Research Journal of Applied Sciences, Engineering and Technology 3(12): 1358-1365, 2011

ISSN: 2040-7467
© Maxwell Scientific Organization, 2011
Submitted: June 22, 2011 Accepted: August 27, 2011 Published: December 26, 2011

Decision Criteria for Selecting Main Contractors in Malaysia

Arazi Idrus, Mahmoud Sodangi and Mohamad Afeq Amran
Civil Engineering Department, University Teknologi PETRONAS, Bandar Seri Iskandar,
31750 Tronoh, Perak Darul Ridzuan, Malaysia

Abstract: During the tendering phase of a project, selecting the most appropriate main contractor to implement
the project can be difficult. There are many main contractor selection criteria that can be found in the literature
but in real practice, clients may have their different criteria. The purpose of this study is to identify and rank
the actual criteria used by clients for the selection of main contractors from current practice in Malaysia. The
ranking is based on the relative importance of the criteria as perceived by professionals operating in the
Malaysian construction industry using their accumulated experience and judgment. The objective of this study
was investigated through a postal questionnaire which covered a selected sample of 150 construction
professionals operating in Malaysia. Data were analyzed using frequency and severity index analyses. The
results of this study show that track performance, financial capacity and technical capacity were the most
important criteria considered crucial by the respondents for the selection of main contractors from current
practice in Malaysia. This study provides supportive practical solution for Malaysian clients to enhance and
improve their contractor selection processes in order to have successful completion of construction projects that
would meet their requirements and increase their satisfaction levels.

Key words: Client, construction, professional, project, survey

INTRODUCTION LITERATURE REVIEW

Generally, successful completion of construction Various studies have been undertaken by experts
projects requires many important processes and one of regarding the issue of contractor selection for
them is the bidding process. During the bidding process, implementing construction projects. Holt et al. (1994)
selecting the most appropriate contractors to execute the identified prequalification criteria to be included in the
project seems to be quite difficult. Contractor selection quantitative model for choosing main contractors. Ahmed
plays a vital role in the overall success of any construction and Kangari (1995) carried out a survey with 101 client
project. Clients generally need the best criteria in companies to find out the factors that the clients consider
selecting contractors in order to get best results in term of as being the most significant when dealing with contractor
cost, time, and quality for their projects. Historically, organizations and hence develop a client-satisfaction
clients usually award the contract to the lowest bidder model. Holt et al. (1995) revealed that the choice of
during tendering. Despite the guidelines that exist in the contractor should be made on a value for money basis
literature in selecting main contractors; in real practice, rather than automatically accepting the lowest bid because
Malaysian construction clients individually have their the main objective is to identify best tender not lowest
preferred criteria different from those obtained in the bidder. Bubshait and Al-Gobali (1996) determined the
literature. The main threat here is that clients do make criteria that are considered in prequalification practices
costly mistakes in their decisions to award the contracts to for private and semi public projects in Saudi Arabia.
unqualified contractors and this would eventually have Hatush and Skitmore (1997) focused on identifying
damaging consequences on the project and clients’ universal criteria for prequalification and bid evaluation.
investment. It therefore became necessary to examine the Their results show that the most common criteria
different criteria adopted by clients in selecting considered by clients are those pertaining to financial
contractors in Malaysia in order to find out the most soundness, technical ability, management capability and
important criteria that clients should focus on when health and safety performance of contractors. Holt (1997)
awarding construction contracts to main contractors. To explained the cluster analysis technique in a contractor
this regard, this paper is aimed at identifying and ranking valuation and selection setting. Hatush and Skitmore
the actual criteria used by clients in real practice for the (1998) described a systematic multi criteria decision
selection of main contractors in Malaysia. analysis method for contractor selection based on utility

Corresponding Author: Mahmoud Sodangi, Civil Engineering Department, Universiti Teknologi PETRONAS, Bandar Seri
Iskandar, 31750 Tronoh, Perak Darul Ridzuan, Malaysia
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Table 1: Criteria for selection main contractor from literature review

Previous study
------------------------------------------------------------------------------------------------------------------------------
Palaneeswaram and

