An Approach of Contractor Selection By Analytical Heirarchy Process

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1 An Approach of Contractor Selection By Analytical Heirarchy Process Multi Criteria Decision Making System Meghalkumar I Zala (PG Student) Master of Engineering in Construction Eng. & Management Birla Vishvakarma Mahavidyalaya Vallabh Vidhyanagar,Gujarat, India meghalzala@yahoo.in Prof. Rajiv B Bhatt (Ph.D. Cont.) Department of Civil Engineering A.D.Patel Institute Of Technology New Vallabh Vidhyanagar,Gujarat, India rajivbhatt123@yahoo.co.in Abstract--Contractor selection is one of the most important aspects in construction contract. This paper suggest AHP technique for contractor selection problem in Indian context. Literature survey is carried out in this area and shown. Concerning to these problems, the contractor pre- qualification, evaluation and selection process needs to be reviewed to achieve the project goals based on multi criteria decision making process. The data collected are used to create a hierarchical model for contractor selection that represented by the Analytic Hierarchy Process(AHP). By using this model & with the help of AHP technique one can develop contractor selection approach which can be most useful for the stakeholders. Key words:-- Contractor selection criteria, Pre-qualification, Bid evaluation, Multi criteria dicision making(mcdm) system, Analytical Hierarchy Process (AHP). The paper is organized as follows: It provides a review of some relevant literature on contractor selection. This literature is utilized to review contractor evaluation methodology and criteria, appropriate investigation issues. Introduces a qualitative study that was conducted to address the research issues. It is composed of the investigation objectives and tasks. It provides conclusions. II. LITERATURE REVIEW Table:1- Contractor Selection Model Suggested by Researchers 17 I. INTRODUCTION Various stakeholders(clients, contractors, technical supervisors of construction, etc) are involved in the construction process. A construction project is developed considering the goals and requirements of a client and the potential of a contractor and suppliers. In a construction project, the selection of an appropriate contractor is the most critical for project success. Quite often construction projects behind schedule, price changes and inappropriate quality are a direct outcome of the selection of an inadequate contractor. When selecting a contractor, a client evaluates its qualification (checks whether it meets specified legal, financial, economic and technical requirements) and compares qualification of different contractors. There are three prime causes of inadequate contractor selection. Firstly, inappropriate criteria are selected when evaluating qualification of a contractor. Secondly, inappropriate significance is attributed to the criteria (e.g. to bid price). Thirdly, inappropriate methodology is applied for the contractor evaluation and selection task. This paper is focused on the contractor evaluation/selection criteria. It describes an investigation of companies on the criteria for evaluation of contractors qualification and the importance of criteria weight. Selecting a construction contractor is one of major decisions which may influence the progress and success of any construction project. Contractor prequalification is a commonly used process for identifying a qualified, sound and reliable Page 1 of 6

