Subcontractor Selection Process Through Vendor Bids: A Case of An Outsourcing Service in Construction

Introduction

Subcontracting constitutes a major portion of construction projects in the architecture engineering and construction industry. Hoban and Francis (2003) note that one of the prominent characteristics of a construction project is the practice of subcontracting a portion of a project by the General Contractor (GCs) as a part of the overall contract. Subcontracting allows the main contractor to transfer a portion of his responsibility and associated project risks to the subcontractor. In view of it, Hinze and Tracey (1994) contend that the selection of a subcontractor becomes critical as the ability of the main contractor to deliver the project within time and budget and with the expected level of quality depends primarily on the performance of the subcontractor.

Prior studies demonstrate that selection of a subcontractor, to identify a responsive and responsible bidder, is a multicriteria decision process. For example, studies by Cooke and Williams (1998) and Shiau, Tsai, Wang, and Huang (2009) identified subcontractor’s reputation, financial capacity, quality of workmanship and timely completion as some of the key selection criterions. Similarly, Doloi (2009) identifies 43 sub-criteria for a robust selection. On the other hand, traditional approaches base the selection on the lowest tender quote received even though researchers argue that making lowest bid price as the only criterion for award may not be appropriate (CIB, 1997; CSIR, 2002; Hartmann, Ling, & Tan, 2009; Lavelle, Hendry, & Steel, 2007). While the debate on the set of criteria is still on, yet another school of thought opine that having a selection criterion alone may not suffice and while it is a ‘necessary’ condition, it may not be ‘sufficient’ to ensure a competitive bidding process. For instance, Bowen, Akintoye, Pearl, Edwards (2007) throw light on the fact that the selection of subcontractors is largely based on an ad hoc process due to reasons such as limited time to conduct a formal process. However, such ad hoc methods defeat the purpose of fair competition and judicious evaluation. Thus, taking a paradigm shift, researchers including CIB (1997), Beil (2010), Ulubeyli, Kazaz, and Arslon (2017) advocate the need for a formal procedure for subcontractor selection and proclaim that subcontractor/vendor/supplier must be selected through processes such as competition, negotiation, partnering or joint venture.

In perspective, with the onset of globalization, companies are becoming more international and competition fiercer. Multinational engineering firms and global contractors are adopting global sourcing strategies. With strict regulatory environments and formal contracting laws backing the projects, a formal selection procedure for vendors and subcontractors becomes imperative. Intuitively, it therefore interests one to explore the process of subcontractor selection in the global context in order to understand the set of procedures that entails the selection process along with its embedded challenges. The next section discusses in detail insights from the literature that pave way to understand the theoretical gaps.

Literature Review

In large scale infrastructure projects, around 80–90 per cent of the project are subcontracted. This is predominantly due to increased project complexity and uniqueness (Hinze & Tracey, 1994; Scott, Levitt, & Orr., 2011). Subcontractors perform specific tasks on a project and in general are of three types: a) Trade subcontractors such as carpenters or painters, who specialize on specific trades, b) Specialist subcontractors such as for tunnel boring or post-tensioning and pile foundation activities and c) Labour-only subcontractors, who provide skilled and unskilled labour to the main contractor (Eccles, 1981; Smith, 1995). By subcontracting, the GC can tap on subcontractors’ specialization and thereby transfer portion of his project responsibility and the associated project risks to the subcontractor (Arditi & Chotibhongs, 2005). While this is advantageous, it is also risky as the overall performance of the contractor depends on the performance of subcontractors. For instance, Thomas, Marosszeky, Karim, Davis, and McGeorge (2002) argue that ‘rectification costs’ in case of poor performance by the subcontractor could be as high as 12 per cent of the total project cost. Thus, selecting the right subcontractor essentially contributes to a project’s success.