% % %
Main contractor selection criteria Topcu (2004) Kumaraswamy (2001) Skimore (1999) Holt et al. (1995)

% % %
Financial stability

% %
Background of company

% % % %
Technical capacity

%
Cost

% % % %
Performance

% % %
Standard of quality

% % % %
Occupational health and safety

%
Time performance

%
Management capability

%
Failed contract

%
Progress of work

%
Human resource management

% %
Level of technology

%
Relationship with client

%
Relationship with sub-contractors

%
Fraudulent activity
Competitiveness

theory, which allows different types of quantitative and methods for contractor evaluation and examined the
qualitative contractor capabilities to be assessed. Chinyio actual criteria for the selection of contractors.
et al. (1998) defined a checklist of clients’ needs which Despite all the guidelines that exist in the literature in
can be used for determining clients’ project requirements. selecting main contractors; in real practice, clients in
Ng and Skitmore (1999) examined the difference between Malaysia individually have their preferred criteria
the decision criteria used by different client and different from those obtained in the literature. The main
consultant organizations in contractor selection. threat here is that clients do make costly mistakes in their
Respondents were asked to rate the importance of 35 decisions to award the contracts to unqualified contractors
predetermined selection criteria. The findings show that and this would eventually have damaging consequences
there are significant differences in the selection and use of on the project and clients’ investment.
decision criteria for prequalification. Alsugair (1999)
developed a model for assessing bids of construction METHODOLOGY
contractors in Saudi Arabia. The conceptual model
includes identifying the criteria involved in bid The study was conducted between July 2008 and
evaluation, the impacts and weights of these criteria and June 2009 as a final year project research in fulfilment of
the criteria’s score. Ng et al. (1999) reported on an the requirements needed for the award of B. Eng. Degree
assessment of the nature of divergences of the perceived in Civil Engineering Department, Universiti Teknologi
significance of individual prequalification criteria by PETRONAS, Bandar Seri Iskandar, 31750 Tronoh, Perak,
different groups of pre qualifiers through an empirical Malaysia.
survey conducted in United Kingdom. Wong et al. (2000) A literature review on the selection of main
identified factors as project specific criteria which are contractor suggested a combined list of criteria used by
used by the clients in the process of selecting contractors. clients when choosing a main contractor (Holt et al.,
A comparison of top 15 project specific criteria indicates 1995; Skitmore, 1999; Palaneeswaran and Kumaraswamy,
a strong association between public and private sector 2001; Topcu, 2004). Based on this review (Table 1) and
clients and for building and civil engineering works. information from professionals in Malaysian construction
Palaneeswaran and Kumaraswamy (2001) proposed a new industry, a list of 14 criteria influencing selection of main
model for construction contractor prequalification while contractor was produced. In construction management
Topcu (2004) proposes a multi-criteria decision model for researches, questionnaires are mostly used to collect
selecting contractors in the Turkish public sector. These factual and perceptive responses. Fellows and Liu (1997),
studies are important because they emphasize the factors Naoum (1998) and Enshassi et al. (2010) argued that the
that different categories of client groups take into questionnaire is a widely used approach for descriptive
consideration when choosing contractors. Egemenn and and analytical surveys to find out the facts, opinions and
Mohamed (2006) provided insights into private clients’ views of respondents. A postal questionnaire was chosen
needs, wants and expectations from contractor firms in the for the survey in view of its relatively low cost and the
Northern Cyprus building construction market, by fact that respondents are given sufficient time to complete
presenting survey findings of 91 clients regarding this the questionnaire to elicit well thought out responses. The
issue. Huang (2011) analyzed the relevant theoretical development of the questionnaire is done in such a way

