3 is another version of a hybrid-pricing with the characteristics of a company (internal
model. The main information of this model is variables) lead to a specific pricing strategy. In
market data collected through marketing this study, pricing strategy is represented by
intelligence so that a cost target can be set either the purely cost-based pricing model
based on the market price range. Approximate (Model 1), one of the hybrid models (Models 2
cost estimates are calculated based on historical and 3) or the purely market-based pricing model
data and bidding documents. Cost analysis and (Model 4) presented in the previous section.
adjustments are performed to optimize the cost
and see if it fits within the market price range. The eleven internal variables include: type of
Finally a decision to bid or not to bid the project most projects performed (building or heavy),
is made. geographic location of projects (within or out-
side Java), work subcontracted (below or above
Model 4 is a purely market-based pricing model. 50% of contract value), marketing expenditure
The main information used in this model is (below or above 2% of annual contract volume),
market data collected through marketing annual contract volume, marketing orientation
intelligence. This model suggests that the cost (competitive or negotiated contracts), type of
estimating function is not necessary at all. The client in most projects (public or private),
decision is always to bid the project, fully based equipment policy (owned or leased/rented),
on collected market information through mar- technological sophistication (high or low), level
keting intelligence. Cost analysis and adjust- of experience (extensive or limited), and mar-
ment are performed only after winning the keting intelligence capabilities (extensive or
project, before the construction phase begins. limited). These company characteristics are
The big assumption of Model 4 is the belief that assessed in the first section of the survey.
the company will always be able to find ways
and methods to construct the project below the The three external variables include the
market price with a reasonable profit. owner's characteristics (whether they are
known or unknown), competitors' characteris-
The pricing Models 1, 2, 3, and 4 constitute a tics (whether they are known or unknown), and
pricing strategy spectrum from a purely cost- market demand (whether it is low or high). An
based strategy in Model 1 to a purely market- owner’s characteristics may include information
based strategy in Model 4. The market-based about the owner’s financial stability, reputa-
components of Models 2, 3, and 4 are largely tion, history of litigation, potential for
dependent upon marketing intelligence func- commissioning projects in the future, etc; the
tions in place in a company. A company with same type of information about the owner’s
extensive marketing intelligence capability is consultants such as architects/engineers or
expected to implement a more market-based construction management firms, is considered
pricing strategy in order to ensure a more to be part of the owner’s characteristics.
competitive bid offer. A review of marketing Competitors’ characteristics may include infor-
intelligence in general and a discussion of the mation about the names and number of bidders,
findings of a related survey conducted in the their bidding history, financial situation,
U.S. construction industry can be found in [20]. current workload, expansion plans, etc. Market
The findings of the survey conducted to explore demand includes not only current market
the applicability of market-based pricing stra- conditions but also past trends and future
tegies in the Indonesian construction industry projections in the company’s sphere of activity
are discussed in the following sections. and in related fields. A company has little or no
control over external variables.

THE SURVEY A simulation model composed of eight hypo-


thetical bidding scenarios (HBSs) was used to
A simulation model and a survey instrument represent the use of different pricing strategies
were developed for the U.S. survey [4]. The under different conditions (external variables)
questionnaire was adjusted to Indonesian and how these relate to company characteristics
condition and sent to the presidents/CEOs of (internal variables). The description of the eight
Indonesian Contractors Association (Asosiasi bidding scenarios is presented in Table 1.
Kontraktor Indonesia- AKI) members. AKI is These eight scenarios consist of combinations of

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DIMENSI TEKNIK SIPIL VOL. 4, NO. 2, September 2002 : 85 - 93

three external variables that have a significant on the company's preferences and general
impact on the pricing approach adopted by a market conditions with cost adjustments. This is
firm. very close to the pricing approach in Model 2 so
that in setting the markup some market
Table 1. Hypothetical bidding scenarios (HBSs) conditions such as competitors' past bids are
taken into consideration. Most bidding models
discussed by Mochtar and Arditi [3] are in line
with this strategy. Compared to the finding of
U.S. current pricing strategy, which is 1.62 [4],
it shows that somehow Indonesian contractors
are using more market-based strategy.

