Bidding Model for Construction Projects

Amit Prasad, Swanand Purandare, Abhay O Tiwari

Research Scholar, National Institute of Construction Management and Research
(NICMAR), Pune

Abstract-: The high competition has forced contractors to bid projects with minimum
profits to stay in business. A contractor that submits, either accidentally or
deliberately, an unrealistically low bid price increases the possibility of getting a
construction contract. However this leads to disputes, increased costs and schedule
delays. In this paper a bidding model as applicable to Indian scenario is suggested.
The Model is based on various models developed on other nations and optimized to
Indian conditions. The model lays procedures for both established and even new
contractors can make more intelligent pricing decisions.

Index Terms—Bid Price, Bid / No Bid Decision, Claim Potential, Opportunity

Matrix, Rating Matrix

I. INTRODUCTION

Researchers for many years attempted to produce mathematical models to provide

optimal bidding strategy for Construction Company. It started with Friedman in 1956
who developed a statistical model for optimal bidding based on data collected in the
past. Later, Broemser in 1968 used regression analysis for forecasting the low bid in
competitive bidding for construction project. This model was based on data collected
from Californian contractors on bidding situation. In 1990’s Prestto Developed a
software which performs permutations and combinations of various organizational
objectives, governing factors and mark up price. It gives the user optimal mark up
price.
The bidding process in India had been typically characterized by lowest bidding
without carrying out systematic risk analysis of various parameters that influence
bidding strategy. Many thumbrules and assumptions are made to arrive at suitable bid
price which differs from ground reality.
A bidding model is proposed based on study of literature on bid pricing techniques,
contractual claims and data collected from various projects. This model helps to carry
out step by step analysis and evaluation of various parameters that affect bidding
process. This model would help to mitigate risk involved at bidding stage of the
project and help contractor to enhance his winning rate.
The process of bidding involves basically two major decisions. First is to decide
whether the contractor should bid for a particular project or not. And if the contractor
decides to bid, then to calculate the optimal bid price so that contractor can increase
his chances of getting business. Organisation can increase their chances of winning by
focusing on project where chances of winning are quite high and not to send bid for
any such offer where chances are nil, low or below company’s target. Every
organisation has its own approach towards the bidding decision. Some organisations
go for selective bidding whereas some organisations prefer to bid for almost all the
projects.
II. CONTRACTS DEPARTMENT DECISION
In bidding process the decision laid by the contracts department is important for the
goodwill of the organization. Unless the department tries to grab the opportunity and
decides whether they want to bid for a certain projects, further steps carries no
significance. This paper proposes four matrixes for taking decision namely
Opportunity Matrix, Rating Conditions of Contract Matrix, Risk Matrix and Bid / No
Bid Matrix. The contracts department also needs to follow sequence so as to have
definite results at each and every stage. The results at each stage will help the
department to explore opportunities associated with the project and to have focused
approach at every stage. This can be achieved by the use of the opportunity matrix.

Opportunity Matrix- The matrix helps the department to evaluate the opportunity
which is on the broader scale. The scale in this context refers to qualitative analysis of
identified parameter on the scale of 1 to 4. 1 represents most favorable condition
whereas 4 refers to most unfavorable condition. Table no.1 shows the Opportunity
Matrix (Gregory A. Garnett, Apr 2007). In this matrix seven elements have been
identified; the contracting firm will need to rank these elements in preferential order.
Here preferential order means, ranking in the descending order of importance scale of
1 to 7. The ranking may vary depending upon organisation and the judgment by that
particular oraganisation. After ranking the firm will give score for each element which
varies from 1 to 4 as specified in the paper. After furnishing the rank and score, it
would be necessary to calculate weighted score which in multiplication of rank and
score. Assigning rank and giving score is most critical factor and it requires
reasonable experience in the relevant field.
E.g. - Consider a firm which ranks the revenue value as 2 and corresponding score as
4 than the weighted score will be 2 X 4= 8. Here rank implies importance given by
firm to a particular element.

