3.1. General Description of the Dataset
Companies that took part in this research were mostly medium-sized companies (35.2%), followed by large, small and micro companies (26.9%, 26.2% and 11.7%, respectively). Such distribution of the sample according to the size of the company measured by the number of employees allowed us to perform certain analyses that took into consideration the categorical variable size of the company. Regarding the specialization of the companies, most were focused on construction of buildings, roads, water management structures and engineering (utility) networks. This points to the coverage of the entire construction sector and, therefore, the findings presented below do not pertain exclusively to one particular segment of the construction market; on the contrary, they are generally applicable.
The sample includes both companies that win only a relatively small number of public contracts per year (under four contracts; 31.7% of respondents), and companies that carry out hundreds of such contracts each year. Contractors usually participated in both public procurement and private tenders (95.9%); however, the sample also contained six companies that submit their bids exclusively in public procurement (4.1%).
3.2. Success in the Public Procurement and Factors Influencing the Estimation of Bid Price
Respondents were asked to state their success rate in public procurement over pre-defined intervals. Overall, 70 companies reported a success rate below 20%, 35 companies reported between 20% and 40% and 40 companies reported a success rate of more than 40%. These figures indicate that a large part of the study population had achieved relatively little success in public tenders. Nevertheless, if compared to the latest study [52
], Czech companies report a higher success rate (in Jordan, 75% of companies have a success rate below 20%, while in the Czech Republic, this is true for just 48% of companies).
To examine this issue in more detail, we analyzed whether the success rate was dependent on the size of the company (Figure 1
The data indicate that micro companies have a higher rate of success when compared to other categories. In particular, 59% of micro companies reported a success rate of over 40%. This can be attributed to the fact that many micro companies mostly take part in local small-scale tenders with a considerably lower level of competition. In order to prove whether there was a relationship between the above-mentioned two categorical variables, a chi-square test of independence was applied. The p
-value for the chi-square statistics of 12.361 with six degrees of freedom was 0.0544. Since the p
-value was greater than the significance level, we concluded that there was not enough evidence to suggest an association between the size of a company and its success rate in public procurement. Despite the fact that the graphical representation of the data in Figure 1
indicates a difference in the success rate for micro companies, the effect of company size was not statistically significant within the study population as a whole.
As contractors may be influenced by EVoP when determining their bid price, respondents were asked to evaluate how much they take EVoP into account (on a six-point Likert scale). The data was evaluated by using RII as shown in Table 1
. Respondents were grouped according to their success rate in tenders (<20%, less successful companies—LSC; 20–40%, moderately successful companies—MSC; >40%, very successful companies—VSC).
As shown in Table 1
, less successful companies paid more attention to EVoP than moderately and highly successful companies. This finding suggests that EVoP should be understood as just an indicative value, not a binding basis for bid price assessment. This can be justified by large differences between EVoPs and award prices not solely as a result of high competition in the tender, but rather as a result of inaccurate EVoP estimations. Smaller CAs especially tend not to have sufficient experience (experts) to estimate EVoP correctly. This also applies to certain specialized construction works that are not tendered by CAs on a regular basis, but only exceptionally.
In this relation, staff shortages also exist on the part of the contractors. Nine out of 17 micro companies (i.e., 53%) reported the absence of a department or a person responsible for bid price assessment. This also applied to two out of 38 small companies. Conversely, all medium-sized and large companies had at their disposal a department or a specialized person(s) for setting the bid price. This allowed us to conclude that with the increasing size of the company, the ability to cope with bid price estimation increases. The chi-square test of independence cannot be used in this case, since it is not suitable if the expected frequency is below 1 or if the expected frequency is less than 5 in more than 20% of the cells.
Regarding the pricing method, respondents were asked to choose from the following options: cost-oriented pricing (calculation of all the costs that can be attributed to a product/works), competition-oriented pricing (price is based on prices offered by the competitors) and demand-oriented pricing (price is adjusted to the fluctuations in demand).