2 construction contractor. A general prequalification exercise is performed to identify an appropriate i e the best, contractor from the applicants and to evaluate and score them according to their economic and technical aspects, quality standards, past performance and other characteristics. Various procedures, such as open tendering, restricted tendering or negotiation, are practiced for contractor selection. A contractor is selected either from all the bidders or the contractor selection process can be divided into two phases: prequalification and final selection. Contractor prequalification involves a screening procedure based on a set of criteria set forth by each individual owner [1]. As pointed out by Palaneeaswaran [2] contractor prequalification is generally preferred by clients to minimize risks and failures and to enhance the performance levels of selected contractors by means of established minimal capacities below which contractors will not be considered. F. Ling [3] examined bidding practices in Australia, Canada, Saudi Arabia, Singapore, the UK and the USA. In the case of a governmental project, contractor selection by means of a bidding mechanism is required by law. However, G. Ang et al [4] state that traditional forms of procurement and tendering, supported by prescriptive, solution-based specifications, and the lowest price only, are suitable for routine projects but will hamper innovation in other types of projects. The contractor s qualification (i e financial strength, past experience, business plan, work capacity, quality and experience of the technical personnel, etc), and project characteristics (i e work schedule, type, value, duration, complexity, location of a project, contract type and variation between the contractor s bid price and the next lowest bidder s price etc) are the fundamental factors that affect contractor default [5]. Time-delays and cost-increases of construction projects are closely related to specifications on the qualifications of contractors (financial, technical, experience, etc) [6]. In construction projects, quality performance of constructors is considered as vital for client satisfaction [7]. The selection of a construction contractor is a decision characterized by multiple objectives [8]. Based on these main aspects, a list of criteria can be generated. Numerous researchers, such as J. Russell et al [1], S. Ng and R. Skitmore [9], C. Wong et al [10, 11], K. Molenaar and D. Johnson [12], Y. Topcu [10], and E. Zavadskas et al have identified common criteria for prequalification and bid evaluation. G. Holt and D. Edwards [12] provide qualitative analysis that identifies criteria to be considered when evaluating and selecting a domestic builder. By Literature review, we can conclude the hierarchical model of contractor selection in Indian context which is shown in Appendix-1 and contractor selection criteria & its importance in Indian context which is shown in Appendix-2. A. Objective of The Research The research is set-up to examine the criteria of contractor selection and to support the procurers on the appropriate contractor selection using the decision support system. a) To understand the nature of contractor selection approaches practiced by various contractor. b) To explore and define the potential criteria which affect the selection of contractor. c) To develop theoretical model that represents the appropriate contractor selection based on AHP process. B. Scope and Limitation of The Research The scope of the research is to identify the criteria for contractor 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) Knowledge acquisition phase involve contractor working methodology in INDIA. b) Assessment of the information is used to develop the theoretical model based on Analytic Hierarchy Process. c) The study is consider for contractor selection and it will focus on the application of AHP as one of tool for decision support system. III. 1.- ANALYTIC HIERARCHY PROCESS (AHP) Analytic Hierarchy Process is an effective decision making technique based on multi-criteria decision making methodology (MCDM). It consider the human judgment, experience, perception and feelings in the decision making process. This research focus on developing a theoretical selection model based on the AHP approach. It help decision maker to select the most appropriate contractor against a number of contractors with various alternatives. The Analytic Hierarchy Process was chosen for this study based on following reason: a) The ability of AHP to incorporate tangible and intangible factors in a systematic way. b) It able to solve constructed problems in a variety of decision making situation, ranging from the simple personal decisions to the complex capital intensive decision. c) The problem is broken down in a logical fashion from the large elements to smaller elements. d) It works by examining judgments made by decision makers and measure the consistently of those judgments. e) It does not required numerical judgment from the decision maker. III. 2.- BACKGROUND OF AHP The Analytic Hierarchy Process (AHP) was develop by Thomas Saaty in 1970 s[1], to provide a simple but the theoretically sound multiple criteria methodology for evaluating alternatives. It aims at quantifying relative priorities for a given set of alternative on a ratio scale, based on the judgment of the decision maker and stresses the importance of the intuitive judgment of a decision maker as well as the consistently of the comparison of the alternative in the decision making process (Saaty. T.L. 1980)[4]. The application of Analytic Hierarchy Process can be found in such diverse fields as portfolio selection model solve by using AHP methodology Page 2 of 6