TABLE 1- Opportunity Matrix

Sr. Element Ranking Score Weighted
No. 1 2 3 4 Score
1 Corporate Fully Partially Neutral Counter to
Direction aligned Aligned direction
2 Competitive Company Company Competitor Competitor
environment rules is more is more rules
market favored favored market
3 Revenue Value Very High More Less Very Less
4 Potential Very High More Less Very Less
Profitability
5 In house >90% 75-90% 50-75 % < 50%
content
6 Future business Assured Likely Possible Little
7 Collateral High More Reasonable Little
benefits
∑Weighted Score=
Result- If ∑ weighted score ranges from
28 to 45 Favorable
46 to 79 Considerable
80 to 112 Unfavorable
Rating the conditions of contract
Once the department finds that the opportunity lies in the favorable or considerable
region, it can proceed to the next step of the contract department decision which is
rating the conditions of contract This process establishes the base line in a project and
gives a need to explore the further possibility of studying the details of the projects.
The contracts department requires going through the condition of contracts and on the
broad scale rate the conditions of contract. This requires the firm to study the
documents provided by the client which serves as the legal document to the contract.
This needs to be done at the early stage, since only when the department understands
the condition and its implications they can see means of protecting their interests.

TABLE 2- Rating of conditions of contract

Type of condition Slight risk More risk
Completely Well
towards towards
Condition in contract one sided balanced
contractor client side
General Conditions of
Contract
Special Conditions of
Contract

Table 2 provides guidelines to analyze the conditions of contract and protect the
interest of the party to the contract. This analysis will help the contractor to decide
whether to pursue the project or decline. (Result- From the table no 2 if contractor
finds that the conditions are completely one sided than there is no need to move
forward as this may result to heavy loss to the contractor. However if other conditions
are favorable he can proceed to evaluate the next step )

Risk Matrix- After exploring opportunity and obtaining acceptable rating of

condition of contract it would be necessary to assess the risk associated with the
projects. Risk matrix is perspective of top management towards a project which
covers broader aspects. This also needs to be done in early stage on broad scale as this
will help in taking decision accurately. Opportunity assessment is not sufficient tool to
take decisions without assessing the risk elements presents in a project. Thus every
bidding decision may require calculating the cost towards risk assessment.

Table no.3 shows the Risk matrix(Gregory A. Garnett, Apr 2007). In this matrix eight
elements have been identified; the contracting firm will need to rank these elements in
preferential order. Here preferential order means, ranking in the descending order of
importance scale of 1 to 8. The ranking may vary depending upon organisation. After
ranking the firm will give score for each element which varies from 1 to 4. After
furnishing the rank and score, the next step is to calculate weighted score which in
multiplication of rank and score. Assigning rank and score is most critical factor and it
requires reasonable experience in the relevant field.
 TABLE 3 - Risk Matrix
Sr. Element Ranking Score Weighted
No. 1 2 3 4 Score
1 Overall Project Project Less Questionable
feasibility feasible risk feasible but feasible and feasibility
manageable risk need certain risks and high risk
mitigation
2 External No Less Moderate High
obstacles obstacles obstacles obstacles obstacles
3 Internal Highly Favorable Less Unfavorable
factors favorable favorable
4 Resource Need to Need to Need to Need to
co- coordinate coordinate coordinate coordinate
ordination upto 5 upto 3 upto 2-3 upto 5
groups in groups in groups groups
company company outside outside.
5 Penalty cost No penalty Manageable Fixed Fixed
penalty penalty penalty with
with upper no upper
limit limit.
6 Project life < 12 months 12-24 24-42 > 42 months
months
months
7 Novelty High High Less Little
experience experience experience experience
and but but and high
resource resource resource dependency
independent dependant independent
8 Client Active Acceptable Low Non
commitment participation cooperation cooperation cooperative
and
cooperation
∑ weighted score=
Result- If ∑ weighted score ranges from

36 to 59 Favorable
60 to 99 Considerable
100 to 144 Unfavorable

Bid / No Bid Decision- The last step of contracts department decision is to decide
whether to bid or not. After doing opportunity assessment, contract condition rating
and risk assessment the department needs to take decision whether they needs to be in
the race or not. In this work eleven most basic parameter are taken into consideration
for Bid/No Bid decision though depending upon specific projects more parameters
may still be required to be built.
Table No. 4 shows the Bid/No Bid Decision matrix (Gregory A. Garnett, Apr 2007).
The department needs to rank in descending order of importance followed by
selecting the alternatives.
TABLE 4 - Bid / No Bid decision matrix
Alternatives
Sr. Criteria Ranking YES NO
No.
(Score 1) (Score 1)
1 Project budget realistic
2 Project timeframe realistic
3 Resources for proposal/bid
4 Investment needed
 5 Technical expertise
6 Management expertise
7 Differentiators from
competitors
8 Information gathering vs. real
project
9 Political considerations
10 Previous relationship
11 Project already funded
∑Scores=
Result- If ( ∑Yes Scores - ∑ No Scores) = positive value than the organisation may
decide to go for bid. The decision will carry more significations if the organisation
rank the parameter on the basis of strong database management available, merely
giving rank and score may not give accurate values.