Seminal work by Hinze and Tracey (1994) in the United States and Latham (1994) in the United Kingdom highlight problems in contractor–subcontractor selection criteria process due to the predominance of the ‘lowest price win’ philosophy. Subsequent studies in this domain show that subcontractor selection process is a multi-criteria decision process which is not solely dependent on the cost of estimate of project tasks. For instance, Cooke and Williams (1998) and Okoroh and Torrance (1999) observe past experience, financial strength, management ability to liaise with the main contractor and quality of workmanship to be significant criteria for selection. Other studies include familiarity with lean principles (Maturana, Alarcon, Gazmuri, & Vrsalovic, 2007), contractor’s quality records (Gruneberg, Hughes, & Ancell, 2007) and subcontractor’s reputation, quality and time performance (Shiau et al., 2009) as significant. Nevertheless, time and again, studies have also reported ‘price’ to be the dominant factor. For instance, Lavelle et al. (2007) showed that price still remained the single prime criterion for selection and suggested assessing the relative importance of criteria under different scenarios such as between high and low value work packages. A study by Hartmann et al. (2009) further assessed the relative importance of four main criteria that include quality, price, technical know-how and cooperation but concluded that ‘price’ is by far the most important selection criterion. A study by Ajayi, Ayanleye, Achi, and Johnson (2010) also highlight the trade-offs the main contractor has to make in the decision-making process, such as based on availability of equipment, geographic location and project dynamics. However, in the last decade researchers have identified multiple criteria. For instance, Doloi (2009) identified 43 sub-criteria for the selection process that included both quantitative and qualitative factors. Similarly, El-Khalek, Aziz, and Morgan (2018) categorized 55 criteria under seven categories to determine the significant factors for subcontractor selection including time, cost, reputation, financial and risk capability. Apart from identifying the criteria, the evaluation process was also developed further. For instance, Marzouk, El Kherbawy, and Khalifa (2013) conducted a statistical analysis to identify significant criteria from several influencing factors previously identified in the literature including cost, quality, technical capability, management capability, health and safety, reputation and time. Thus, it can be inferred that advances in subcontractor selection methodologies has made a shift from the single criterion of price only to multiple performance criteria using robust evaluation techniques.

Further, though several performance based criteria along with framework and approaches exist for subcontractor selection, literature also highlights the fact that the main contractor tends to select subcontractors by neglecting the key criteria of performance and rather chooses to adopt unfair, ad hoc and biased selection practices (Bowen et al., 2007). As informed by Mbachu and Nkado (2007), perhaps this explains the poor performance scenario on construction projects globally. However, with the onset of globalization, companies are becoming more international and competition fiercer. With strict regulatory environments and formal contracting laws backing the projects, a formal selection procedure becomes imperative. A review of literature in the international context demonstrates the procedural steps followed in the selection process. For instance, studies by Kakabadse and Kakabadse (2005) and Beil (2010) discuss the supplier selection process in international projects and in outsourcing strategies. These studies emphasize the need for a formalized selection process. For instance, Beil’s (2010) study recommends adopting a 5-stage formal procedure comprising of: identifying suppliers, soliciting information from suppliers, setting contract terms, negotiating with suppliers and evaluating suppliers for a robust selection. Similarly, CIB (1997) advocates the need for a formal laid-down procedure enabled through strategies such as competition, negotiation, partnering and joint ventures. They further posit that the principles of good selection practice must include: a) clear procedures that ensure fair and transparent competition among all subcontractors, b) a systematic tendering process to identify and shortlist the number of qualified candidates and c) negotiations and final assessment prior to awarding of the contract. Observing the caveats, CIB (1997) also informs that the entire selection process is time consuming and require expertise to align with the formal contract of the project, probably a prime reason that deters main contractors from systematically adopting a formal selection procedure for the award of subcontracts. Interestingly, Ulubeyli et al. (2017) took a step further to conceptualize the selection criteria with the phases of subcontractor selection process in an international project. For instance, in the first stage, shortlisting comprised of 10 criteria that included past performance, experience and financial strength. The second stage, negotiation included seven criteria such as knowledge of project, ability to solve problems and reliability. Finally, the third stage, selection included seven criteria such as price, labour, payment plan and equipment. Thus, both a formal process and criteria for selection in each phase was significantly highlighted.

In perspective, several countries impose a cap on the project cost that allow for either informal or formal bidding practices. For instance, according to the public contract code 10504.5 stipulated by the State of California in the USA (UCOP, 2015), competitive bidding practices for construction services allow informal bidding up to $300K. Projects over $300K require the GCs to select qualified subcontractors and for contracts over $640K, GCs must follow a formal bidding process. It is therefore evident that the selection criteria per se, though collectively exhaustive, may not be independent and mutually exclusive. Adding further, selection criteria, though a ‘necessary’ condition, may not be ‘sufficient’ to ensure selection of a responsive and responsible bidder through a fair and competitive bidding process. This insight brings in a paradigm shift in our focus and triggers our interest to look at the formal selection procedures that back the subcontractor selection criteria, more so in international projects.