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that each question would be clearly phrased to avoid parametric statistics (means, standard deviations, etc.) to
ambiguity and checked for expression, objectivity and analyze such data would not produce meaningful results
relevance to the problem being investigated (Leedy, 1989; and non-parametric procedures should therefore be
Foddy, 1993; Idrus, 2001). It was paramount that the adopted (Siegel, 1956; Siegel and Castellan, 1988;
perception of the clients obtained from this survey would Johnson and Bhattacharyya, 1996). The non-parametric
be as representative as possible. The lists of the procedures adopted for this study were frequency and
respondents were obtained from lists provided by severity index analyses.
Suruhanjaya Syarikat Malaysia (SSM), Construction Relative index ranking technique is a non-parametric
Industry Development Board (CIDB) and also from technique widely used by construction management
Malaysia Resources Corporation Berhad (MRCB). The researchers for analysing structured questionnaire
sample respondents were located in all state in Peninsular response data involving ordinal measurement of attitudes
Malaysia. The sample was selected using the systematic (e.g., Olomolaiye et al., 1987; Holt, 1997; Idrus, 2001;
sampling procedure (Idrus, 2001). In this procedure, the Egemenn and Mohamed, 2006). One form of this
Clients’ list was arranged in alphabetical order and technique is the severity index analysis (Elhag and
sampled at regular intervals after a random start. The Boussabaine, 1999; Al-Hammad, 2000; Ballal, 2000)
sample interval is the ratio N/n where N and n represent which uses weighted percentage scores to compare the
the population and desired sample size respectively. relative importance of the criteria under study. The
The size of samples is governed by factors such as frequency analysis was first carried out to determine the
(Idrus, 2001): frequency of responses which were then used to calculate
severity indices by means of the formula:
C The confidence level needed that the sampled data
would be representative of the total population Severity Index (I) = [3 ai . xi ] / [ 5 3 xi ] * 100%
C The margin of error that can be tolerated for any
estimates of the population parameters from the where,
sample i.e., the sampling error xi = variable expressing the frequency of the response
C The time allocated for conducting the survey and the for i
cost incurred i = 1, 2, 3, 4, 5 as illustrated below
x5 = frequency of the ‘very high extend’ response and
However, sample size is also determined by the corresponding to a5 = 5
significance of the survey results to the research as a x4 = frequency of the ‘high’ response and
whole (Idrus, 2001). In order to address the objective of corresponding to a4 = 4
this paper, a minimum sample size of 30 (Idrus, 2001) x3 = frequency of the ‘moderate’ response and
was taken as the minimum set for the survey. corresponding to a3 = 3
Nevertheless, to allow for non-response, the sample size x2 = frequency of the ‘low’ response and corresponding
was increased to 200. The questionnaires were distributed to a2 = 2
to professionals (who are involved in tender evaluation
x1 = frequency of the ‘very low response and
and selection of contractors) working for clients’
corresponding to a1 = 1
organizations within the Malaysian construction industry.
In administering the questionnaires, respondents were
The Severity Index would enable the author to
asked to rate the level of importance of a list of criteria
prioritize the criteria in the study. Criteria with highest
used by clients in the selection of contractors in Malaysia.
severity index (%) will be ranked topmost while criteria
The rating was based on a 5-point Likert scale where 1 =
with the least severity index (%) will be ranked at the
Very Low, 2 = Low, 3 = Moderate, 4 = High and 5 =
bottom. The five-point scale was transformed to relative
Very High. The respondents were also allowed to add
other criteria not covered by the questionnaire. importance indices for each criterion, using the above
method to obtain the ranks of the different criteria. These
Analyses and results: Of the original sample of ranking enabled the researcher to cross-compare the
questionnaires, 150 (75%) were returned fully completed relative importance of the criteria as perceived by the
and the number exceeded the minimum specified above. three categories of respondents. However, the mean and
Compared with other similar surveys in the areas of standard deviation of each individual criterion are not
construction management, e.g., 21% by Proverbs (1999), appropriate statistics to evaluate the overall rankings
30-40% by Aibinu and Jagboro (2002), 27% by Idrus, because they do not reflect any relationship between
(2001), the response rate obtained (75%) is considered to them. As such, all the numerical scores of the identified
be good. The data collected from the survey were ordinal criteria were transformed to severity indices (in
because the distances between any two numbers (ratings) percentages) to determine the relative ranking of the
assigned in the Likert scale are not known. The use of criteria.

