Article

Subcontractor Selection Process Through IIM Kozhikode Society & Management Review
9(2) 129–142, 2020
Vendor Bids: A Case of An Outsourcing © 2020 Indian Institute
of Management Kozhikode
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DOI: 10.1177/2277975220942078
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Shobha Ramalingam1

Abstract
Subcontractors handle a large portion of the work in construction projects. The ability of the general contractor to deliver
projects on time, within budget and with the expected level of quality are significantly dependent on the performance
of subcontractors. Thus, selecting the right subcontractor for the right task is a determining factor for project success.
Literature has identified several criteria for subcontractor selection that predominantly includes financial capacity, ability
to complete on time and reputation and quality of workmanship. However, as projects are becoming more global and
complex, ensuring selection and award through a fair and competitive formal process becomes imperative. Nevertheless,
an understanding of a formal process, backing the selection criteria, seems to be lacking; more so in the context of
engineering outsourcing services. Vendor bid analysis is one such service, wherein the general contractor packages the
bids received from several subcontractors to a team in a different country who evaluate and enable the general contractor
to select and award the subcontractors for project tasks. To this end, an exploratory case study was conducted in an
outsourcing firm in India that provide services to general contractors in the USA to understand the formal process
of subcontractor selection across organizational boundaries along with its inherent risks and challenges. Data was
collected through a participatory research approach, supplemented with participant observation and team interviews
which were analysed through inductive reasoning and cross-case comparison methods. The findings showed a formalized
5-phase process across the organizational interface that included assess, identify, evaluate, negotiate and optimize phases.
Further, delving into the evaluate, negotiate and optimize phases, the nuances in outsourced projects and the firms
strategy to overcome them were evident, such as selection criteria and negotiation strategy adopted in the case of
a single bidder with high pricing to mitigate probable bid-rigging practices or ensuring constant training to overcome
the challenges due to lack of trade and country specific know-how. In addition, through a reflective approach, the value
addition services provided to the general contractor aimed to optimize the process and improve project governance.
These findings are expected to provide practical implication for firms in similar business and act as a steppingstone to
conduct further robust research.

Keywords
Subcontractor selection, vendor bid analysis, outsourcing services, process management, construction projects

Introduction Subcontracting allows the main contractor to transfer a

Subcontracting constitutes a major portion of construction
projects in the architecture engineering and construc-
tion industry. Hoban and Francis (2003) note that one of
the prominent characteristics of a construction project is
the practice of subcontracting a portion of a project by the
General Contractor (GCs) as a part of the overall contract.
portion of his responsibility and associated project risks
to the subcontractor. In view of it, Hinze and Tracey (1994)
contend that the selection of a subcontractor becomes
critical as the ability of the main contractor to deliver the
project within time and budget and with the expected level
of quality depends primarily on the performance of the
subcontractor.

1
Associate Professor, School of Construction Management, and Head, CSCDM, National Institute of Construction Management and Research (NICMAR),
Pune, India.

Corresponding author:
Shobha Ramalingam, Associate Professor, School of Construction Management, and Head, CSCDM, National Institute of Construction Management and
Research (NICMAR), Pune, India.
E-mail: sramalingam@nicmar.ac.in
130 IIM Kozhikode Society & Management Review 9(2)
Prior studies demonstrate that selection of a subcontrac-
tor, to identify a responsive and responsible bidder, is a
multicriteria decision process. For example, studies by
Cooke and Williams (1998) and Shiau, Tsai, Wang, and
Huang (2009) identified subcontractor’s reputation, finan-
cial capacity, quality of workmanship and timely comple-
tion as some of the key selection criterions. Similarly, Doloi
(2009) identifies 43 sub-criteria for a robust selection. On
the other hand, traditional approaches base the selection on
the lowest tender quote received even though researchers
argue that making lowest bid price as the only criterion
for award may not be appropriate (CIB, 1997; CSIR, 2002;
Hartmann, Ling, & Tan, 2009; Lavelle, Hendry, & Steel,
2007). While the debate on the set of criteria is still on, yet
another school of thought opine that having a selection
criterion alone may not suffice and while it is a ‘necessary’
condition, it may not be ‘sufficient’ to ensure a competitive
bidding process. For instance, Bowen, Akintoye, Pearl,
Edwards (2007) throw light on the fact that the selection of
subcontractors is largely based on an ad hoc process due to
reasons such as limited time to conduct a formal process.