In the second section, respondents were asked to Table 2. Current pricing strategy
indicate the most probable pricing approach Pricing strategy Rating Percent of Rating
they would use, in terms of the four Models 1, 2, (1) system respondents (2)x(3)
3, and 4, in each hypothetical bidding scenario. (2) (3) (4)
1. Detailed cost estimate is performed,
In the third section, the contractors were asked
then markup is set Based on
questions related to their current pricing company's preferences (Model 1). 1.0 13.3 13.3
strategy. This section includes the pricing 2. Detailed cost estimate is performed,
strategy used, the assessment of markup, the then markup is set Based on
company's preferences and market
decision-making concerning markup, and the conditions ; No cost adjusments
importance of factors in their pricing strategy. (Model1-Model 2). 1.5 20.0 30.0
3. As above, but with cost
adjusments/optimization (Model 2). 2.0 46.7 93.4
4. Cost/markup is set based on market
SURVEY FINDINGS AND DISCUSSION conditions; then Detailed cost
estimate is made and then adjusted
Out of 122 questionnaires mailed, 15 or 12.3% to Fit cost targets (Model 2-Model 3). 2.5 13.3 33.3
were returned duly filled out. Based on the 5. Cost/markup is set based on market
conditions; then Rough cost estimate
writer’s experience, the 12.3% level of return is is made and then adjusted to Fit cost
common for construction surveys in Indonesia. targets (Model 3). 3.0 6.7 20.1
6. Cost/markup is set fully based on
market conditions;Costs are adjusted
The findings related to current pricing strategy to fit targets only after the award of
practices are presented in Tables 2, 3, and 4. Contracts (Model 4). 4.0 0.0 0.0
Table 2 presents data regarding pricing stra- Total 100.0 190.1
tegies currently used by respondents. There Average pricing strategy 1.90
were six choices of pricing strategy given to the
respondents. These choices range from a purely A question in the survey explored pricing and
cost-based pricing strategy that basically markup assessment practices currently in place
reflects Model 1 (rating: 1.0), to a purely in responding companies. Besides the regular
market-based pricing strategy that basically spreadsheets, there exist on the market soft-
reflects Model 4 (rating: 4.0). The four strategies ware specially developed for pricing activities,
in between these two extremes include a such as CLAAS and Pricedex. CLAAS integrates
strategy between Models 1 and 2 (rating: 1.5), a price analysis, risk and trade analysis, and
strategy that corresponds to Model 2 (rating: estimating. Pricedex manages and produces
2.0), a strategy between Models 2 and 3 (rating historical data on competitors' prices and
2.5), and a strategy that corresponds to Model 3 information databases for products/services. In
(rating: 3.0). Table 2 indicates that 13.3% of some other software, the user inputs infor-
respondents are using pure cost-based pricing mation such as the number of competitors and
(Model 1) and that 80% use Model 2 or more competitors' minimum and maximum markups,
cost-based approaches. The remaining three then the software will generate a number of best
choices that are more market-based than Model price alternatives by using mathematical and
2 are being used by a total of 20%. The average statistical methods or fuzzy logic. Using special
pricing strategy is 1.90 on a scale 1 to 4 where pricing software appears to be not popular in
1= purely cost based and 4= purely market- construction bid pricing; In line with the U.S.
based pricing. It appears that on the average a counterparts [4], the majority of Indonesian
construction company performed a detailed cost respondents (80% versus 55.6% in the U.S.) use
estimate exactly the same procedure used in spreadsheets, while only 13.3% (versus 33.3%
cost-based pricing, then a markup is set based for the U.S.) use special pricing software.

