ravichandran a/l manoharan a project report submitted in...
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SUBCONTRACTOR SELECTION METHOD USING ANALYTIC HIERARCHY PROCESS
RAVICHANDRAN A/L MANOHARAN
A project report submitted in partial fulfillment of the requirements for the award of
the degree of Master of Sciences (Construction Management)
Faculty of Civil Engineering
Universiti Teknologi Malaysia
APRIL 2005
Especially dedicated
to my beloved family
ACKNOWLEDGEMENT
Without the support and help of many people, this research would not have
been possible. First of all, the author wish to extent the greatest thanks to the project
supervisor, Dr Arham Bin Abdullah for his help, support, advise and corporation in
conducting the research, especially during the structuring the research model.
I also wish to acknowledge all the contractors and experts who have extended
their valuable times and resources in providing necessary information for the
research.
Acknowledgement is also due to anonymous panels for their valuable comments
during the presentation of the research.
I also owe a debt of gratitude to my family members and friends for their support
and encouragements throughout my master programme.
The author is extremely grateful to all who have contributed, either directly or
indirectly to the research.
Finally, but most important, express my thanks to Construction Technology
Management Centre (CMTC) and all lecturers in providing the knowledge and make
this master programme to reality.
ABSTRACT
Sub-contractor selection is one of the most important aspects in construction
contract. The success level of construction is very depends on the quality of
subcontractor selection process. Majority of selection process are over emphasized
on the bid cost rather than trade-off between other parameter such as quality, safety
and environmental commitments. Instead these have contributes in project delays,
cost overruns, non-confirmation on quality, lost time accident, increase number of
claims, litigation and contractual issues and failure to comply with local authority
and construction specification. Concerning to this problems, the subcontractor pre-
qualification, evaluation and selection process needs to be reviewed to achieve the
project goals based on multi criteria decision making process. The main initial thrust
of this study was to identify the criteria used for selection process, which was
adopted by the various type of contractor working in Putrajaya. This exercise
involved “knowledge acquisition” phase to capture the expert knowledge including
collecting documents of current procurements practice, knowledge from the literature
review and interviews with experts from various construction companies. The data
collected are used to create a theoretical model for subcontractor selection that
represented by the Analytic Hierarchy Process. It is concludes that the choice of
subcontractor should be consider based on multi criteria decision rather than
automatically accepting the lowest bid. The finding from the research indicated that
the common criteria considered by the contractor during the selection are the cost,
past performance, financial soundness, technical expertise, management capability,
subcontractor workload, previous work experience, and track record. The study
recommended that procurers should no longer depends totally on their experience to
decide on their selection process but an effective decision support system (DSS) like
Analytic Hierarchy Process (AHP) is important to systematically evaluate the
selection process. The research also serves as sources of information for sub-
contractor to win the contract and act as platform for contractor to make an
appropriate decision on the choice of subcontractor.
ABSTRAK
Pemilihan sub-kontractor adalah perkara paling penting dalam sektor
pembinaan. Tahap kejayaan sesuatu projek banyak bergantung kepada kualiti
pemilihan sub-kontraktor. Kebanyakkan kaedah pemilihan sub-kontraktor terlalu
memihak kepada faktor harga tanpa memikirkan faktor-faktor lain seperti kualiti,
keselamatan dan peranan alam persekitaran. Akibatnya banyak projek pembinaan
mengalami kelewatan, kerugian, tidak dapat memenuhi kualiti piawaian, peningkatan
kemalangan di tapak bina, peningkatan isu berkaitan dengan kontrak dan
pembayaran serta kegagalan memenuhi kehendak pihak berkuasa dan specifikasi
projek. Kajian ini adalah bertujuan untuk mengenal pasti kriteria dalam proses
pemilihan sub-kontraktor yang diamalkan oleh kontraktor-kontraktor di Putrajaya.