One of the lucrative business model in the international context for construction projects is the global sourcing strategies, namely ‘outsourcing’ and ‘offshoring’ services, that provide global and multinational engineering firms the needed advantage to concentrate on delivering their core competencies while contracting out non-core project tasks such as structure detailing works and development of Good-for-Construction drawings. Other benefits include availability of a global talent pool, round the clock work execution and price optimization on project tasks (Lewin & Peeters, 2006). In the recent past, several construction contractor firms have also adopted the strategy of outsourcing to contract with third party service providers, either within (domestic outsourcing) or outside the country (offshore outsourcing) for services such as cost estimation and quantity take-off, developing simulated models, third-party design checking and so on (Lane, Maznevski, Mendenhall, McNett, 2004). Apart from the stated benefits, yet another major reason for the popularity of this strategy among the GCs in the US construction industry is that approximately 80 per cent of the firms have fewer than 10 employees (CIB, 1997). On the other hand, ‘offshoring’, the practice of subcontracting a part of the project task to their own subsidiary in another country, is more predominant with multinational engineering firms (Messner, Chen, & Joseph, 2007).

A significant part of a contractor’s work that is outsourced is project cost estimation, which is principally through vendor bid analysis technique. PMBOK^® (2013) states it as a structured formal process initiated by the GC to systematically select and award the project to vendors or subcontractors. This technique allows the GC to estimate the project cost by comparing the bids submitted by multiple qualified vendors/subcontractors. However, the parameters of cost estimation that are crucial and determine competitive vendor selection include accuracy, confidentiality, credibility, precision, reliability, risk detailing, uniformity, validity and verification. PMBOK^® (2013, p. 207) also observes that ‘when projects are awarded to a vendor under competitive processes, additional cost estimating work may be required of the project team to examine the price of individual deliverables and to derive a cost that supports the final total project cost’. While such techniques aim at ensuring a fair and competitive bidding process, a highly debated topic in the literature with respect to the contractor and subcontractor selection process is the unethical bidding practices such as underbidding, bid cutting and shopping, bid rigging and overbilling (Azhar, Selph, & Maqsood, 2011; Olusegun, Benson, Esther, & Michael, 2011). For example, in a recent study in the Middle East, Shah and Alotaibi (2017) demonstrate that top three contractor-related factors leading to unethical bidding practices were withdrawal of an offer in exchange of money, bid shopping (such as divulging one’s bid to other competitors prior to award, in order to secure a low bid) and bid rigging (wherein, competitors conspire to allow one another to secure contracts at raised prices). Cognizant of this fact, measures are laid down by various regulatory authorities to curtail such practices. For instance, the National Code of Practice has laid down nine key moral standards for fair bidding that include tenderers should not take part in any type of collusive practice and ought to be prepared to prove their probity. However, in essence, these are some of the challenges and known risks that the contractors must be aware of to ensure a fair bidding.

Reflecting on the above, it is evident that frameworks and criterions exist for robust subcontractor selection. However, the lack of a formalized selection process and adoption of ad hoc and biased procedures defeats the purpose of a fair and free-market competition. Thus, the focus of this study is primarily to understand the subcontractor selection process and the formalized process sequence in it rather than on identifying criteria for subcontractor selection. While Beil (2010) proposed a 5-stage selection process (identify supplier, solicit information, set contract terms, negotiate, evaluate/award), Ulubeyli et al. (2017) identified three stages (shortlisting, negotiation and selection). Instinctively, it can therefore be inferred that vendor selection is a process by which firms primarily identify, evaluate, negotiate and contract vendors/subcontractors/suppliers. However, in the global context, such as in an outsourcing strategy, there is limited literature that informs of the formal procedure for the selection process. A comprehensive understanding on the various phases that entail the process and the sequence of activities in it is still lacking. Motivated by these insights, this study tries to understand the vendor selection process in an outsourcing context and to this end explores the following two research questions:

What are the various phases and activities involved in the subcontractor selection process in an outsourcing strategy?

Research Methodology

The study required investigating on the life cycle of a project across organizational and national boundaries. Due to the exploratory nature of the study, participatory research approach was adopted. Participatory research is based on the principles of participation and self-inquiry and is viewed as an alternative to the conventional qualitative social research that allows for rich data collection, a prerequisite for exploratory studies (Eisenhardt, 1991). The fundamental principle of this approach is that it is research with rather than on people (Heron & Reason, 1997; Reason & Bradbury, 2008; Reason & Heron, 1986). It is also synonymously associated with ‘action research’ and termed as ‘participatory action research’. However, researchers like Bell et al. (2004) contend that while there are several points of convergence in the two methods, such as ‘orientation to inquiry’, there are also certain distinctive features. For instance, in a participatory research, the emphasis is on ‘collaborative research’ activities rather than on ‘action’. Hence, while reflection is consequential in action-based research, it may not be in the case of participatory research and the outcome of a participative research may lead to new insights and broadens perspectives, such as on processes or every day practices (Lewin, 1946; Kindon, Pain, & Kesby, 2007).