III. BID RATING

Once the above are satisfactory, it would be necessary to find practical cost for the
project. This may be done with bid rating matrix. This matrix is outcome of past
experience of contractors during bidding stage and execution stage of the project.
Some parameters are not foreseeable at bidding stage but they have substantial cost
impact during execution. Such parameters are included in this matrix to make it more
comprehensive. Bid rating matrix involves around 40 identified parameters for which
rating is to be done based on subjective analysis of the contractor. Each parameter is
assigned importance index. This helps contractor to arrange parameters in descending
order of their importance. The parameters of highest importance index are to be
considered for evaluation on priority basis as they have large cost impact.

TABLE 5- Bid Rating matrix

Parameter Rating I.I.
1 2 3 4
Site Data Poorly The data is given by Separate items in Site
Investigation provided by client with moderate BOQ for site Investigation
data client or Not sufficiency. investigation or data available in
available Interpretation and Separate contract contract in detail.
investigation of data for site The data is
remains with investigation on sufficient as
contractor. unit rate basis needed by
contractor for
bidding.

Validity of Difficult to Substantial Data is sufficiently Data is easy to

client data investigate and mismatch in data matching but confirm during
during actual confirm data provided by client difficult or investigation and
investigation given by client and investigation by expensive to matching with
during contractor investigate. client’s data.
investigation.
Performance 7-10 % of 5-7 % of contract 2-5 % of contract 0-2 % of contract
Security contract value value value value
Retention Upto 7-10 % of Upto 5-7 % of R.A. Upto 3-5 % of Upto 0-3% of
Money R.A. Bill Bill R.A. Bill R.A. Bill
Release of --- Retention money to Retention money Partial release of
retention be released et the partially released retention money
money end of defect on request of after
liability period. contractor after achievement of
furnishing Bank certain financial
guarantee or F.D. progress as
 Receipt specified by
client.
Insurance --- No Insurance Insurance clauses Comprehensive
clauses clauses mentioned with some insurance clauses
in contract or ambiguity. provided against
clauses with high various risks and
ambiguity. force majeure.
Subcontracto Hi degree of Client wants to Contractor is free -----
r Nomination involvement of nominate only to nominate and
client in major sub deploy
selecting contractors. subcontractor.
subcontractor
Detailed Very few Drawings and Both Drawings Comprehensive
Drawing and detailed specification and Specifications Drawings and
Specification. drawings and available but client are sufficiently Specification are
specification demands working available atleast available for
available with drawing from for initial substantial part
tender contractor and many substantial portion of project or
document specifications to be of work complete project.
decided by
contractor subjected
to client’s approval.
Health Safety High risk High risk involved Low risk involved Low risk.
and involved in the in work. Client is in the work. No Regular
Environment work ready to give some incentive or less incentive to
demanding incentive towards incentive offered contractor
high degree of HSE. by client. towards HSE.
safety. No Co-operation
incentive by from client
client safety staff.
Land Very small Land is sufficiently Land sufficiently Land is fully
Acquisition portion of acquired but acquired. Few acquired. No
project site is resistance from compensation resistance from
acquired. local people and issues. Land is locals and no
Resistance by compensation available with less compensation
local people. issues. Land continuity or as issues. Land is
Many available in bits and required by continuous or as
compensation parcels. contractor. required.
issues.
Access to site No proper No proper access to Access available. Proper access
access site. However, It may need slight available.
available to access can be modification or Immediate
site. High created without improvement. transport of
anticipated cost spending much time heavy vehicles,
and time for and money. plants &
access equipment is
preparation. possible.
Space Sufficient Mobilization of few Space sufficiently Space
Availability space not labour and available for initial abundantly
available on equipment is few activities. available for
site for possible. But may accommodating
accommodating affect contractors staff, labors,
labour, staff, planning. heavy plants,
plants , equipment and
equipment and material storage
material
stocking
required in
initial stages of
project.
Availability Poor Few basic amenities Utilities are Availability of
of utilities availability of and utilities are sufficiently most of utilities
basic amenities available for available at site. available at
and utilities at mobilization to site. However, little co project site.
site. High However some time operation by Client is
anticipated cost and cost is required client. providing many
and time of to provide the rest. of them or ready
providing them to co-operate for
establishing
them.
Involvement High number of Large number of Few other All the works is
of other other other contractors contractors in the scope of
contractors contractors involved for short involved for small main contractor.
deployed by involved in the period of time in period of time. No other
client. work. Client project. Client is providing contractor
needs main schedule for their deployed from
contractor to work. Client ready client side.
cooperate to protect work.
without
protection of
his work.
Material All the material Few items will be Major items like Contract is only
supply by procurement, supplied by client cement, steel, labour contract.
client shipping and but shipping and bitumen etc are Client will
logistics is in logistic remains supplied by client. deliver material
scope of main with contractor. Shipping and to contractor at
contractor. logistic is with his store place.
contractor.
Statutory Required Some of the major Clearances Clearances
Clearances clearances are clearances required required are required are
not clearly are mentioned. clearly mentioned. clearly
mentioned. However, little co- But little co- mentioned. High
Contractor is operation by client. operation by degree of co-
needed to client. operation by
coordinate with client.
concerned
public bodies.
Presence of Large presence Small presence of Small presence of Project site is
adjoining of adjoining adjoining property. adjoining property. free from
property property Contractor need to Less potential adjoining