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Table 2: Types of business for respondents’ companies

100
Types of project No. of respondents Percentage
Residential projects 64 42.67
Commercial projects 46 30.67 95

Severity index (%)

Industrial projects 14 9.33
Infrastructure projects 26 17.33 90
Total 150 100
85
Table 3: Respondents’ companies experience in construction
Company’s experience No. of 80
in construction companies %
Less than 5 years 2 4 75
5 to 10 years 6 11

id ilar..

ion s ting nd. ..

p
n
Te cial c ance

eff ince

t
nt
per ical c city
c it y

ncy

F r i o lo g y
R e in e x a lth a e d

tec hand
je c

ti o
con ndsh i
jec cl ie
11 to 20 years 54 4

o t

pro
ic ie

era
ap a
ap a
s im
pr
a n or m

u
More than 20 years 23 41

t
hn
gre ion al o n Q

pro with
ts a

e
s id
in
F i n pe r f

B
Total 56 100

h e
en t
ce

at eti

No ship

of
i
chn
ie n
ck

c u p pl
em

ca l
ve l
Oc o m
Tra

of
n ag

li ti
RESULTS AND DISCUSSION

Le
c

lat
ss
Ex

Po
or
Ma
ef

Pro
Tim
Company information: Table 2 shows the types of
Criteria for selecting main contractor in malaysia
business respondents’ companies are involved in. A total
of 56 companies responded to the questionnaire and some
of the companies are involved in more than one sector. Fig. 1: Severity index (%) of criteria for selection of main
contractor in Malaysia
From the Fig. 1, it is shown that respondents working for
clients dealing mainly with residential projects have the Table 4: Present designation in the company
highest proportion (42.67%) while the least (9.33%) is Present designation
clients dealing mainly with industrial projects. The high in the company No. of respondent %
proportion of respondents working for client companies Project director 24 16.00
dealing with residential projects could be attributed to the General manager 38 25.33
Quantity surveyor 6 4.00
mass housing projects being commissioned all over the Engineer 10 6.67
country in an effort by the government to provide housing Project manager 52 34.67
for the people. The Malaysian government has identified Other 20 13.33
housing as an essential need and a significant component Total 150 100
of economic development. To this regard, the government Table 5: Respondents’ experience in construction (years)
developed a plan to ensure it meets the housing needs of Respondent's experience
its people. The housing development programmes are in construction (years) No. of respondent %
implemented by the public and private sector. The public Less than 5 6 4.00
5 to 10 36 24.00
sector focuses more on low cost housing programmes 11 to 20 50 33.33
while the private sector focuses more on medium and high More than 20 58 38.67
cost housing programmes. It is not surprising to have a Total 100
high proportion of clients dealing with residential projects
because the government has formulated a policy which Respondent’s information: Table 4 shows the proportion
aims at strengthening the participation of private sector in of the present designation of respondent in their
housing production and delivery especially in housing respective companies. It shows that Project Managers
schemes development. have the highest proportion (34.67%) while quantity
Table 3 shows percentage of company’s experience surveyors have the lowest proportion. Having project
in construction. Over 80% of the companies have more managers as respondents from the organizations would
than 10 years experience in construction projects. This help to validate the findings of this paper because they are
could add validity to their responses because the longer usually given the task to evaluate and select main
the period the companies have been involved in contractors to execute the projects.
construction projects the more experienced they become Table 5 shows the proportion of respondent’s
and this reflect on the expertise of their staff. 4% of the experience in construction. Over 70% of the respondents
companies have less than 5 years construction experience have the requisite construction experience of over ten (10)
and this may not be considered good enough because years. Having respondents with such an impressive
companies that do not have good experience might not be working experience in construction indicates that the
very familiar with the criteria that clients in Malaysia respondents are well conversant with selecting suitable
usually consider in selecting contractor for construction contractors to implement projects. This really adds
proejcts. validity to the findings of this study.