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PRICING STRATEGY IN THE INDONESIAN CONSTRUCTION INDUSTRY (Krisna Mochtar)

The markup estimation problem is a decision view is confirmed by respondents in this


problem that is so highly unstructured that it is survey, who rank financial goals in the first
very difficult to analyze and formulate an order of importance with an average score
adequate solution mechanism [8]. Table 3 4.33.
presents data concerning types of markup deci-
sion assessment. It indicates that in deciding Table 4. Importance of Factors in Current
Pricing Strategy
their markup the majority of contractors (66.7%)
assess the competition. This assessment may Factors
Average score
include learning about who the competitors are, Indonesia U.S.
Company's strengths and weaknesess 3.53 4.12 (3)
and how many of them there are. This way, a
Need for work 4.00 (5) 3.97 (5)
bidder can determine the severity of the com- Demand/economic conditions 3.87 3.67
petition, and based on that assessment, decides Financial goals of company 4.33 (1) 4.13 (1)
the most competitive markup for a particular Competition 4.13 (4) 3.40
bid. This finding agrees with Ahmad and Owner's characteristics 4.20 (2) 3.83
Minkarah [10]. It is interesting to note that Owner's consultant characteristics 3.67 3.24
Project size/complexity 3.87 4.13 (2)
more than one quarter (26.7%) of respondents
Project location 3.53 3.76
stated that they use intuition in deciding their Subcontractors' characteristics 3.27 3.19
magnitude of their markup. This finding also Expected future project from the owner 4.13 (3) 3.97 (4)
agrees with Ahmad [21] and Ahmad and Note:
Minkarah [10]. The usual practice is to make - 1=least important; 5=most important
bid decisions on the basis of imtuition, derived - Bolds show the top five ranks
- Numbers in parentheses show ranks
from a mixture of gut feeling, experience, and
guesses [21]. Even though "a constant percen-
• A long term relationship with clients is a
tage that does not change from project to
high priority issue in the Indonesian respon-
project" strategy is only used by 6.7% of
dents' pricing strategy; the majority of
respondents, this strategy seems to have worked
respondents think "expected future project
in those cases. In the U.S., one respondent
from the owner" is a very important factor,
commented that they have been using such
placing this factor third in the importance
strategy for almost 40 years [4], and that they
ranking with a score of 4.13 (tie with
survived in Engineering News Records’ top 400
"competition" factor). The implication of this
U.S. contractors [22].
attitude is that bidders may price their bid
substantially lower than "normal", with the
Table 3. Markup Decision Assessment
hope of having the opportunity to show the
Respondents as percentage quality of their work to the owner and to
Types of assessment
Indonesia US
maintain a good relationship with the owner.
Intuition 26.7 50.5
Probability/mathematical models 26.7 14.3 In return, the contractors hope the owner
Empirical models 46.7 24.2 will award them other projects in the future
A constant percentage that does not change 6.7 9.9 or at least recommend them to other clients.
An assessment of the competition 66.7 60.4 • A company's need for work is the fifth
important factor in the company's pricing
As seen in Table 4, the five most important strategy with a score of 4.00. With such a
factors in Indonesian respondents' current high rank, this factor implies that companies
pricing strategy are financial goals of company, with a desperate need for work may price
owner's characteristics, expected future project their bids way lower than "normal". Owners
from the owner, competition, and need for work should be aware of it.
with respective average scores of 4.33, 4.20,
4.13, 4.13, and 4.00, on a scale of 1 to 5 where 1= Findings related to simulated bidding situations
least important and 5= most important. Three are presented in Tables 5 and 6. Contingency
of those five factors are in agreement with the analysis was conducted to explore the strength
U.S. finding [4]: of the relationship between internal variables
and pricing strategy in different bidding
• de Neufville et al. [11] believe that in pricing scenarios. Table 5 indicates that most coeffi-
their bid, contractors are actually maximi- cients are not statistically significant at α= 0.05.
zing the monetary value of the project value. Only one coefficient is statistically significant,
Consequently, the financial/monetary goals namely "annual contract value" in HBS 7
of a company are important enough to be (known owner's and competitors' characteristics
maximized along with other utility measures and low market demand). It is difficult to
in their models. It seems that this point of interpret this finding. Interestingly, the bottom