restricting spend some money hazard to it. property.
contractor to to protect it. Contractor can
carry activities carry out
efficiently. activities with
Potential risk of full efficiency.
damage.
Quality No clarity Clarity about tests. Clarity about tests. Quality tests,
requirement about tests to Project involves Project involves number of tests
be carried out. high number of slightly and frequency
Client is not differentiated tests. differentiated are well defined.
clear about Costly laboratory tests. Moderate Client has
implementation requirement. expenses on lab defined proper
of quality set up. organisation
system structure for
quality system.
Plant, ---- Contractor is solely Client has given Client has
Machinery responsible to list of major specified list of
and decide suitable equipment. Client equipment with
Equipment equipment, capacity has provided capacity, no. of
requirement and specifications. specification for units, brand and
 Extensive atleast major other
equipment planning equipments. specification
required.
Manpower ---- Contractor is to Client has Client has given
requirement decide on suitable specified well defined
organisation organisation organisation
structure with structure and key structure with
number of staff with personnel. But key personnel.
suitable contractors view Contractor
qualification to be mismatching with agrees with
deployed client in this client’s view.
regard.
Material No sources of Material sources are Major items are Material is
availability material listed down. available in supplied by
mentioned by However inadequate proximity of client or most of
client. capacity of vendors project site. Few items are
Remoteness of and high price suppliers are ready available in
site. Material fluctuation. to enter into long abundance
survey involves term agreements. nearby. Many
high cost and vendors are
time needed. ready to enter
long term
agreement.
Climatic Adverse Moderately good Excellent climatic ----
condition climatic climatic conditions. conditions.
condition. Past But record of Contractor can
record of occasional natural carry out activities
frequent flood, calamities. efficiently
cyclones, No past record of
earthquakes or natural calamities.
other natural
calamities
Adjoining No Adjoining Adjoining projects Few adjoining Adjoining
projects projects under under progress. Can projects under projects under
progress. No hinder contractor’s progress. No data progress. No
suitable data activities. No co- furnished by them. possible
available. operation for But occasional co- hindrance from
furnishing data or operation for them. Ready to
other things. equipment, furnish required
material , logistics data needed for
etc. bidding.
Readiness for
Co-operation
from them for
emergency.
Mobilization ---- No details available Few details Systematic
details regarding regarding schedule of
mobilization. mobilization of mobilization for
resources are all or atleast
furnished by client major items is
provided
Mobilization No provision of Advance upto 5 % Advance upto 10 Advance
advance advance of contract price. % of contract price payment upto 10
payment or Interest rate @ 12 % payable in two % either payable
little initial stages. Interest in two stages.
advance rate 12 % Interest rate < 12
payment. %
Equipment No provision of Equipment advance Equipment Equipment
advance equipment upto 75 % of price advance upto 85 % advance upto 90
advance of price but not % of price
 payment exceeding 5% of exceeding 5 % of
contract price at contract price
suitable interest with suitable
rate. interest rate.
( Especially large
equipments )
Material No Provision Material advance Material advance Material advance
Advance for material payable for major payable upto 75 % payable upto or
advance. items like cement, of material price. more than 75 %
steel bitumen etc. Suitable interest of material price.
upto 50 % rate Suitable rate of
interest
Working Restricted Flexibility of Flexibility of Flexibility of
hours working hours. working hours at working hours working hours.
Contractor discretion of client. with compensation Contractor can
cannot speed to be paid to carry out
up work during Engineer’s activities in
emergency representative. absence of
time. client’s or
Engineer’s
representative.
Political Highly Moderately unstable Stable area with -----
stability of unstable. with few records of less local
areas History of such cases. interference.
terrorism,
crimes, strikes
etc.
Liquidated Upto 10 % of Upto 10 % of Upto 5 % of No Liquidated
Damages contract price contract price @ contract price damages clause
@ 0.5 % of 0.2- 0.4 % of or Less than 5 %
contract price contract price per of contract price
per week of week of delay
delay.
Bonus for No Bonus but No Bonus but very Bonus rate < Bonus @ rate
early heavy penalty less penalty Penalty rate almost equal to
completion penalty rate
Arbitration No Provision Very brief Well structured ----
mechanism for arbitration arbitration clause. arbitration
clause No proper details mechanism
provided. defined by client.
Defect High Moderate Low ----
Liability
Period
Client’s Client’s novelty Sufficient details Good records of Good records of
financial in business. about sources of client but novelty many projects
records Average finance. of contractor. with contractor.
financial
records.
Sufficiency ---- Apparently BOQ Moderately Detailed BOQ
of BOQ seems to be missing comprehensive including every
many items. BOQ with detailed detail of sub
Hidden sub items in sub items under items. Separate
main items. main items. items for
Possibility of investigation,
clumped items. access, operation
and maintenance,
temporary
structures and
demolition.
Availability No relevant Suitably available Suitable available Contractor has
of constants material, but mismatching with client e.g. detailed record
equipment or with actual MORTH, IRCON of manpower and
labour constant productivity as etc. equipment
available. experienced by productivity
contractor during collected over
execution. period of time
Initial cash --- Small items are Initial cash flow All major and
flow coming in beginning and final cash flow profitable items
and major items are are well balanced. are coming in
coming in the end beginning
phase of project resulting in high
resulting in less financial
liquidity and less progress in initial
financial progress at stages of project
initial stages of and good
project. liquidity.
Availability Not furnished Lead charts are Detailed lead Contractor being
of lead charts by client. furnished by client. Charts and quarry local, having all
and quarry Difficulty in But actual cost of are available. details of lead
charts estimating transport is higher Actual cost cost and other
purchase and than given. matching with expenses.
lead cost of given cost.
material.
∑ Importance Index =