Data was collected through participatory research approach wherein a research student was stationed in an outsourcing firm in India for a period of two months, from April to June 2018. The outsourcing firm contracted work primarily from engineering or contractor firms in the USA to execute tasks such as building information modelling and conditioning, predictive data analysis, project cost estimation and quantity take-off, bid support service such as production tracking and document control for projects. Two projects were selected for the study, namely Project Hill and Project Crest (pseudo names to maintain confidentiality), which were ongoing during the researcher’s stationed period. Both were renovation projects of a school building, each of which was budgeted at a cost of 15 to 20 million USD. These two projects were packaged by a GC from the USA. The work was contracted to prepare the bid package and provide support in the vendor (subcontractor) selection process. The researcher was part of a team of 3–5 people, who executed the tasks on the two projects. Data primarily collected through participant involvement was further supported through observations and semi-structured interviews. The interviews were open-ended in nature and were conducted post the completion of the project task with the team members. Data was analysed using inductive reasoning technique and compared across the two cases to enable rationalization of the data (Yin, 2003). The results and the findings are discussed in the following section.

Case Findings

This section is divided into four parts. Process flow Sequence and Project Phases identifies the flow sequence of the process across the organizational interface. Remaining subsections focus on each of the sequence phases in depth. Vendor Selection Criteria and Negotiation Strategy discusses the vendor selection criteria, Process Challenges and Coping Methods identifies the challenges faced in the process and the coping mechanisms adopted and Improving Project Governance discusses the team’s initiatives to improve project governance.

Process flow Sequence and Project Phases

A work order was foremost contracted between the client (the GC) and the outsourcing firm for a defined work package with specified deliverables. The sequence of workflow and the activities involved in the work package were as follows:

Project drawings and specifications were received from the GC as a pdf file that included architectural, civil, structural, landscape, mechanical, electrical and plumbing details. The tasks for the team in the outsourcing firm was primarily to assess the scope and estimate quantities. This included reviewing the design, organizing the drawings using Bluebeam software, formatting the drawings with company custom sequence orders, developing document control for drawings and creating a ‘bookmark’. Quantity take-off was then carried out for each element of the building using On-Scree-Take-off (OST) software. Further tasks included, developing document control for specifications and addendums and preparing a summary bid sheet with the scope of work and quantities identified.

This bid sheet was then dispatched to the GC, who based on the identified scope and quantity of work in the project, invited tenders from subcontractors or vendors by floating a Request for Proposal (RFP) or Request for Quote (RFQ). This phase was primarily executed by the GC. However, it was critical to identify a minimum number of viable and potential subcontractors to drive competition and reduce disruption risks. On receipt of the bids, the GC would package them back to the outsourcing firm to analyse and evaluate the offers.

Received bids were evaluated to compare the pricing strategy of the subcontractors for the given scope of work. This task resulted in the preparation of a bid book. The bid book was a comprehensive document that informed about the number of subcontractors/vendors competing for each task of the project, the bid amount and the percentage of cost involved (to the total cost of the project) for the bid packages.

The bid book was then dispatched to the GC with information on the major scope of work in a project and the bidders proposed cost estimates along with a list of shortlisted subcontractors with selection criteria and negotiation strategy. Based on the negotiation between the two parties, the subcontractors re-submitted a bid, which was then re-evaluated at the outsourcing unit. Thus, the entire process was repeated between the client and the outsourcing team till the final selection and awarding of the contract to the vendors/subcontractors for the specified tasks of the project.

The role of the outsourcing firm would either culminate post the selection and awarding of the subcontractor or based on the contract between the GC and the outsourcing firm, both parties would monitor and manage the vendors till the completion of the scope of the work. In this study, while the outsourcing firm was not involved in the vendor management process, they undertook activities to optimize the selection process, improve project governance and provide value-added services to the client. Figure 1 illustrates the set of tasks involved at the offshore and onshore unit and the sequence of the workflow across the boundaries.

In particular in this study, the received work package included 250–300 drawings for each of the two projects. Figure 2 shows a sample of the drawing received in the work package and the estimation and quantity take-off done using the OST software, wherein, each element was colour-coded and the quantity estimated.