However, such ad hoc methods defeat the purpose of fair
competition and judicious evaluation. Thus, taking a para-
digm shift, researchers including CIB (1997), Beil (2010),
Ulubeyli, Kazaz, and Arslon (2017) advocate the need for a
formal procedure for subcontractor selection and proclaim
that subcontractor/vendor/supplier must be selected through
processes such as competition, negotiation, partnering or
joint venture.
In perspective, with the onset of globalization, compa-
nies are becoming more international and competition
fiercer. Multinational engineering firms and global contrac-
tors are adopting global sourcing strategies. With strict reg-
ulatory environments and formal contracting laws backing
the projects, a formal selection procedure for vendors and
subcontractors becomes imperative. Intuitively, it therefore
interests one to explore the process of subcontractor selec-
tion in the global context in order to understand the set of
procedures that entails the selection process along with its
embedded challenges. The next section discusses in detail
insights from the literature that pave way to understand the
theoretical gaps.
Literature Review
In large scale infrastructure projects, around 80–90 per cent
of the project are subcontracted. This is predominantly due
to increased project complexity and uniqueness (Hinze &
Tracey, 1994; Scott, Levitt, & Orr., 2011). Subcontractors
perform specific tasks on a project and in general are of
three types: a) Trade subcontractors such as carpenters or
painters, who specialize on specific trades, b) Specialist
subcontractors such as for tunnel boring or post-tensioning
and pile foundation activities and c) Labour-only subcon-
tractors, who provide skilled and unskilled labour to the
main contractor (Eccles, 1981; Smith, 1995). By subcon-
tracting, the GC can tap on subcontractors’ specialization
and thereby transfer portion of his project responsibility and
the associated project risks to the subcontractor (Arditi &
Chotibhongs, 2005). While this is advantageous, it is also
risky as the overall performance of the contractor depends
on the performance of subcontractors. For instance,
Thomas, Marosszeky, Karim, Davis, and McGeorge (2002)
argue that ‘rectification costs’ in case of poor performance
by the subcontractor could be as high as 12 per cent of the
total project cost. Thus, selecting the right subcontractor
essentially contributes to a project’s success.
Seminal work by Hinze and Tracey (1994) in the United
States and Latham (1994) in the United Kingdom highlight
problems in contractor–subcontractor selection criteria
process due to the predominance of the ‘lowest price win’
philosophy. Subsequent studies in this domain show that
subcontractor selection process is a multi-criteria decision
process which is not solely dependent on the cost of esti-
mate of project tasks. For instance, Cooke and Williams
(1998) and Okoroh and Torrance (1999) observe past expe-
rience, financial strength, management ability to liaise with
the main contractor and quality of workmanship to be sig-
nificant criteria for selection. Other studies include famili-
arity with lean principles (Maturana, Alarcon, Gazmuri, &
Vrsalovic, 2007), contractor’s quality records (Gruneberg,
Hughes, & Ancell, 2007) and subcontractor’s reputation,
quality and time performance (Shiau et al., 2009) as sig-
nificant. Nevertheless, time and again, studies have also
reported ‘price’ to be the dominant factor. For instance,
Lavelle et al. (2007) showed that price still remained the
single prime criterion for selection and suggested assessing
the relative importance of criteria under different scenarios
such as between high and low value work packages. A
study by Hartmann et al. (2009) further assessed the rela-
tive importance of four main criteria that include quality,
price, technical know-how and cooperation but concluded
that ‘price’ is by far the most important selection criterion.
A study by Ajayi, Ayanleye, Achi, and Johnson (2010) also
highlight the trade-offs the main contractor has to make in
the decision-making process, such as based on availability
of equipment, geographic location and project dynamics.
However, in the last decade researchers have identified
multiple criteria. For instance, Doloi (2009) identified 43
sub-criteria for the selection process that included both
quantitative and qualitative factors. Similarly, El-Khalek,
Aziz, and Morgan (2018) categorized 55 criteria under
seven categories to determine the significant factors for
Ramalingam
subcontractor selection including time, cost, reputation,
financial and risk capability. Apart from identifying the cri-
teria, the evaluation process was also developed further.