Results- If ∑ Importance Index =

37 to 60 Favorable
61 to 100 Considerable
101 to 148 Unfavorable

IV. BID PRICING

Once the chances are explored that the bid rating is favorable or considerable the next
step is to obtain bid pricing. Bid pricing is one of the most critical decisions in
bidding process. While construction contracts serve as a means of pricing
construction, they also structure the allocation of risk to the various parties involved.
Bid Pricing is the next step after a company has decided to bid for particular project.
In most of cases bid pricing is governed by thumb rule rates like per sq ft, per sq m or
per no. Contractors prefer to go as per rates which are prevailing in market.
Bid price basically consist of 2 components
 Direct Cost
 % mark up cost
Direct cost comprises of direct material, direct labour plant machinery and all the
direct expenses. Whereas, percentage mark up cost has contingency element,
overheads, contractors profit and cost associated with risk elements. Regardless of the
type of construction contract selected by the client, the contractor recognizes that the
actual construction cost will never be identical to its own estimate because of
imperfect information. The contractor will use different markups commensurate with
its market circumstances and with the risks involved in different types of contracts,
leading to different contract prices at the time of bidding or negotiation. The type of
contract agreed upon may also provide the contractor with greater incentives to try to
reduce costs as much as possible. The contractor's gross profit at the completion of a
project is affected by the type of contract, the accuracy of its original estimate, and the
nature of work change orders. The client's actual payment for the project is also
affected by the contract and the nature of work change orders.
In order to illustrate the relative costs of several types of construction contracts, the
pricing mechanisms for such construction contracts are formulated on the same direct
job cost plus corresponding markups reflecting the risks.