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Table 6: Respondent's location according to states in Malaysia handle the project. Examination of a contractor's past
State No of respondent Percentage experience reveals to the client what a contractor has
Johor 18 12.00
Kedah 9 6.00 done, whether or not these projects have been executed
Kelantan 6 4.00 successfully would only be identified from an
Melaka 6 4.00 investigation of contractor’s performance. Since the core
Negeri Sembilan 6 4.00 business of the construction industry is undertaking
Pahang 8 5.33
Perak 10 6.67 projects, the project objectives of quality; cost and time
Perlis 8 5.33 became significant because they are the main indicators
Penang 8 5.33 of client satisfaction. As such, the goal of most
Sabah 8 5.33 construction clients is to have best value for their money.
Sarawak 10 6.67
Selangor 44 29.33 Thus, Birrel (1988) in a paper titled bid appraisal
Terengganu 9 6.00 incorporating past performances by contractors suggests
Total 150 100 that contractors who have a track record of successful past
performance and demonstrate a current superior ability to
Table 6 shows percentage of respondent’s location deliver a project should be selected. Contractor’s track
according to states in Malaysia. There are many factors performance record is relevant information regarding a
contributing to these results. First, it is obvious that contractor’s actions under previously awarded contracts.
Selangor harbours the federal territory of Kuala Lumpur These records include conformance to contract
which serves as the seat of Malaysian government. This requirements and to standards of good workmanship; cost
state is considered the most rapidly developing state in forecasting and control; adherence to contract schedules
Malaysia due to the large scale developmental projects including administrative aspects of performance; history
going on and this might be connected to the country’s of reasonable and cooperative behaviour and commitment
developmental programme known as the vision 2020. In to client satisfaction and contractor's business-like
this survey, Selangor has the highest percentage (29.33%) concern for the interest of the client (Birrel, 1988).
of the respondents simply because of the high number of Selecting a contractor based on track performance records
construction projects being carried out and it is natural help to ensure that best value for money is achieved
that clients and contractors would always focus on such because the project stands a chance of being completed on
area due to good market prospects. Surprisingly however, time and to the desired quality standards as spelt out in the
states like Melaka and Negeri Sembilan have low specifications. More so, the selection of contractors based
proportion of respondents (4%) despite their proximity to on this criterion provide clients with an objective and
Kuala Lumpur which is beehive of construction activities consistent means of implementing pre-qualification
in the country. process as performance information of other contractors
Table 7 shows the severity index and ranking of would be available for comparison and selection. Not that
criteria for selecting main of criteria for selecting main alone, professionals working for the client would be able
contractor in Malaysia. From the table, it could be seen to know specific areas of the contractor’s performance to
that Track performance is the most important criteria focus on during project supervision in order to ensure
ranking 1st with the highest severity index (94.93%). The successful implementation of the project. However,
ranking of this criterion is not surprising at all because considering the requirements of clients and end-users,
clients have to examine the main contractor’s reputation environmental awareness, scarce resources, globalization
in order to ascertain which contractor has true ability to of the construction industry which ushered in high

Table 7: Severity index and ranking of criteria for selecting main contractor for all 150 respondents
Criteria for Severity
selecting main contractor a1×x1 a2×x2 a3×x3 a4×x4 a5×x5 E (ai×xi) 5 3x i index (%) Rank
Track Performance 0 0 24 88 600 712 750 94.93 1
Financial capacity 0 8 30 80 580 698 750 93.07 2
Technical capacity 0 22 57 80 500 659 750 87.87 3
Bid price 0 50 15 40 550 655 750 87.33 4
Experience in similar projects 0 14 120 12 500 646 750 86.13 5
Management efficiency 0 32 60 72 480 644 750 85.87 6
Time of completion quoted 9 12 63 116 425 625 750 83.33 7
Occupational health & safety 5 32 69 56 460 622 750 82.93 8
Progress of existing project 0 8 57 316 240 621 750 82.80 9
Relationship with client 0 28 129 44 410 611 750 81.47 10
No of projects at hand 0 54 30 168 355 607 750 80.93 11
Level of technology 0 52 42 172 335 601 750 80.13 12
Friendship 8 58 51 40 430 587 750 78.27 13
Political considerations 0 46 84 156 300 586 750 78.13 14