As shown in Figure 2
, most of the companies (86) applied the cost-oriented method, followed by demand-oriented pricing (30 respondents) and competition-oriented pricing (21 respondents). The prevailing usage of the cost-oriented method is not a surprising result, as each construction project is unique and requires individual cost estimation. Furthermore, as standard construction rates published by recognized organizations are usually available (in the Czech Republic, two construction price databases are published), the pricing method for an overwhelming majority of contractors is naturally based on the costs resulting from the project documentation describing the subject of the tender. Demand-oriented pricing is applied when demand shows large changes in short periods of time; this applies, for instance, to construction works that are largely dependent on weather conditions and seasons. Finally, competition-oriented pricing can be effectively applied if the contractor is able to predict the prices offered by potential competitors in a particular tender (i.e., tenders for unique/highly specialized works in which the number of potential contractors is limited, and they know each other well). For “others,” respondents mostly indicated the usage of a combination of two or three of the above methods (e.g., cost-oriented to be aware about the costs and competition-oriented to set the mark-up for a specific tender).
Interesting answers were collected concerning the influence of multicriteria evaluation on the bid price assessment. An overwhelming majority of respondents (73.1%) were not affected by a multicriteria evaluation of the tender when setting the bid price. Where positive answers were given, contractors were asked to explain in which way they were influenced. Among the responses submitted, it should be highlighted that risk assessment was taken into consideration in the context of the use of non-price evaluation criteria. For instance, if delivery time is used as evaluation criterion, the risks related to the “iron triangle” (i.e., the interplay of cost-time-quality issues [15
]) should be considered. Since construction projects take a long time to complete, price risks can be managed by, for example, an index-based price adjustment mechanism [54
]. Risk perception also is highlighted among the most critical factors in [55
Few respondents noted the possibility of increasing the bid price if (a) the contractor can offer better performance in terms of other evaluation criteria such as delivery time or the financing method; (b) the quality is evaluated in the tender; or (c) contractual penalties are higher. Generally, contractors highlighted the importance of how the weights are assigned to particular evaluation criteria.
3.3. ALB, Extra Work and Mark-Up Issues Related to the Bid Price Estimation
The quality of the tender documentation is a prerequisite for a project’s success. Therefore, it is in the interest of contractors to check these documents carefully, especially the design documentation and the related bill of quantities. Respondents answered the question of whether they perform a documentation check. In Czech construction practices, most contractors said they perform the documentation check (73.8%) regularly, while 16.6% never do so. The rest of the respondents noted that they perform a documentation check only occasionally due to time pressures (for selected tenders) or in a limited way (in all tenders, but they only check a few selected main items, for example). Some of the respondents mentioned that they decide about performing the check based on the character of the tender, the type of the CA, the desire to get the contract or the number of aggregated items used (the bill of quantities can be simplified by using “aggregated items”—joining several individual items that together cover all the work and materials necessary to construct a certain part of the structure). It can be expected that the number of errors in design documentation will decrease in the future in connection with the development of digital technology and modeling [56
Regarding extra work, more than half of the companies did not strategize by submitting a lower bid price with the expectation of a compensation when claiming extra work during the delivery (Figure 3
). Four respondents out of 145 provided a verbal answer claiming, for example, that not only extra work can be adjusted, but also cancelled work; or that the difficulty in predicting the amount of extra work makes it hard to strategize in such a way. These results are a bit surprising because in the construction practice, extra work is considered a good opportunity to improve the profitability of contracts. This strategy is also called “unbalanced bidding” and results from an asymmetric information between the CA and contractors on the ex ante estimated bill of quantities for individual work [57
]. According to the presented results, unbalanced bidding is not among the common bidding strategies used in the Czech Republic. We attribute the low level of strategizing through extra work to the fact that some CAs use fixed-price contracts and practice proper construction supervision.