TABLE 6-Bid Notation (Chris Hendrickson, Department of Civil and Environmental

Engineering, Pitsburg University)
Sr. Notation Description
No.
1 E Contractor's original estimate of the direct job cost at the time of contract award
2 M Amount of markup by the contractor
3 B Estimated construction price at the time of signing contract
4 A Contractor's actual cost for the original scope of work in the contract
5 U Underestimate of the cost of work in the original estimate (with negative value of
U denoting an overestimate)

6 R Basic percentage markup above the original estimate for fixed fee contract

At the time of award of contract, contract price is given by

B=E+M
Underestimation of cost of work is given by
U=A–E
Then, at the completion of the project, the contractor's actual cost for the original
scope of work is
A=E+U
TABLE 7- Original Estimated Contract Prices
Sr. No. Type of Contract Mark Up Contract Price
1. Lump Sump M = (R +R1)E B = (1 + R + R1)E
2. Unit Price M = (R + R2)E B = (1 + R + R2)E
3. Cost + Fixed % M = RA = RE B = (1 + R)E
4. Cost + Fixed Fee M = RE B = (1 + R)E
5. Cost + Variable % M = R (2E - A) = RE B = (1 + R)E
6. Target Estimate M = RE + N (E-A) = RE B = (1 + R)E
7. Guaranteed maximum fees M = (R + R3)E B = (1 + R + R3)E

V. RISK CHARTING IN BIDDING

Direct cost is not much of a critical issue in project since there is not much variation
in direct cost. The issue arises while considering the mark up cost which are but
linked to the risk associated with the project. If projects do not analyse this cost prior
to bidding it will but naturally suffer huge lossess. Hence the organisation should be
able to assess the risk associated with the project at early stage. The Cost of Risk may
be added to the Bid Price to obtain a sensible and competitive bid price. To price it
will be necessary to identify the risk. Risk is nothing but uncertainty or probability of
happening of undesirable event which has impact directly on financial matters and
indirectly on other things like public image etc. The risks generally occurring in a
project are listed down. This gives the whole database of risks. Risk Matrix depicts
probability of risk on one axis and its impact on other axis. Risk can be identified
belonging to one category and accordingly weightage can be assigned.
Table No.8 shows the Risk Matrix. The organisation need to select a particular
parameter which has risk associated to it followed by the placing it into the right
sensible quadrant. The values in the quadrant denote that more the value less is the
risk cost and vice versa. So the organisation after placing the parameter in the
quadrant need to add the risk cost associated to that job. Assigning probability and
impact is most critical factor and it requires reasonable experience in the relevant
field. Since cost of risk may vary job to job and situation to situation hence exact
percentage need to be analyzed for specific project. However by the values in the
quadrant it may be inferred that for the less value the contractor must definitely add
some Risk Cost so as to nullifying the future losses which may occur if ignored at the
risk charting stage. For e.g. if the risk score is 1, 2, 3 or 4 for a particular job than the
contractor must definitely add up the risk cost, whereas if risk score is 15,16 or 20
than the contractor may or may not need to add up the risk cost. This decision should
be taken by the people who have relevant experience, since merely placing the job in
the quadrant and obtaining the risk score is not the ultimate goal. The ultimate goal
lies in the fact that no job to which risk is associated can be ignored where as if the
risk cost is very negligible than in that case it may be ignored depending upon
personal experience and situation. This will help the contractor in adding risk cost
practically rather that arbitrary adding a rough risk cost which may also decrease the
chance of winning a bid.

TABLE 8- Risk Charting - Risk Matrix

Impact
Minor Marginal Critical Catastrophic
Probability

Rare 20 15 10 5
Unlikely 16 12 8 4
Possible 12 9 6 3
Likely 8 6 4 2
Certain 4 3 2 1

VI. CONTRACTUAL CLAIM POTENTIAL

The last step of the bidding model is the contractual claim potential. The need to
analyse the contractual claim potential arises in the bidding stage because of the
highly competitive environment. The competitor may grab the opportunity by placing
the lowest value however if we analyse properly the claim potential it will help in
reducing the mark up cost thus achieving the competitive bid price or in other word
optimal bid price. Construction claims are considered by many project participants to
be one of the most disruptive and unpleasant events of a project. In very simple terms,
a claim can be defined as a request for compensation for damages incurred by any
party to a contract. In the construction industry, claims are common and can happen as
a result of several reasons that can contribute to delaying a project and/or increasing
its cost. The basic idea of having knowledge about the contractual claims is to know
about claim potential. Many companies with vast experience and strong database have
judgment about the claims that may arise out of particular project and dispute
resolution. The importance of analysing claim potential is that the contractor can offer
competitive bid price. If the contactor is able to assess claim potential involved in the
job, contractor can change mark up price and offer optimal bid price. Arriving at such
a claim is difficult task and it involves large amount of research and systematic
database management. The contractual claim potential is based on the two steps which
are calculating importance index of claims and rating claim potential.

