Risk Analysis Approach to Selection of Contractor Evaluation Method

Abstract

Every project owner is faced with the contract administration decision of what evaluation method to select to adequately establish and ensure the qualification of candidate construction contractors. The evaluation methods available include (1) owner-contractor prequalification, (2) surety bonding, or (3) owner-contractor prequalification along with surety bonding. This paper describes an investigation into these evaluation methods and their impact on project outcome: (1) failure or (2) nonfailure. Failure is defined in this study as a significant breach of the contractor's legal responsibilities to the owner (for example, bankruptcy or material breach of contract related to meeting desired project objectives such as cost, schedule, and quality). Data were collected using a questionnaire survey and personal interviews. With regard to the questionnaire survey, 85 different organizations responsed and provided a total of 120 projects; 47 involved a contractor failure. Twenty industry experts provided probabilities associated with the various project outcomes. Expected value theory is used to determine _expected outcomes of relevant project performance parameters. Results demonstrate that _better owner-contractor evaluation leads to enhanced project performance.