As extra work is a typical cause of disputes between contractual parties, one of the questions asked whether the respondents had dealt with such a problem in the previous five years. A total of 104 respondents (71.7%) noted that they had experienced this problem. Such disputes are becoming more complex, as extra work often occurs as a result of insufficient/erroneous design documents, which are usually delivered by a third party (this creates a trilateral dispute when the contractor and designer are not in a direct contractual relationship).
Almost balanced answers were received with regard to the ALB experience. A total of 44.8% of respondents reported that their company had previously been forced by various circumstances to submit a bid price at or below the level of the assessed costs. The reasons for such a low bid strategy were justified by: the survival of the company during the time of economic downturn caused by the global financial crisis [59
]; future marketing purposes; obtaining valuable references; tendering outside the main season (winter time); preventing lay-offs and the consequent difficulties of recruiting new employees; a prospect of future collaboration; and unused production capacity. This shows that there are many different reasons for submitting an ALB in a tender.
The finding that 53.1% of contractors have been called for an explanation of an ALB in the past is of particular interest. This proportion is higher than the share of respondents who have deliberately submitted ALBs (44.8%). This suggests that (1) a highly competitive environment may force contractors to lower their bid price significantly; (2) some contractors have efficient processes enabling them to submit a very favorable (low) bid price to the CA; or (3) the value of EVoP was not estimated correctly (i.e., was overestimated).
In the context of ALBs, another interesting issue is whether contractors apply a different approach to the assessment of the bid price if a particular tender is highly appealing to them. A total of 59.7% of respondents agreed that they apply a different cost approach when preparing a bid price for key appealing tenders. In particular, most of the respondents reported a decrease in mark-up. Moreover, contractors may achieve a lower bid price by: pushing subcontractor prices down; correcting key cost items in the bill of costs; performing an additional analysis of the key company’s performance; considering production inputs such as prices of materials; or reducing calculated risks. Generally, it can be stated that companies decrease mark-up and seek various types of cost reductions when assessing bid prices for appealing tenders.
Regarding mark-up, contactors reported their average mark-up percentage (MuP). In this case, MuP is based on the total costs decreased by material costs. This approach was used in the questionnaire survey, as it corresponds to costing practices in the Czech Republic. A total of 115 respondents agreed to answer this question. The data in Figure 4
show that a majority of companies (63.5%) have a MuP below 10%. Just 9.6% and 5.2% of the population had a MuP value of between 16–20% and above 20%, respectively. This confirms the assumption that the construction market is typically a highly competitive environment.
Additionally, a question was asked about whether MuP was higher in public procurement than in private tenders. The results indicate that a slight majority of contractors tend to claim having a higher MuP in private tenders; however, a considerable part of responses noted a higher MuP in public procurement. Such ambiguous evaluation can be attributed to the uniqueness of each particular tender regardless of if it is public or private.
The final analysis focused again on the success rate in procurement and its relationship to the application of a differentiated strategy for appealing tenders. Table 2
shows the absolute frequencies of the data, indicating a surprising fact that a larger part of companies applying differentiated strategy were ranked among the less successful companies (57.0%), while among companies with an unchanging strategy, the share was just 33.5%. A similar difference can be observed in the proportion of very successful companies (20.9% and 37.9% for companies with differentiated and unchanging strategies, respectively).
The p-value for the chi-square statistics of 7.692 with two degrees of freedom was 0.0214. Since the p-value was lower than the significance level, it can be stated that there was insufficient evidence to suggest an association between the use of a differentiated strategy and the success rate in public procurement.
Such a surprising finding can be explained by the assumption that successful companies may achieve their success more frequently due to the overall efficiency of their internal processes (organization of work, allocation of resources, purchasing management, etc.). Hence, they are able to achieve a competitive bid price by conducting a standard cost assessment and applying an appropriate mark-up. On the other hand, many companies may become less competitive in tenders; for example, as a consequence of imprecise cost calculations or robust administration leading to a higher cost burden in terms of overhead.