Further, during the review process, the teams in the outsourcing firm interacted virtually with the client team over e-mail and telephone for analysis and clarification on the project. The following vignette from one of the respondents during an interview elucidates the Request for Information (RFI) raised:

In case some component is mentioned in the drawings but the description of that component is not given in specification or insufficient data is provided, then we enquire about it to the architect/engineers of the client to get the relevant data. On-screen take-off sheet is done accordingly and made available for rectifications, if necessary.

Some of the clarifications made included: a) Are metal lockers present in the project? b) There is a door marked on sheet no. XXX but no description is given for that. c) In the specifications, two types of canopies are described but, in the drawing, only one type is mentioned. d) Dimensions of laundry equipment are different in specifications and drawings. The responses from the client were primarily over mail were: a) It is on sheet no. XXX. b) Wait for addendum 1. c) It is in addendum 1. Please refer to it. d) Go as per the specifications.

OPEN IN VIEWER Figure 1.

Process Flow Sequence

As discussed, a bid sheet was generated and dispatched to the client (the GC) to inform about the scope of the work, various tasks and the quantities involved in the project. It required four weeks for the team to prepare the bid sheet based on which the client initiated the bidding process and invited tenders from local subcontractors and vendors. The received bids were subsequently packaged back to the team in India for evaluation of the bids and preparation of a bid book for each project. Preparation of a bid book required a duration of 10 days.

OPEN IN VIEWER Figure 2.

Quantity Take-off Using OST Software, Project Crest

Probing further, the next three subsections provide a detailed understanding on the Evaluate, Negotiate and Optimize phases to unearth critical aspects of the process.

Vendor Selection Criteria and Negotiation Strategy

This subsection focuses on the activities in the Evaluate and Negotiate phases to understand the bidder selection criteria, the negotiations that take place with respect to the bid amount and the nuances involved. When multiple bidders submitted their bid, the bidder with the bid amount closest to the actual price estimated by the outsourcing team was shortlisted and communicated to the GC. Figure 3 shows a sample of the bid list created. The highlighted rows in green were the selected bids in each category. For instance, for concrete, 11 bids were received. The vendor with a bid amount of $1,694,847.00 was shortlisted. Revised bids had to be received when a bidder was found to have included only a limited scope in the estimate or had submitted an incomplete bid. Such practices ensured accuracy in the cost estimate and functioned as a warning signal to the main contractor.

As informed by the respondents, the negotiation strategy was with respect to number of bidders and the bid amount. Figures 4(a) and 4(b) shows a sample of the bid package for projects Crest and Hill respectively, that include information on the bid amount, percentage of the bid amount to total cost of the project and the number of subcontractors / vendors competing for the various project tasks.

Scope of work with larger bid amount and minimal competitors was of significant concern to the GC as shown in red in Figures 4(a) and 4(b). The pricing strategy by the vendors/ subcontractor had to be examined critically. In certain instances, only one bid was received for tasks with a larger scope of work, leading to no competition and with a possibility of higher pricing strategy put forth by the vendor. For example, in the case of Project Crest, it was observed that electrical works accounted for 11.99 per cent of total project cost and the bid amount quoted was $1,140,000.00, highest tender amount (see Figure 4(a)).

A similar scenario was observed for plumbing works with 9.92 per cent of total cost and an amount of $1,574,000.00 in Project Hill (see Figure 4(b)). Only one quotation was received for those tasks. On being informed by the outsourcing team, the GC subsequently sought more quotations for this work package from other bidders and, in the process, anticipating a stiff competition, the first bidder also revised his quotation and resubmitted his bid, presumably by reducing his profit margin, as informed by one of the team members in the firm. This process consequently led to optimizing project costs and helped to take account of the bid value for future projects.

OPEN IN VIEWER Figure 3.

Selection Criteria of Bid Amount

Figure 5 shows various bidder scenarios. Figure 5(a) shows a 0 to 2 bidder scenario, wherein wherein, there were instances when no bids were received for tasks such as foundation, metal stair nosing, rough carpentry and re-roofing. Figure 5(b) shows instances of single bidder for tasks such as glazing, fire alarm, electrical and laboratory equipment installation and Figure 5(c) shows instances of 3–5 bidders for tasks such as door frame, drywall, plumbing and mechanical respectively.

OPEN IN VIEWER Figure 4(a).

Bid Package, Project Crest

OPEN IN VIEWER Figure 4(b).