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three rows in Table 5 also indicates that, as that the traditional belief is not true. Contra-
predicted, the average pricing model and its ctors tend to be more market-based as they
ranges preferred by respondents are mostly know more about their clients and competitors.
changing from less market-based to more
market-based as one goes from HBS 1 to HBS 8 Table 5. Contingency coefficients between
internal variables and pricing strategy
(from 1.5532 to 3.0635- except for HBS 5).
in hypothetical bidding scenarios
Pricing Models 1, 2, 3, and 4 are like a spectrum (HBSs)
of pricing strategy from pure cost-based strategy
(Model 1) to pure market-based strategy (Model
4). In order to find the most probable pricing
model used for a certain dependent variable, v
in each hypothetical bidding scenario, average
analysis is performed. The average model, AMvs
of the pricing strategy for each hypothetical
bidding scenario,s (1 to 8) for internal variable,
v (1 to 11) is calculated using the following
formula:
4
Note: HBS refers to Table 1; box and bold face denote significant association
∑ m.M
m =1
ms at 95%
AMvs = (1)
4 Table 6 presents data regarding the pricing
∑M
m =1
ms strategy used under conditions characterized by
external sub-variables. The average is found by
where Mms is number of respondents using calculating the average of respondents’ pricing
pricing Model m (1 to 4) in scenario s. Finally, strategy assessed in the second section of the
to find the most probable pricing approach used simulation model explained in previous section
in each hypothetical bidding scenario s, WMs, a for respective external sub-variables. T-tests are
weighted-average analysis is performed. The conducted to test the hypotheses of average
contingency coefficients, Cvs are used as the differences. The results presented in Table 6
weight of each average model, AMvs in scenario s indicate that all hypotheses are supported at
obtained. The use of contingency coefficients as 95%. As expected, when information about the
the weight of each average model is justified owner's and competitors' characteristics is not
because the contingency coefficients describe the available, contractors tend to use a less market-
strength of association between each internal based pricing approach than when information
variable and the pricing strategy, in this case about the owner and competitors is readily
the average model in scenario s. The calculation available. Also as expected, in an environment
is as follows: characterized by low market demand (high
11
competition, more secretive practices and less
∑C
v =1
vs . AM vs access to market information), contractors tend
WMs = 11
(2) to use a less market-based pricing approach
∑C
v =1
vs
than in an environment characterized by high
market demand (less competition, more open
where 11 is the number of internal variables. It practices and more access to market infor-
can be seen in Table 1 that HBSs 1 to 8 mation).
constitute a spectrum from unknown to known
Table 6. Pricing Strategy in Conditions Cha-
owners' and competitors’ characteristics.
racterized by External Sub-variables
It can be said that the more known the owner's Range
External Variables Average
and competitors' characteristics, the more Lower Upper
1. Owner's characteristics
market-based the pricing strategy used (even in 1.1. Unknown m1= 1.9791 1.4895 2.9895
HBS 8 where market characteristics are known, 1.2. Known m2= 2.5056 1.7528 3.2528
average pricing strategy is 3.0635). This finding H1: m1 < m2 Yes
2. Competitors' characteristics
contradicts the traditional belief in construction 2.1. Unknown m1= 1.9556 1.4778 2.9778
that pricing is a one-strategy phenomenon, i.e., 2.2. Known m2= 2.5133 1.7567 3.2567
H1: m1 < m2 Yes
that all contractors use approximately the same 3. Market demand
strategy. The fact that respondents used a 3.1. Low m1= 2.1085 1.5542 3.0542
different pricing strategy in each of the bidding 3.2. High m2= 2.3700 1.6850 3.1850
H1: m1 < m2 Yes
scenarios developed in this research is proof Note: bold denotes significant at α= 0.05