Importance index of claims- Table no.9 shows the Importance Index of Claim
Matrix. The four major claim types are listed as per the frequency at which they are
met in a project. The Importance Index of Claim Matrix is suggested prior to the
Rating Claim Potential Matrix because the contractor must have an idea prior to
perform the claim potential rating. This matrix will actually help the contractor to
understand the claim potential that lies in the contract. And the contractor may adopt
the strategy to reach very near to the optimal bid price. The department needs to give
score as per the frequency to the particular corresponding claim type.
The importance of the claim potential can be understood from the mathematical
expression of the optimal bid price which is
Optimal Bid Price= (Initial Bid Price + Risk Cost – Claim Potential)

TABLE 9- Importance Index of Claim

Importance Index of Claim
Frequency
Never Rare Moderate Frequent Substantial

Claim Type Score 1 Score 2 Score 3 Score 4 Score 5

Providing
Drawings And
Specification
Suspension of
Work
Giving
Approvals
Making
Payments

Rating Claim Potential- The claim potential also needs to be rated, which can be
done with the help of the Rating Claim Potential Matrix. Table no.10 shows the
Rating Claim Potential Matrix. This will also be project specific hence requires to be
built from the contract document supplied by the client. The rating score varies from 1
to 4. The scores are importance indices for that particular parameter. Giving score is
most critical factor but this process requires reasonable experience in the relevant
field.

TABLE 10 Rating Claim Potential

Type of Claim Score I.I.
1 2 3 4
Delay due to site No schedule for Schedule is Schedule is Schedule is
handover site handover provided by client. provided by provided by
committed by Not in line with client. Client is client. There is
 client. Apparent requirement of ready to consider provision for
uncertainty of contractor. Site is claim for time both time and
site handover. handed over in extension but not cost extension
Client is not bits and parcels for monetary to be awarded
willing to involving low claims. to the
entertain claims productivity and contractor.
regarding the high transit cost.
same.
Delay due to Contractor is to Access to site is Client is to Client is to
access to site construct proper responsibility of provide access to provide access
access to site. client and site. Provision to site. Claim
No claims improvement and for delay claim would be
would be modification to be but no provision entertained
entertained for done by contractor for monetary regarding both
time and cost at his own cost losses due to time and cost
same. extension
Delay in payment Clause for Client is free to Time extension Time and cost
of mobilization mobilization make partial would be extension both
advance advance. But no payment for provided if client provided if
clause for delay mobilization fails to make client fails to
in payment advance. Balance mobilization make timely
to be paid after advance on time. payment of
substantial mobilization
mobilization advance.
complete.
Delay in Contractor is to Client is to Client is to make Client is to
providing make his own provide all arrangement for make
utilities at site arrangement for necessary co- few utilities say arrangement for
all utilities and operations power supply. few utilities. If
amenities at site regarding same. Time extension client fails to do
including power But no claims would be granted so, time and
supply. would be if client fails to cost extension
entertained. do within time. would be
granted.
Delay in No schedule Schedule is Schedule is Schedule is
providing design, committed by committed by committed by committed by
drawings and client. Client client. Atleast for client. Time client. Time and
specification would not initial few extension would cost extension
entertain required drawings be granted but no would be
extension of and specification. cost extension. granted.
time and money But no claim
claims. would be
entertained.
Delay in supply Commencement Commencement Commencement Commencement
of material date is date is mentioned. date is date is
mentioned. But Could be extended committed. mentioned. In
could be slightly. But no Claim for time case of delay,
extender claims would be extension would client would
considerably at entertained. be considered for consider both
discretion of delay in extension of
client. commencement time and cost.
order
Delay in giving No provision Provision for Provision for Provision for
notice for for advance. advance. But advance. Time advance. Client
commencement Contractor client would not extension could may grant time
of work needs to entertain claims if be granted in and cost
manage finance he fails to provide case delay but no extension for
for costly the same when monetary delay in giving
equipment and required. compensation. advance.
material
 purchase.
Delay in Client is to Contractor is to Client for Client is to
providing provide make arrangement emergency supply material.
equipment or material. No for material and situation would In case of delay,
material advance. claims not dependant on request claim for
regarding delay client. contractor to extension of
in supply would arrange material time and money
be entertained. or make advance both would be
payment for granted.
purchase.
Delay due to Few activities Client has Client committed Both time and
client’s own are carried by committed schedule for his cost extension
activities within client’s other schedule for his own activities. In could be
site. agencies. No own activities and case of delay, granted if
claims if main request contractor time extension contractor
contractor to co-operate. No can be granted. suffers delay