Bid Package Sample, Project Hill

In such situations, it was crucial to inform the client and receive more bids wherever there was only one bidder (or no bidder) in order to ensure a fair competition, ethical bidding and project cost optimization. This entire exercise was therefore iterative till the final selection of subcontractors and vendors for the project tasks.

Process Challenges and Coping Methods

This subsection focuses on the activities in the Evaluate and Negotiate phases to understand the process challenges. ‘Accuracy’ in estimate and ‘document control’ were two major ingredients for successfully executing the work packaged by the client as informed by one of the respondents. However, the team faced three major challenges:

Foremost was the lack of knowledge on different trades that led to inaccurate estimates by the outsourcing team, which in turn led to providing the client with inappropriate selection criteria. This also often led to rework. Respondents from the outsourcing firm informed that re-work in projects had often led to 20 per cent or more increase in total project costs and eventually resulted in loss of goodwill. To overcome this challenge, the outsourcing team insisted bidders quantify the scope and bid quotation as per the work breakdown structure of the respective trades. Further, to diffuse this knowledge, the team members were constantly provided with in-house training on country-specific trade activities and estimation techniques.

OPEN IN VIEWER Figure 5(a).

0–2 Bidder Scenario

OPEN IN VIEWER Figure 5(b).

Single Bidder

OPEN IN VIEWER Figure 5(c).

3–5 Bidders

OPEN IN VIEWER Figure 6.

Combined Vendor–Cost Comparison Across Projects for Major Activities

Second, the bidders would submit a lumpsum quote for the tasks instead of a detailed item rate quote. This would lead to ambiguity in the scope of work and result in a discrepancy in the bid amount. In certain instances, the bidders would refuse to re-submit the bid as an item rate quotation even if it was insisted. Such quotations were risky, and an accurate estimate and selection criteria were challenging.

Third, the selection criterion was more often based on the lowest bidder. However, certain vendors/subcontractors would quote for multiple tasks in the project. While the bid analysis helped to identify the quantum of work for which the vendor submitted a bid, it was difficult to assess the capability of the subcontractor to perform multiple tasks. It was therefore required to assess the vendor’s current workload and other parameters including reputation and past experience by the GC. However, due to time constraint, this was not always possible and it caused a discrepancy in judicious selection, leading to poor project performance post bid award.

Discussion

This study explores the subcontractor selection process in an outsourcing strategy. Foremost, the study identifies five phases and the activities involved in each phase of the process flow sequence (see Figure 1). The identified five phases and the flow sequence is as follows: Assess ➔Identify ➔Evaluate ➔Negotiate ➔Optimize

Based on insights from practice theory put forth by Barley and Kunda (2001) and Feldman and Orlikowski (2011), the phases in the life cycle of an outsourcing project from the time when work is contracted with an outsourcing unit and packaged for execution till task completion and handover to the client are coined as verbs. This framework further identifies the activities involved in each of these phases (see Figure 1), which is a significant contribution of this study. Comparing and contrasting the five phases in this study with the procedural steps put forth by Beil (2010), a distinction was evident in the outsourcing context. For instance, the outsourcing team evaluated the received bids in Stage 3, compared and verified the quantities estimated by the vendor and assessed its accuracy to the defined scope. Based on the assessment, bidders were shortlisted, and the GC was informed for further evaluation and negotiation. It is therefore proposed that in Stage 3, the process sequence would be the Evaluate phase. However, post negotiation, re-assessment and re-evaluation would take place, prior to final selection and award of the contract. Additionally, it was observed that in the Assess phase, the outsourcing team assessed the project scope, estimated quantities and informed the client (the GC) of various subcontracting tasks based on which the client floated a notice inviting tender (RFP) to solicit information from the vendors in the form of quotations. This was an activity in the Identify phase and therefore not earmarked separately from solicit information phase as proposed by Beil (2010). Further, setting contract terms was not carried out by the outsourcing team on the two projects and therefore it is not considered as a separate work practice in this study.