For instance, Marzouk, El Kherbawy, and Khalifa (2013)
conducted a statistical analysis to identify significant crite-
ria from several influencing factors previously identified in
the literature including cost, quality, technical capability,
management capability, health and safety, reputation and
time. Thus, it can be inferred that advances in subcontrac-
tor selection methodologies has made a shift from the sin-
gle criterion of price only to multiple performance criteria
using robust evaluation techniques.
Further, though several performance based criteria
along with framework and approaches exist for subcon-
tractor selection, literature also highlights the fact that the
main contractor tends to select subcontractors by neglect-
ing the key criteria of performance and rather chooses to
adopt unfair, ad hoc and biased selection practices (Bowen
et al., 2007). As informed by Mbachu and Nkado (2007),
perhaps this explains the poor performance scenario on
construction projects globally. However, with the onset of
globalization, companies are becoming more international
and competition fiercer. With strict regulatory environ-
ments and formal contracting laws backing the projects, a
formal selection procedure becomes imperative. A review
of literature in the international context demonstrates the
procedural steps followed in the selection process. For
instance, studies by Kakabadse and Kakabadse (2005) and
Beil (2010) discuss the supplier selection process in inter-
national projects and in outsourcing strategies. These stud-
ies emphasize the need for a formalized selection process.
For instance, Beil’s (2010) study recommends adopting
a 5-stage formal procedure comprising of: identifying
suppliers, soliciting information from suppliers, setting
contract terms, negotiating with suppliers and evaluating
suppliers for a robust selection. Similarly, CIB (1997)
advocates the need for a formal laid-down procedure ena-
bled through strategies such as competition, negotiation,
partnering and joint ventures. They further posit that the
principles of good selection practice must include: a) clear
procedures that ensure fair and transparent competition
among all subcontractors, b) a systematic tendering
process to identify and shortlist the number of qualified
candidates and c) negotiations and final assessment prior
to awarding of the contract. Observing the caveats, CIB
(1997) also informs that the entire selection process is
time consuming and require expertise to align with the
formal contract of the project, probably a prime reason that
deters main contractors from systematically adopting a
formal selection procedure for the award of subcontracts.
Interestingly, Ulubeyli et al. (2017) took a step further
to conceptualize the selection criteria with the phases of
131
subcontractor selection process in an international project.
For instance, in the first stage, shortlisting comprised of
10 criteria that included past performance, experience and
financial strength. The second stage, negotiation included
seven criteria such as knowledge of project, ability to solve
problems and reliability. Finally, the third stage, selection
included seven criteria such as price, labour, payment plan
and equipment. Thus, both a formal process and criteria for
selection in each phase was significantly highlighted.
In perspective, several countries impose a cap on the
project cost that allow for either informal or formal bidding
practices. For instance, according to the public contract
code 10504.5 stipulated by the State of California in the
USA (UCOP, 2015), competitive bidding practices for
construction services allow informal bidding up to $300K.
Projects over $300K require the GCs to select qualified
subcontractors and for contracts over $640K, GCs must
follow a formal bidding process. It is therefore evident that
the selection criteria per se, though collectively exhaustive,
may not be independent and mutually exclusive. Adding
further, selection criteria, though a ‘necessary’ condition,
may not be ‘sufficient’ to ensure selection of a responsive
and responsible bidder through a fair and competitive
bidding process. This insight brings in a paradigm shift in
our focus and triggers our interest to look at the formal
selection procedures that back the subcontractor selection
criteria, more so in international projects.
One of the lucrative business model in the international
context for construction projects is the global sourcing
strategies, namely ‘outsourcing’ and ‘offshoring’ services,
that provide global and multinational engineering firms the
needed advantage to concentrate on delivering their core
competencies while contracting out non-core project tasks
such as structure detailing works and development of
Good-for-Construction drawings. Other benefits include
availability of a global talent pool, round the clock work
execution and price optimization on project tasks (Lewin
& Peeters, 2006). In the recent past, several construction
contractor firms have also adopted the strategy of outsourc-
ing to contract with third party service providers, either
within (domestic outsourcing) or outside the country (off-
shore outsourcing) for services such as cost estimation and
quantity take-off, developing simulated models, third-party
design checking and so on (Lane, Maznevski, Mendenhall,
McNett, 2004). Apart from the stated benefits, yet another
major reason for the popularity of this strategy among the
GCs in the US construction industry is that approximately
80 per cent of the firms have fewer than 10 employees (CIB,
1997). On the other hand, ‘offshoring’, the practice of sub-
contracting a part of the project task to their own subsidiary
in another country, is more predominant with multinational
engineering firms (Messner, Chen, & Joseph, 2007).