3 include project procurement system (Mohammed I.A, Khalil 2000), project management (Kamal 2001) and Engineering problems (Saaty 2001).[5] According to Partovi (1992),the AHP is a decision aiding tool for dealing with complex, unstructured and multi attribute decision. Ny Dick and Hill (1992) described the AHP as a methodology to rank alternative courses of action based on the decision makers judgment concerning the important of the criteria and the extend to which they are met by each alternative.golden (1989), described AHP as analytical by using members, hierarchy by structuring the decision problem into levels and process-oriented because its step- by-step approach. Murahdar (1990) support the belief that the AHP caters specifically for decision making with multi criteria. III. 3.- AHP STEPS: Saaty [2,4,7] developed the following steps for applying the AHP: a) Define the problem and determine its goal. b) The hierarchy from the top (the objectives from a decision-maker's viewpoint) through the intermediate levels (criteria on which sub sequent levels depend) to the lowest level which usually contains the list of alternatives. c) Construct a set of pairwise comparison matrices(size n x n) for each of the lower levels with one matrix for each element in the level immediately above by using the relative scale measurement shown in Table 2. The pair-wise comparisons are done in terms of which element dominates the other. d) There are n(n-1) / judgments required to develop the set of matrices in step 3. Reciprocals are automatically assigned in each pair-wise comparison. e) Hierarchical synthesis is now used to weight the eigenvectors by the weights of the criteria and the sum is taken over all weighted eigenvector entries corresponding to those in the next lower level of the hierarchy. f) Having made all the pair-wise comparisons, the consistency is determined by using the eigenvalue, Imax, to calculate the consistency index, CI as follows: C.I.=(Imax-n) / (n-1) where n is the matrix size. Judgment consistency can be checked by taking the consistency ratio (CR) of CI with the appropriate value. The CR is acceptable, if it does not exceed If it is more, the judgment matrix is inconsistent. To obtain a consistent matrix, judgments should be reviewed and improved. g) Steps(d-f) are performed for all levels in the hierarchy. Table:-2 Pairwise Comparison Scale for AHP Preferences, Saaty[1,3] Numerical Verbal judgment of preferences Scale 9 Extremely preferred 8 Very Strongly to Extremely 7 Very Strongly Preferred 6 Strongly to Very Strongly 5 Strongly Preferred 4 Moderately to Strongly 3 Moderately Preferred 2 Equally to Moderately 1 Equally Preferred IV. CONCLUSION Contractor selection involves complex decision making situations that discerning abilities and methods to make sound decisions. This paper has discussed in details on knowledge acquisition process and transforming the information to a manageable form for developing a theoretical model represents the AHP methodology. The AHP is a decision aiding tools based on multi- criteria decision making for dealing with complex and multi attribute decision. The AHP process is simplifies using a decision support system. V. REFERENCES 1. Saaty, T.L. (1980) The Analytical Hierarchy Process, McGraw-Hill, New York. 2. Saaty,T.L.(1994) How To Make adecision:the Analytical Hierarcchy Process,24(6), Palaneeaswaran Saaty,T.L.(1996) Decision Making with Dependence and Feedback: The Analytica Network Process, RWS Publications, Pittsburgh, P.A., F. Ling 4. Saaty, T.L., Decision making in complex environments: the analytic network process for decision making with dependence and feedback. RWS Publications, USA., G. Ang et al 5. Saaty T.L. (1983), Axiomatic Foundations of the Analytic Hierarchy Process,Management Science, Vol Saaty T.L. (1987), Decision Making, New Information, Ranking and Structure Mathematical Modeling, Vol Saaty T.L.(1987), The Analytic Hierarchy Process : Planning, Priority Setting, Resources Allocation, Rws Publication, Pittsburg, PA. 8. Saaty, T.L. (1994a), Fundamentals of Decision Making and Priority Theory with the Analytic Hierarchy Process, Rws Publications, Pittsburgh, PA. 9. Hatush, Z. & Skitmore, M. (1998), Contractor selection using multicriteria utility theory: an additive model, Building and Environment, 33(2~3): S.Ngand R. Skitmore 105~ Hatush, Z. & Skitmore, M. (1997a), Criteria for contractor selection, Construction Management and Economics, 15:19~38, C. Wong et al 11. Hatush, Z. & Skitmore, M. (1997b), Assessment and evaluation of contractor data against client goals using PERT approach, Construction Management and Economics,15:327~340, K. Molenaar and D. Johnson 12. Holt, G. D., Olomolaiye, P. O., and Harris, F. C. (1994). Factors influencing U.K. construction clients choice of Page 3 of 6

4 contractor. Build. Environ.,29, "Evaluate the conntractor performance:dubai construction industry" 13. Hatush, Zedan and Skitmore, Martin R. (1997) Criteria for contractor selection. Construction Management and Economics 15(1):pp , Y. Topcu 14. Journal of construction engineering and management / march/april 2002 / 155 -"Concessionaire selection for BOT tunnel project in Hong Kong", E. Zavadskas et al 15. The hong kong institute of value management-vol. 13, No. 3 / 4, 2007 HKIVM-"Value managementin the architectural service department in Hongkong" 16. International Journal of Project Management 19 (2s001) 19±27-"Application of AHP in Project Management" 17. Operational Research an International journal vol.6-no.3 september-december Appendix-1 Contractor Selection Hierarchical Model in Indian Context Page 4 of 6

5 Appendix-2 Contractor Selection Criteria & its Importance Page 5 of 6

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