Untuk mencapai matlamat ini kepakaran pihak-pihak kontraktor dalam pemilihan
sub-kontraktor diambil kira melalui pengumpulan data, pengalaman mereka dan
menemubual kontraktor secara langsung. Analisis data kemudian digunakan untuk
membuat satu model theoretical yang digambarkan oleh “Analytic Hierarchy
Process”. Kesimpulannya, pemilihan sub-kontraktor mestilah berasaskan kepada
kepelbagaian kriteria dan bukan memilih secara langsung berdasarkan paras harga
yang terendah. Hasil kajian menunjukkan pemilihan sub-kontraktor dipengaruhi
faktor seperti harga, pencapaian masa lepas, keupayaan kewangan, kepakaran
teknikal, kemampuan pengurusan, pengalaman kerja lepas, beban kerja
subkontraktor dan rekod kerja. Kajian ini juga mencadangkan bahawa kontraktor
tidak seharusnya menggunakan hanya pengalaman mereka dalam pemilihan sub-
kontraktor tetapi mereka juga haruslah menggunakan sistem penyokong keputusan
seperti “Analythic Hierarchy Process” dalam membuat keputusan pemilihan. Kajian
ini juga dapat membantu sub-kontraktor untuk memenangi kontrak dan sebagai
landasan kepada kontraktor dalam pemilihan sub-kontraktor.
vii
TABLE OF CONTENTS
CHAPTER TITLE PAGE
TITLE PAGE
DECLARATION ii
DEDICATION iii
ACKNOWLEDGEMENT iv
ABSTRACT v
ABSTRAK vi
TABLE OF CONTENTS vii
LIST OF TABLES xi
LIST OF FIGURES xii
LIST OF SYMBOL xiv
LIST OF APPENDICES xv
1 INTRODUCTION OF STUDY
1.1 Introduction 1
1.2 Problem statement 3
1.3 Background of the research 3
1.4 Justification of the research 4
1.5 Aim of the research 4
1.6 Objectives of the research 5
1.7 Scope and limitation of the research 5
1.8 Brief research methodology 6
1.9 Structure of dissertation 8
xii
CHAPTER TITLE PAGE
2 LITERATURE REVIEW 10
2.1 Introduction 10
2.2 Construction project phases 11
2.2.1 Definition 11
2.2.2 Project life cycle 12
2.2.2.1 Conceptual and feasibility studies 14
2.2.2.2 Engineering and design stages 14
2.2.2.3 Procurement stage 16
2.2.2.4 Construction stage 16
2.2.2.5 Start up and Implementation 17
2.2.2.6 Operation and utilization 17
2.3 Tender and estimation process 18
2.3.1 Pre-qualification 18
2.3.2 The decision to tender 19
2.3.3 The estimating process 19
2.3.4 The tendering process 25
2.4 Bid evaluation 26
2.4.1 Criteria for bid evaluation 27
2.5 Sub-contractor selection model 35
2.5.1 Multicriteria decision making (MCDM) 38
2.5.1.1 Bespoke approaches (BA) 38
2.5.1.2 Multi attribute analysis (MAA) 41
2.5.1.3 Multi attribute utility theory (MAUT) 43
2.5.1.4 Multiple regression (MR) 47
2.5.1.5 Cluster analysis (CA) 48
2.5.1.6 Fuzzy set theory (FST) 50
2.6 Conclusion 50
xiii
CHAPTER TITLE PAGE
3 RESEARCH METHODOLOGY 52
3.1 Introduction 52
3.2 The methodology adopted for the research 52
3.2.1 Literature review 53
3.2.2 Knowledge acquisition 54
3.2.2.1 Questionnaires survey 54
3.2.2.2 Interviews 56
3.2.3 Analytic hierarchy process (AHP) 58
3.2.3.1 Background of AHP 58
3.2.3.2 AHP principles 60
3.2.3.2.1 Decomposition 61
3.2.3.2.2 Prioritization procedure 63
3.2.3.2.3 Synthesis of results 65
3.2.3.2.4 Measuring Inconsistency 66
3.2.4 Decision support system 68
3.3 Summary 70
4 KNOWLEDGE ACQUISITION FOR MODEL DEVELOPMENT
4.1 Introduction 71
4.2 Knowledge acquisition 72
4.2.1 Survey sample 72
4.2.2 Questionnaire survey 74
4.2.2.1 Questionnaire design 74
4.2.3 Interview survey 76
4.3 Data Analysis 77
xiv
CHAPTER TITLE PAGE
4.3.1 Analysis on questionnaire survey 78
4.3.1.1 Discussion and findings 88
4.3.2 Analysis on interview survey 89
4.3.2.1 Discussion on findings 93
4.4 Summary 97
5 DEVELOPMENT OF THEORETICAL MODEL 98
5.1 Introduction 98
5.2 Modeling 98
5.2.1 Expert Choice Software 99
5.3 Development of the AHP model 100
5.3.1 Developing the AHP hierarchy 100
5.3.2 The pairwise comparison 102
5.3.3 Synthesis of the AHP model 104
5.3.4 Sensitivity analysis 106
5.4 Operation of the theoretical model 106
5.4.1 User requirements 108
5.4.2 System requirements 108
5.4.3 Starting the system 109
5.4.4 Data input 110
5.4.5 Assigned judgment in pairwise comparison 110
5.4.6 Synthesize to get results 112
5.5 Summary 117
xv
CHAPTER TITLE PAGE
6 CONCLUSION AND RECOMMENDATION 118
6.1 Introduction 118
6.2 Findings 118
6.3 Summary 120
6.4 Recommendation for further research 121
6.5 Conclusion 122
REFERENCES 123
APPENDICES A-B 129 - 146
xvi
LIST OF TABLES
TABLE NO TITLE PAGE
2.1 Criteria for sub-contractor selection 28
2.2 Pre-qualification recommended by CID agency 31
2.3 Important of Pre-qualification criteria 35
2.4 Hypotthethical MAA example 42