Second, through this framework, a comprehensive understanding can be drawn on the pre-selection, the Assess phase and post-award, the Optimize phase, in the process sequence. These activities are not evident or significantly informed in the existing literature. For instance, the GC foremost dispatched the project scope as a bundle of drawings to the outsourcing firm. The team in the outsourcing unit had to subsequently review, organize, assess the scope of work and prepare a bid sheet, based on which the GC would float a tender or RFP. This Assess phase was quite critical to identify all necessary tasks for which the GC would invite bids and subcontracts. Proper understanding of the project scope, good knowledge of the local regulations and by-laws of the country where the project was being commissioned and sound technical know-how to accurately - estimate were critical parameters at this phase for the outsourcing team. This also meant that the outsourcing unit had to develop technical and managerial competencies to handle contractual technicalities and legal know-how in the global context (Leonardi & Bailey, 2008; Mahalingam & Levitt, 2007). Subsequently, in the Optimize phase, if vendor management was part of the contract of the outsourcing firm, then transitioning the contracted scope of work and resources to the vendor/subcontractor for execution and monitoring the task completion comprised the vendor management portfolio. In this study, the outsourcing team did not manage the vendor portfolio post vendor selection and bid award. However, reflecting on the sequence of tasks performed and to add value to the services provided, the outsourcing team took the initiative of comparing a total of 10 bid books developed during the same period to establish the vendor selection criteria and arrive at a standard unit rate for every quantity, an important information that would standardize the bid rates across projects and aid clients in a judicious vendor selection process. Such initiatives aimed to optimize the process and maintain a long-standing relationship with the clients and improve project governance. ‘Optimize’ was thus an operational responsibility which continued till the termination of the contract. Deloitte (2013) argue that this phase could ensure that the vendor execution was optimally managed and continually improved through constant feedback in the operation and by also looking ‘inward’ into the process and the organization. The benefits would then include continual improvement of the agreed governance model, long-term planning and impact assessment for effective contractual obligation.

Third, in this study, the Negotiation phase culminates into a ‘contract’ unlike the study by Beil (2010) wherein ‘negotiation’ and ‘contract’ are two distinct phases. The negotiation strategy explored in this study was with respect to the selection criteria, bid amount and the number of competing subcontractors. Further, Beil (2010) argue that the negotiation processes in practice may combine take-it-or-leave-it offering, competitive tendering and bargaining. This aspect was evident in this study. The negotiations were in fact a trade-off between various dimensions such as price and time. For instance, high price and shorter task duration vs low price and longer duration. As Beil (2010) informs, the challenge lies in constructing the trade-off for a ‘win-win’ strategy to both parties. When the bids were negotiated, vendors were inclined to revise and re-submit the bids, which had to be re-evaluated and. if necessary, re-negotiated, till final selection and award of the contract. Thus, the entire process was iterative in nature, more specifically in the evaluation and negotiation phases between the vendors, the GC and the outsourcing team.

Fourth, multiple bids for a particular task ensured fair competition and pricing strategy. Hence, to induce competition and avoid overpriced bid estimates, especially in cases where there were less than three bidders, the GC would invite further tenders. During such instances, it was interesting to note that the initial bidder would revise his quotation anticipating a stiff competition. In essence, such negotiation strategies curtail malpractices such as ‘bid rigging’ (Porter & Zona, 1993). The Competition Act 2002 (Competition Commission of India, 2000) has laid provisions related to ‘bid rigging’ and connote that subcontracting arrangements are often part of a bid rigging scheme wherein competitors who agree not to bid or to submit a losing bid collude to keep the bid amount at a predetermined level, thereby stifling fair market competition. In such instances, the rigged price could be higher than the competitive bidding price. This was explicitly evident in the two projects explored as explained in subsection Vendor Selection Criteria and Negotiation Strategy. Bid rigging is an illegal and fraudulent practice, a criminal offense that can be investigated in the Court of Law. Bid rigging practice have some sort of monetary benefit for the bidders. For instance, a low bidder may agree to withdraw their bid in favour of the next low bidder in exchange of a lucrative subcontract in the next project or so. OECD (Organization for Economic Cooperation and Development) countries that support free-market economy have established stringent laws to curtail this practice and suggest designing the tender process to maximize participation (OECD, 2013). Researchers like Foremny and Dorabialski (2018) say that one practical way to prevent collusion is to expand the list of potential bidders by inviting a wider group of qualified subcontractors or suppliers to participate, as was also evident in this study. Further to ensure this practice, they suggest that effective competition can be enhanced if a sufficient number of credible bidders are able to respond to the invitation to tender and have an incentive to compete for the contract.