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PRICING STRATEGY IN THE INDONESIAN CONSTRUCTION INDUSTRY (Krisna Mochtar)

In the light of the hypotheses associated with adjustments. It is very close to the hybrid
owner's characteristics and type of client pricing approach so that in setting the
variables that are found to hold true at 95%, it markup some market conditions such as
can be stated that the way construction clients competitors' past bids are taken into
organize their project letting procedures consideration, and optimization of construc-
(bidding) is very important for a contractor's tion methods are conducted. In setting their
pricing strategy decisions. To allow for a more bid offer, most contractors rely on subjective
market-based approach to pricing, a drastic assessment on the competition; most con-
departure is highly recommended from the tractors do not use special pricing software.
current bidding process to the proposed bidding The pricing decisions would be much
process [4]. The proposed bidding process is a improved if they not only considered
modification of the bidding process used by subjective assessment, but also up-to-date
NASA and discussed by [23]. In the current information about all relevant market
bidding process, final proposals are submitted characteristics (owner and competitor cha-
right after bidding invitation, project expla- racteristics, and demand level). Special
nation, and field visits. Evaluation and contract pricing software such as those that organize
award constitute the next events. Most clients market price databases and perform price
use the lowest bid evaluation system. No analysis could improve pricing decisions.
clarification, correction, or negotiation of the bid • Association between variables and pricing
offer takes place. In contrast, in the proposed strategy. No general trends were found in
bidding process, the best and final offer is contingency table analysis, except that the
submitted only after clarification, correction, average pricing strategy consistently
and negotiation; marketing intelligence actions changes from less market-based to more
can be conducted by the bidders until the best market-based as one goes from HBS 1
and final offer event. Final evaluation using the (unknown owner and competitor charac-
best value system is the next event. The best teristics and low demand) to HBS 8 (known
value for each client may be different depending owner and competitor characteristics and
on the client's most important requirements. high demand). It can be concluded that
The most important requirements can be contractors practice more market-based
identified and assessed by contractors through pricing when owner and competitor charac-
their intelligence activities. Even though the teristics are available even though they rely
proposed alternative may involve a longer and extensively on their subjective competition
more complex process, by applying the proposed assessment. When considered alongside the
bidding process, clients allow contractors an external variable owner's characteristics
opportunity to use a more market-based pricing that was also found to be significantly
strategy; in turn clients get the best price and related to pricing strategy, it can be stated
the best contractors for their projects [4]. that a change in bidding procedures towards
the system proposed by Mochtar and Arditi
[4] is supported, because it could allow for
CONCLUSION the implementation of more market-based
strategies. If clients' handling of the bidding
The conclusions and major findings of this process is changed in the direction of the
research and the associated recommendations proposed bidding practice, it is not impos-
are presented in the following paragraphs: sible for contractors to use a strategy that is
• Current pricing strategy. In the study close to Model 4 (a purely market-based
presented in this paper, pricing strategy strategy). The proposed bidding practice has
models developed by Mochtar and Arditi [4] actually been used successfully in electronic
are used. It is generally believed that and computer procurement using compe-
pricing strategy in construction makes use titive bidding method by NASA [23], where
of predominantly cost-based approaches. as a result, most contractors are using
This belief is confirmed by the survey pricing strategies that fall between Models 3
findings. The current average strategy used and 4.
by respondents (1.90 in a continuum where
1= purely cost-based and 4= purely market- Finally, a shift from the traditional cost-based
based strategy) is a strategy where first a pricing strategy to a more market-based pricing
detailed cost estimate is performed, then strategy is anticipated in the new millennium
markup is set based on the company's where markets are expected to be more
preferences and market conditions with cost globalized, competition to grow fiercer, and

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DIMENSI TEKNIK SIPIL VOL. 4, NO. 2, September 2002 : 85 - 93

breakthrough developments in information 10. Ahmad, I. and Minkarah, I. Questionnaire


technologies to rapidly emerge. This shift is Survey on Bidding in Construction, Journal
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