2.5 MCDM method for single criterion synthesis approach 45
2.6 Matrix of methodology characteristic 51
3.1 AHP pairwise comparison scale 64
3.2 Random index RI 69
4.1 Response from the questionnaire survey 78
4.2 Response preference of selection criteria 85
4.3 Relative Index Value for each criteria 86
4.4 Application of DSS in selection process 88
4.5 Justification of the identified criteria 90
4.6 Sub criteria for the assessment of main criteria 92
xvii
LIST OF FIGURES
FIGURE NO. TITLE PAGE
1.1 Research objective and methods 7
2.1 Project activity flow chart 13
2.2 The estimating and tendering process 20
2.3 Pre-qualification criteria used by MTRC, Hong Kong 30
2.4 RRC frame for contractor pre-qualification 33
2.5 Decision analysis paradigm 37
2.6 MCDM method of classification 39
2.7 Typical stepwise procedure for bespoke approach 40
2.8 Possible stepwise procedure for MR pre-qualification model 48
2.9 Jointing tree CA output 49
3.1 Hierarchy of the project example 62
4.1 The respondents acceptable to participate in the research 73
4.2 The composition of respondents by profession 79
4.3 The range of respondent’s experience in the selection process 80
4.4 Respondent’s roles in the selection process 80
4.5 Respondent’s involvement in the type of construction work 81
4.6 Procurement system applied by contractor 82
4.7 Tender arrangement method in the selection process 83
4.8 List applied in subcontractor pre-qualification 83
4.9 The source used in the selection criteria 84
4.10 Method of evaluating the selection criteria 87
18
LIST OF FIGURES
FIGURE NO. TITLE PAGE
5.1 The functional architecture of theoretical model 99
5.2 Criteria and sub-criteria identified 101
5.3 Strong rating (5) in pairwise comparison between financial
soundness and managerial capability (level 1 with respect
to the goal) 102
5.4 Pairwise comparison level 2 element in respect to level 1 103
5.5 Pairwise comparison level 3 element in respect to level 2 103
5.6 Distribute synthesis mode 105
5.7 Ideal synthesis mode 105
5.8 The operational flowchart 107
5.9 Subcontractor selection model 109
5.10 The information data input 110
5.11 The verbal comparison window 112
5.12 Model view showing the synthesized with the respect to the goal 112
5.13 Synthesis window 113
5.14 Dynamic sensitivity graph 114
5.15 Performance sensitivity graph 114
5.16 Gradient sensitivity graph 115
5.17 Head to head graph 116
5.18 Two-dimensional plots sensitivity graph 117
19
LIST OF SYMBOLS
A Crj - Score for contractor j Vij - Variable (attribute) i score respect of j
Wi - Maximum score
Σ - Total
n - Number of independent variables
Ui - Represents the attribute consider by decision maker
f(uxi) - Calculation based on considered parameter
Y* - Represents the dependent variable
Co - Permanent constant
Ci - Partials regression coefficients
∞ - Infinite
CI - Consistency index
Imax - Eigenvalue max
IR - Inconsistency ratio
20
LIST OF APPENDICES
APPENDIX TITLE PAGE
A Sample of questionnaire survey 129 - 141
B Interview survey template 142 - 146
21
CHAPTER 1
INTRODUCTION OF STUDY
1.1 Introduction
The construction industry in Malaysia has experience a wide range of
expansion during the past 20 years. Today, most of the construction project
undertaken are more complex in nature, demanding greater skill and technologies,
fast track and concurrent works practices, very competitive in term of price,
demanding for end-product quality and good decision making skill, capabilities in
utilizing knowledge management and very critical in dealing with contractual issue
than ever before. There are increasing number of research/ professional are being
conducted/engaged to confronted with the problems and challenges faced by the
modern construction industry. Since, many of these issues are of relatively new
concern to the industry and directly related to the sub-contractor performances, the
selection and evaluation process of sub-contractor needs to be reviewed to cope with
these challenges. There are many methods of tendering system applied in the
construction contract. However the open tender system seems be the most popular
for the client for awarding the contract. Normally, the client awarded the works to
the contractor, then the contractor will engaged a few companies called “sub-
contractor” to carry-out the works according to the work assigned. Therefore the
selection of the sub-contractor is consider the important aspects and critical issue in
any construction contract.
