Abstract:
The construction industry in Pakistan is dominated by a competitive business environment. The pressure on the contractor profit margin has further increased after a prolonged and continuous recession in this sector which has made the competition to get work more intense. Mark-up is the amount added over the cost estimate to cover head office overhead, contingencies or uncertainties and profit. The magnitude of this amount is largely determined based on a subjective criteria derived from experience and judgment. At the time of bidding the contractor must decide the amount of markup that will help him win the job and at the same time will maximize his profit. Any difference between the amount of the winning bid and the next lowest bid is a loss of profit. There are many factors that influence the decision of the contractors on the right amount of markup. These factors can be attributed to client, consultant, project characteristics, tendering situation and overall economy. Identifying the optimum mark-up for a project that will help in winning the tender while at the same time maximizing the profit (i.e. reducing the difference between the lowest and the next lowest bid) is a difficult job. This research examines the factors that contractors perceive to be important when they are considering the size of their bid-markup and determines the current state of practice in determining the optimum mark-up size. The research hypothesis is that the contractor size would have a significant bearing on the factors that would influence the bid mark-up decisions. Fifty four potential factors in seven different categories i.e. project characteristics, project documentation, company characteristics, tendering situation, economic situation, client characteristics and consultant characteristics were identified through literature review. A questionnaire was designed which comprises three parts; part A solicits information regarding the respondent and the firm, part B solicits information on the current practices in mark-up size decision and part C presents 51 identified factors on a five point likert scale. A pilot study was conducted that involved six local contractors to establish the adequacy and appropriateness of the identified factors in the construction industry. The questionnaire was modified based on the results of the pilot study. The final questionnaire consisted of 51 factors identified as appropriate to the construction industry.