132 IIM Kozhikode Society & Management Review 9(2)
A significant part of a contractor’s work that is out-
sourced is project cost estimation, which is principally
through vendor bid analysis technique. PMBOK® (2013)
states it as a structured formal process initiated by the GC
to systematically select and award the project to vendors
or subcontractors. This technique allows the GC to esti-
mate the project cost by comparing the bids submitted
by multiple qualified vendors/subcontractors. However,
the parameters of cost estimation that are crucial and deter-
mine competitive vendor selection include accuracy, confi-
dentiality, credibility, precision, reliability, risk detailing,
uniformity, validity and verification. PMBOK® (2013,
p. 207) also observes that ‘when projects are awarded to a
vendor under competitive processes, additional cost esti-
mating work may be required of the project team to exam-
ine the price of individual deliverables and to derive a cost
that supports the final total project cost’. While such tech-
niques aim at ensuring a fair and competitive bidding
process, a highly debated topic in the literature with respect
to the contractor and subcontractor selection process is
the unethical bidding practices such as underbidding, bid
cutting and shopping, bid rigging and overbilling (Azhar,
Selph, & Maqsood, 2011; Olusegun, Benson, Esther, &
Michael, 2011). For example, in a recent study in the
Middle East, Shah and Alotaibi (2017) demonstrate that
top three contractor-related factors leading to unethical
bidding practices were withdrawal of an offer in exchange
of money, bid shopping (such as divulging one’s bid to
other competitors prior to award, in order to secure a low
bid) and bid rigging (wherein, competitors conspire to
allow one another to secure contracts at raised prices).
Cognizant of this fact, measures are laid down by various
regulatory authorities to curtail such practices. For instance,
the National Code of Practice has laid down nine key moral
standards for fair bidding that include tenderers should not
take part in any type of collusive practice and ought to be
prepared to prove their probity. However, in essence, these
are some of the challenges and known risks that the con-
tractors must be aware of to ensure a fair bidding.
Reflecting on the above, it is evident that frameworks
and criterions exist for robust subcontractor selection.
However, the lack of a formalized selection process and
adoption of ad hoc and biased procedures defeats the pur-
pose of a fair and free-market competition. Thus, the focus
of this study is primarily to understand the subcontractor
selection process and the formalized process sequence
in it rather than on identifying criteria for subcontractor
selection. While Beil (2010) proposed a 5-stage selection
process (identify supplier, solicit information, set contract
terms, negotiate, evaluate/award), Ulubeyli et al. (2017)
identified three stages (shortlisting, negotiation and selec-
tion). Instinctively, it can therefore be inferred that vendor
selection is a process by which firms primarily identify,
evaluate, negotiate and contract vendors/subcontractors/
suppliers. However, in the global context, such as in an out-
sourcing strategy, there is limited literature that informs of
the formal procedure for the selection process. A compre-
hensive understanding on the various phases that entail the
process and the sequence of activities in it is still lacking.
Motivated by these insights, this study tries to understand
the vendor selection process in an outsourcing context and to
this end explores the following two research questions:
a) What are the various phases and activities involved
in the subcontractor selection process in an out-
sourcing strategy?
b) What are the challenges in the process and how does
the outsourcing team optimize and add value to the
process?
Research Methodology
The study required investigating on the life cycle of a
project across organizational and national boundaries. Due
to the exploratory nature of the study, participatory research
approach was adopted. Participatory research is based on the
principles of participation and self-inquiry and is viewed as
an alternative to the conventional qualitative social research
that allows for rich data collection, a prerequisite for explor-
atory studies (Eisenhardt, 1991). The fundamental principle
of this approach is that it is research with rather than on
people (Heron & Reason, 1997; Reason & Bradbury, 2008;
Reason & Heron, 1986). It is also synonymously associated
with ‘action research’ and termed as ‘participatory action
research’. However, researchers like Bell et al. (2004) con-
tend that while there are several points of convergence in the
two methods, such as ‘orientation to inquiry’, there are also
certain distinctive features. For instance, in a participatory
research, the emphasis is on ‘collaborative research’ activi-
ties rather than on ‘action’. Hence, while reflection is conse-
quential in action-based research, it may not be in the case
of participatory research and the outcome of a participative
research may lead to new insights and broadens perspec-
tives, such as on processes or every day practices (Lewin,
1946; Kindon, Pain, & Kesby, 2007).