10
The success level of any construction project may depend on the basis
philosophy of “the right person for the right job”. But, in many cases, the selection
of sub-contractor are over emphasize on the lowest bid acceptance. In reality, sub-
contractor with the lowest tender price is usually awarded a contract. This trend may
be valid when the client are very clear of the “likely cost” of the project and being
experience with similar type of project and working environment. However, it may
not works in most of the project, because the selection of sub-contractor based on the
lowest tender price alone may result in a “false economy” to the project.
Various research methodologies were adopted in several countries to achieve
the “Value procurement” to the procures in the selection of sub-contractor. The
“value procurement” is one that considers price and other factors in the bid greatest
“value for money” to the client. Finding from experts reveal that the tradition “lowest
price wins” in practice is being replaced by “multi criteria judges”. This indicates
increase awareness of procures in selecting sub-contractor attributes via a more multi
criteria selection methodologies. Certainly it is not a easy concept to identify the
universal criteria for bid selection, as it depends on certain factors consider such as
client demands, contractual issue, project viabilities, authority requirement and
construction methods.
Although, that is growing realization on the “value procurement” to the
client, but the basic fundamental problems is “ what constitutes a sound sub-
contractor selection methodology” for the bid selection. According to the previous
research by many experts, there are few types of selection methodologies can be
applied by the procures in the bid selection. These methodologies including Bespoke
approaches (BA), Multi-attribute analysis (MAA), multi attribute utility theory
(MAUT), Multi regression (MR), Cluster analysis (CA), Fuzzy set theory (FST) and
Discriminate analysis (MBA).
11
1.2 Problem Statement
The correct choice of sub-contractor is a great concern for procurers during
the selection process, as it has a significant impact on the success of the project.
Although considerable effort has been focused on pre-qualification, but the majority
of selection are over emphasize on cost priority rather trade in between cost, time and
quality. In most circumstances, the lowest price bid is automatically win the tender.
Finding also suggest that contractor are not aware of all the options, methodologies
and decision support system that is available for sub-contractor selection and
evaluation. The human judgment and experience is used to select the most
appropriate sub-contractor during the evaluation process.
1.3 Background of The Research
This study begin with the identification the various criteria used by the
procures during the selection process. It will allows to address the issues of “which
decision criteria is most considerable in the selection process”. The background of
the research focused on the collection of data through “knowledge acquisition”. The
knowledge acquisition activities included extensive literature reviews, interviews,
questionnaires and correspondence with the experts in the construction company.
The purpose of the knowledge acquisition is to capture the nature of selection
process, potential criteria and ranking method applied by the construction experts
during the selection bid. It is also to reveal if any decision support system is applied
in the selection process.
Having set out the criteria, the research then consider to develop a theoretical
model that represents the appropriate sub-contractor selection by using Analytic
Hierarchy Process Model (AHP).
12
1.4 Justification of The Research
The growing importance of sub-contractor selection criteria renews the
interest of both practitional and academia working in the construction industry.
Furthermore the current selection process is critized and typically emphasized on the
lowest tender price which eventually would lead to the false economy of the project.
There is a serious outcry in the construction industry demanding a revolution in the
tender awarding system for sub-contractor as it has significant impact on the project
success. This research is carry-out to justify that the selection of sub-contractor
should not based on lowest price alone but should consider other parameter such as
cost, quality and time.
In additional, the current selection process is performed in an un-structure
initiative manner with considerable reliance on the experience of procurers and his
judgment. The procurers can no longer depends totally on their past experience to
decide the appropriate sub-contractor, because the nature of selection process which
involves multi criteria decision skill has become more complex. In response to the
need for a robust sub-contractor selection system, this research is justify to develop
a theoretical model based on Analytic Hierarchy Process for the selection of sub-
contractor. In order to provide a better platform for subcontractor selection process,
it is essential to capture the knowledge of experts and to develop a more formalized
and accuracy process with the support of decisions making tools.