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competition for construction business marketplace, it many authors (Russell et al., 1992; Russell and
became glaring for contractors to continuously improve Skibniewski, 1988).
their performance in order to have good track Technical Capacity is the third most important
performance record which is critical to contractors’ criteria with a severity index of 87.87%. This criterion is
business success. The improvement in performance perceived to be highly significant by the respondents
involves evaluation of contractors’ performance which because clients use it to measure contractor’s technical
aligns the contractors’ resources, activities and processes ability such as experience, plant, equipment and personnel
to the main goals of their organizations. The performance based on past performance. In other words, clients assess
improvement deals with long term organizational goals the technical competency of contractor by focusing on his
which help to set standards for comparison with best physical assets (such as machinery and equipment) and
practices in other construction companies and provide the the level of technical expertise available that is necessary
basis for comparison during internal change efforts and to implement particular projects. Warszawski (1996)
shows results during improvement efforts. pointed out that the technical competency of a contractor
The financial capacity of a contractor is the next most can be established by examining his preferred
important criterion with severity index of 93.07%. It is construction techniques, the skills and expertise of his of
also significant as it enables a client to obtain information his technical staff, the productivity and speed of his
regarding the overall financial position of the main construction processes and the quality of the contractor’s
contractor. If the old trend was to be considered, surely services and final output. The three least important criteria
the bid price would be chosen as the first criteria for however were level of technology (80.13%), friendship
selection of main contractor in Malaysia. However, clients (78.27) and political considerations (78.13). Level of
nowadays still aim for a higher profit margin and at the technology was perceived by the respondents to be least
same time expect higher satisfaction from the products important because the main contractors in Malaysia are
and services offered by the contractor. Engaging having relatively same level of technology and the clients
contractors to implement a construction project can consider this as less significant criterion. The friendship
expose clients to significant financial risk. The failure of and political considerations criteria were placed at the
a contractor to complete successfully a project can cause lowest ranking because clients believe that when business
great inconvenience, unnecessary delays and significant mixes-up with politics and friendship, profit margin will
costs. Best practice risk management suggests that be relatively low and in fact, a lot of other problems might
adequate due diligence checks are carried out to measure occur and result to having an undesired project quality
the financial capacity of the recommended contractors to when the project is finally completed.
fulfill their contractual obligations (Topcu, 2004).
Financial capacity refers to a contractor’s strength in the
CONCLUSION
market to carry out projects. Sufficient financial resources
ensure that contractor can get into risky situations that
The ever increasing clients’ and regulatory agencies’
have high returns prospect. Warszawski (1996) pointed
demands coupled with the high competition amongst
out that as a contractor’s financial strength increases, his
contractors in the construction market make effective
credibility and reputation also increases among clients and
management of construction projects highly important.
suppliers. Kaplan and Norton (1996) and Liebowitz and
Contractors play a key role in successful completion of a
Suen (2000) argued that though increase in revenues and
profitability, market value, cost reduction, productivity construction project. It is quite essential to choose a
improvement, enhancement of asset utilization/profit per competent contractor to implement the project. Choosing
total assets, uncompleted work in hand, economic value a qualified contractor increases the chances of successful
added, reliability of performance and reduction in risk can completion of a project by achieving the client’s goals of
be used as indicators of financial strength of a contractor, keeping the schedules of the cost, time and quality. It
however, the financial strength of a contractor is generally therefore became imperative to select a competent
measured by examining the ratio of his liabilities to contractor to implement the project. This paper
equities Most construction projects are funded by the investigated the actual criteria used by clients for the
client who pays the contractor periodically, who in turn selection of main contractors from current practice in
pays the subcontractors, the suppliers and other parties of Malaysia. It was found out that track performance,
the project for services rendered. A portion of the periodic financial capacity and technical capacity were the top
payments is normally held by the client as retainage. The most important criteria used by clients for the selection of
success of this routine depends on the financial strength main contractors from current practice in Malaysia as
of the client and contractor (Gunhan and Arditi, 2005). perceived by the respondents. This paper provides
The financial stability of a contractor indicates whether he supportive practical solution for Malaysian clients to
will stand or fall and therefore figures high on the lists of enhance and improve their contractor selection processes

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their satisfaction levels. Build. Environ., 33(2): 105-115.
Holt, G.D, P.O. Olomolaiye and F.C. Harris, 1994.
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