suffers due to claims for delay or But no cost and damages.
clients damage. extension Or No agency
activities. involved by
client.
Suspension of No provision Time limit of The limit for The limit for
work for clause of probably occasional suspension
suspension of suspension of suspension is period is
work. In case of work is mentioned. Time mentioned.
suspension, no mentioned. But extension can be Time and cost
claims would be again no claims granted. extension both
entertained. would be granted can be granted.
Or contractor
can claim for
breach and get
paid for work
done.
Delay in making No provision Time limit for Time limit for Time limit for
payment for regarding same payment against payment against payment against
submitted bills. in contract. No submitted bills is submitted bills is submitted bills
time limit for mentioned. But mentioned. Time is mentioned.
payment of could be extended extension for Time and cost
work done is at request of delay could be extension could
mentioned. client. granted but no be granted for
cost extension. losses suffered.
Delay in No provision Client is to Client is to Client is to
nominating regarding the nominate all / nominate all / nominate all /
subcontractor same. major major major
subcontractors but subcontractors subcontractors
no specific time within specified within specified
limit mentioned or time. Delay time. Time and
claim considered. claim would be cost extension
considered. both would be
considered.
Delay is giving Client is at Client or his At request of Contractor is at
approvals liberty to do representative is to contractor, client liberty to get
checking of be available for or his the checking
work. But no checking. Time representative done from his
provision if limit is specified can do checking representatives.
work is hold for within which beyond working No interference
client’s approval is to be hours provided by or very little
approval. given. he should be checking and
compensated. approval.
Delay due to No Claim can be Force majeure Force majeure
adverse climate granted only if clause is well clause is well
 comprehensive specified event defined. Time defined. Both
force majeure occurs. E.g. rain > extension can be time and cost
clause. 400 mm or granted but no extension could
cyclone > 200 monetary be granted.
kmph compensation.
Change orders / No upper limit Upper limit is Upper limit is Upper limit is
Variation orders defined on it or defined on the defined on defined. Client
no claim would variation. No variation. Client will negotiate
be entertained additional will or will not rate for varied
regarding the mobilization cost negotiate rate for work. May
same. will be paid. Qty beyond consider extra
limit. time for
But will not execution of the
consider other same.
claims.
Price Escalation Contract is Escalation is Escalation is Escalation is
claims fixed price allowed only on allowed on all allowed on all
contract and no major items. Or the items. But the items. Well
escalation only some base date is far structured
would be percentage of it. ahead of date of clause is
considered. Base date is far receipt of tender. defined. Proper
ahead of date of The weightage of weightage or
receipt of tender. material or components are
components assigned.
differ from
contractor view.
Data ------ Data confirmation Data ------
misrepresentation remains with the confirmation
claims contractor. remains with the
contractor but, it
is not possible
for contractor to
confirm it by due
diligence.
Delays due to Contractor is to Client is to obtain Client is to Client is to
statutory obtain all few necessary obtain few obtain
clearances statutory clearances for clearances. necessary or
clearances and contractor. But no Extension of few clearances.
to co-ordinate claims would be time will be Time and cost
with considered. considered but extension both
government no cost extension would be
bodies. No claims. considered.
claims would be
entertained for
that.
∑ Importance Index =
Result- If ∑ Importance Index =
18 to 29 Favorable
30 to 51 Considerable
52 to 72 Unfavorable

VI. CONCLUSION
The proposed bidding model would serve as guide to the contractor to take strategies
decisions at various stages of bidding process. This will be especially useful to the
contractor who is new to the construction business or diversifying into new area. The
proposed model helps to carry out step-by-step evaluation of various parameters that
have impact on bidding strategy of contractors. The proposed bidding model will help
contractor to bring orderliness in highly unorganized and unsystematic bidding
process. The use of bidding model is at a individual judgment of contractor and there
is some amount of subjectivity involved in it. But the model backed up by systematic
data collection during execution stage of project, analysis and continuous learning
through past experience would add to its value.

REFERENCES
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Construction Innovation and Global Competitiveness : 10th International
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[3] Chris Hendrickson, Department of civil and environmental engineering, Pitsburg
University, Project Management for Construction, Fundamental concept for
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Pricing and Contracting
[4] Aminah Fayek, Competitive bidding strategy model and software system for bid
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[6] Essam Zaneldin, Dept of civil and environmental engineering, UAE University,
Construction claims in United Arab Emirates, Cause, Severity & Frequency,
Page 1-16
[7] Qingbin Cui and Makrand Hastak, Contractors bidding decision making through
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[8] Risk Management, www.wikipedia.org/wiki/Risk_management