1.5 Aim of The Research
The specific aim of this research are to identify the criteria used in sub-
contractor selection and to help the procures in making decision on selecting the
13
most appropriate sub-contractor based on the combination multi criteria and
application of Analytic Hierarchy Process.
1.6 Objective of The Research
The research is set-up to examine the criteria of subcontractor selection and
to support the procurers on the appropriate subcontractor selection using the decision
support system.
In order to satisfy these needs, it initiated with 3 objectives:
a) To understand the nature of subcontractor selection approaches
practiced by various contractor.
b) To explore and define the potential criteria which affect the selection
of sub-contractor.
c) o develop theoretical model that represents the appropriate sub-
contractor selection based on AHP process.
1.7 Scope and Limitation of The Research
The scope of the research is to identify the criteria for subcontractor selection
using knowledge acquisition phases and to assess the information which involves
multi criteria decision making ability using Analytic Hierarchy Process. Hence, the
research is limited to the following scope:
a) The knowledge acquisition phases only involved the main contractor
working in Putrajaya.
14
b) Assessment of the information is used to develop the theoretical
model based on Analytic Hierarchy Process.
c) The study is not consider what is the best methodology for
subcontractor selection but it will focus on the application of AHP as
one of tool for decision support system.
1.8 Brief Research Methodology
The research methodology used to achieve the objectives of the research is
depicted in figure 1.1. A brief guideline of the research methods is explained in this
section and the details research methodology is represented in Chapter 3.
a) Literature Review :- The extensive literature review focused on two
major subjects . First, the overview understanding of the criteria used
for sub-contractor selection in various countries. Secondly, the review
of various methodologies for sub-contractor selection based on the
decision support system. This literature review provided a theoretical
idea and profound knowledge of the topics and to frameworks the
structure of the research. The literature review focused in obtaining
the information through a combination of several sources, which
includes, publication from several professional bodies, construction
magazines, experience, interaction with experts and the used of local
university library to assist books, journals, conference papers and
internet facilities.
b) Knowledge acquisition :- The process involved a capturing of
knowledge from the experts directly involved in the pre-qualification,
selection and evaluation process. The knowledge acquisition activities
15
included interview, questionnaires survey and correspondence with
the contractors.
c) Theoretical model development :- The data collected in the knowledge
acquisition phases are use to develop a theoretical model based on the
Analytic Hierarchy Process as a propose decision support system for
this research.
Research Objectives Research Methodology
1. To understand the nature of sub-
contractor selection approaches
practiced by various contractor.
Literature Review
Chapter 2: Selection criteria and
methodology
2. To explore and define the
potential criteria which affect the
selection of sub-contractor.
Questionnaire Survey
Chapter 3 – Research Methodology
Chapter 4 - Knowledge acquisition for
model development
Interviews
Chapter 3 - Research Methodology
Chapter 4 - Knowledge acquisition for
model development
4. To develop theoretical model
that represents the appropriate sub-
contractor selection based on AHP
process.
Expert Choice 2000
Chapter 5 - Theoretical model
development
Figure 1.1 - Research objective and methods
16
1.9 Structure of Dissertation.
The structure of the dissertation is frame into 6 major chapters and a brief
summary of each chapter’s contents is presented below:-
Chapter 1 : Introduction of study, discuss on the research project undertaken
and the important of the research. It then justifies the need for the research; aims,
scope, objective, limitation of research and brief research methodology adopted.
Chapter 2 : Literature review - more details literature review of sub-
contractor selection and construction practiced are considered. This including the
construction on project life cycle, sub-contractor tendering process, criteria of
evaluation & selection and methodology analysis for selection process.
Chapter 3 : Research methodology - give the overall view of research
methodology including the knowledge acquisition phases, basic concept of decision
making including its definition and phases, concept of model development and detail
information of Analytic Hierarchy Process – the theoretical aspect, justification of
using the model for the research and explanation of expert choice software as a
decision support system.
Chapter 4 : Knowledge acquisition for model development – presents the
method of data collection and the result obtained from the questionnaires survey,
semi-structured interviews and analysis.
Chapter 5 : Development of theoretical model– Described the development
process of theoretical model and the operation system.
17
Chapter 6 : Conclusion and recommendation presents the summary and
conclusion of the dissertation. It discuss and concludes the key finding of the
research and recommendation for future works.
42
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