Fifth, the process challenges evident in this study were quite interesting and relate to earlier studies that reflect these aspects significantly in the literature such as due to cultural and institutional differences across national boundaries; lack of local knowledge (Mahalingam & Levitt, 2007; Scott et al, 2011); interpretation issues in construction drawings; communication challenges due to technology-mediated interaction and complexity in projects (Leonardi & Bailey, 2008; Iorio, Peschiera, Taylor, & Korpela, 2011) augmented with the need to ensure ‘accuracy’ and ‘reliability’ in cost estimation (PMBOK®, 2013). Providing constant ‘training’ on local work practices and construction methods was one of the coping mechanisms adopted by the firm in this study as is also explicitly informed in the literature. The outsourcing team depended heavily on the GC as a ‘knowledge broker’ for clarifications and understanding. However, the team also informed that they looked at the possibility of accessing additional information through advanced technology instead of heavy reliance on the GC as is evident from the vignette below:

From our experiences, and assessing our performance and challenges, we can say that it can be improved by better collaboration and coordination using the latest technologies to access additional information instead of singularly depending on only one source of information, the client, and also to improve understanding the scope, accuracy in estimates and reliability of documentation, which eventually would help in reducing rework due to wrong assessment of the bid package and estimate.

Apart from training to overcome the issues due to lack of knowledge of specific trades, the team also proposed to the GC to request for a detailed breakup of the vendors’ estimate according to the work breakdown structure of their respective trades in the RFP. These insights address the second research question in this study.

Finally, it was noted that when bidders bid for multiple tasks, it was a challenge to assess their current workload and capacity to execute multiple tasks in the project. Decisions had to be taken for sole-award contracting vs multiple-award contracting based on selection criteria such as timely completion, reputation, financial capability, quality of work and the price. On this aspect, Beil (2010) argue that there could be many other considerations for such decisions. For instance, to avoid monopoly and continued presence in future projects, multi-award contracting could be favoured. Alternatively, sole-award contracting would be beneficial when it is unduly costly or risky to deal with multiple suppliers (subcontractors).

In short, it was significantly evident that both a formal procedure and selection criteria complemented each other in the process. Selection criteria or a formal procedure alone did not suffice for a robust selection. Further, as noted in the literature, ‘accuracy’ in estimation and ‘document control’ were critical governing principles.

Conclusion

This study aimed to explore the bidding procedure in the subcontractor selection process through an outsourcing strategy in construction. Two projects were selected in an outsourcing firm in India that contracted with a GC in the USA to support subcontractor selection process using vendor bid analysis technique. A participatory research approach to the study ensured rich insights on the formal procedure adopted. A process flow chart was developed that illustrated the sequence of workflow through five phases across the organizational interface. They include a) Assess, b) Identify, c) Evaluate, d) Negotiate and e) Optimize. An understanding of the activities in each phase and the process sequence addresses the first research question and is a major contribution for improved theoretical understanding.

Second, it was evident that a formalized procedure was necessary, which would complement the subcontractor selection criteria in the evaluation and negotiation phases of the process. Thus, while vendor bid analysis is by itself a structured technique to systematically evaluate and select vendors/subcontractors (PMBOK®, 2013), nonetheless, it required to be backed by two factors: a) a robust formal procedure wherein ‘accuracy’ of information, ‘document control’, ‘reliability’ and ‘verification’, all of these parameters are critical and b) subcontractor selection criteria for judicious evaluation and negotiation in order to identify responsive and responsible bidder.

Third, the nuances involved in the process and the managerial implications to overcome the same were evident by delving deeper into evaluate, negotiate and optimize phases of the process flow sequence, which addressed the second research question. For example, during instances of a single bidder or less than three bidders with high pricing, the GC was informed to invite more bids. In such situations, single bidders were also found to revise and resubmit their bids. Such selection criteria and negotiation strategy ensured curtailing the probability of unethical practices. Further, providing in-house training on trade-specific activities or country-specific construction practices or requesting a breakup of the submitted estimate based on bidders trade specific work breakdown structure, were some of the mechanisms adopted to overcome interpretation issues and to ensure reliability and accuracy of the bid estimate for judicious selection of a responsive and responsible bidder.

This study suffers from certain practical limitations. For instance, the subcontractor selection criteria that can back the formal process, such as during the evaluation and negotiation stages, were not explored. It was apparent in this study that the teams in the outsourcing unit primarily based their evaluation on the pricing strategy of the bidders and had limited knowledge on the bidder’s pre-qualification as well as selection criteria, which predominantly influenced vendor selection. It would therefore be more holistic to identify the selection criteria that are critical in the various stages of the process. Taking forward, future studies could also explore the correlation between vendors’ pre-qualification and selection criteria along with the stages of construction to make the framework more robust, especially in the context of engineering outsourcing services. In perspective, though the findings cannot be generalized due to a single firm analysis, it is believed that the developed process flow chart with an understanding about its challenges can benefit practitioners in similar settings to eliminate or minimize contractor’s risk for improved project performance and delivery in the construction industry.