Construction contractor selection criteria : the effects of relational norms, price and prequalification

This study investigates contractor selection by Malaysian housing developers. In order to maintain competitive advantage, businesses such as housing developers need to strive to give their customers better value for money. Selecting the right contractor enhances project delivery outcomes and could help this cause. With this in mind, this study is concerned with the contractor (supplier) evaluation and selection by housing developers in procuring contractor services (Watt et al., 2010a) and the effects of relational norms -1) trust norms (Dwyer et al., 1987; Morgan and Hunt, 1994; Doney and Cannon, 1997) and 2) cooperative norms (Zhong et al., 2014; Cai and Yang, 2008; Eriksson, 2007b) and 3) prequalification (Aje, 2012; Hatush and Skitmore, 1997; Jennings and Holt, 1998) on contractor selection in industrial exchange relationship. Three research questions were considered: Research question 1 how do the relationships between developers and contractors affect the selection procedure? Research question 2 how do the contractor’s tender price, financial standing and expertise affect the selection procedure? Research question 3 do housing developers in Malaysia carry out contractor prequalification as part of their contractor selection procedure? With support from literature, seven hypotheses are advanced to deal with these issues; H1: Norms are the second order construct with two sub-dimensions trust norms (H1a) and cooperative norms (H1b) H2: Norms have a positive impact on contractor selection H3: Price has a positive impact on contractor selection H4: Past experience has a positive impact on expertise H5: Finance has a positive impact on expertise H6: Contractor expertise has a positive impact on prequalification H7: Prequalification has a positive impact on contractor selection Data was collected from the Malaysia Real Estate and Housing Development Association (REHDA). A postal survey of 545 housing development companies’ entries in the REHDA registry 2009 / 2010 produced 155 completed questionnaires comprising responses from 64 small size firms; 38 medium size firms and 53 large size firms. The overall response rate was 28.4%. Biases were examined for but none were found. The empirical investigation involved the use of Partial Least Square - Structural Equation Modelling (PLS-SEM); the advanced quantitative data analysis techniques. All results were cross validated by the expert group discussion method. In term of contributions to theory, the aggregate model shows that price and relationship have small effects on contractor selection whereas prequalification has medium effect on contractor selection. Selection criteria such as contractors’ qualification on financial standing, past experience and company expertise have significant effect on selection. Therefore, the higher the contractor qualification in those criteria, the more likely they are to be selected for the job. In terms of contribution to construction management practice, this study offers an understanding of how housing developers in Malaysia select their main contractors. According to the findings of this research, developers especially the larger firms rely less on relationship criterion but prefer to use prequalification in their contractor selection. This study demonstrate that the contractor selection is based on multi-criteria - beyond those traditionally used such as time, quality and cost - also known as “iron triangle”. Using multi criteria prequalification methods helps developers to source for contractors with the necessary capabilities and expertise to match the complexity of projects. This study also highlights the role of developer and contractor relationships as the non–financial criteria (such as cooperative norms and trust norms in contractor selection) especially among small size developers firms.