Data was collected through participatory research
approach wherein a research student was stationed in an
outsourcing firm in India for a period of two months, from
April to June 2018. The outsourcing firm contracted work
primarily from engineering or contractor firms in the USA
to execute tasks such as building information modelling
and conditioning, predictive data analysis, project cost esti-
mation and quantity take-off, bid support service such as
Ramalingam
production tracking and document control for projects. Two
projects were selected for the study, namely Project Hill and
Project Crest (pseudo names to maintain confidentiality),
which were ongoing during the researcher’s stationed period.
Both were renovation projects of a school building, each
of which was budgeted at a cost of 15 to 20 million USD.
These two projects were packaged by a GC from the USA.
The work was contracted to prepare the bid package and
provide support in the vendor (subcontractor) selection pro-
cess. The researcher was part of a team of 3–5 people, who
executed the tasks on the two projects. Data primarily col-
lected through participant involvement was further sup-
ported through observations and semi-structured interviews.
The interviews were open-ended in nature and were con-
ducted post the completion of the project task with the team
members. Data was analysed using inductive reasoning
technique and compared across the two cases to enable
rationalization of the data (Yin, 2003). The results and the
findings are discussed in the following section.
Case Findings
This section is divided into four parts. Process flow Sequence
and Project Phases identifies the flow sequence of the pro-
cess across the organizational interface. Remaining subsec-
tions focus on each of the sequence phases in depth. Vendor
Selection Criteria and Negotiation Strategy discusses the
vendor selection criteria, Process Challenges and Coping
Methods identifies the challenges faced in the process and
the coping mechanisms adopted and Improving Project
Governance discusses the team’s initiatives to improve
project governance.
Process flow Sequence and Project Phases
A work order was foremost contracted between the client
(the GC) and the outsourcing firm for a defined work pack-
age with specified deliverables. The sequence of workflow
and the activities involved in the work package were as
follows:
Project drawings and specifications were received from
the GC as a pdf file that included architectural, civil, struc-
tural, landscape, mechanical, electrical and plumbing details.
The tasks for the team in the outsourcing firm was primarily
to assess the scope and estimate quantities. This included
reviewing the design, organizing the drawings using
Bluebeam software, formatting the drawings with company
custom sequence orders, developing document control for
drawings and creating a ‘bookmark’. Quantity take-off was
then carried out for each element of the building using
133
On-Scree-Take-off (OST) software. Further tasks included,
developing document control for specifications and adden-
dums and preparing a summary bid sheet with the scope of
work and quantities identified.
This bid sheet was then dispatched to the GC, who
based on the identified scope and quantity of work in the
project, invited tenders from subcontractors or vendors by
floating a Request for Proposal (RFP) or Request for Quote
(RFQ). This phase was primarily executed by the GC.
However, it was critical to identify a minimum number of
viable and potential subcontractors to drive competition
and reduce disruption risks. On receipt of the bids, the
GC would package them back to the outsourcing firm to
analyse and evaluate the offers.
Received bids were evaluated to compare the pricing
strategy of the subcontractors for the given scope of work.
This task resulted in the preparation of a bid book. The
bid book was a comprehensive document that informed
about the number of subcontractors/vendors competing for
each task of the project, the bid amount and the percentage
of cost involved (to the total cost of the project) for the bid
packages.
The bid book was then dispatched to the GC with infor-
mation on the major scope of work in a project and the
bidders proposed cost estimates along with a list of short-
listed subcontractors with selection criteria and negotiation
strategy. Based on the negotiation between the two parties,
the subcontractors re-submitted a bid, which was then re-
evaluated at the outsourcing unit. Thus, the entire process
was repeated between the client and the outsourcing team
till the final selection and awarding of the contract to the
vendors/subcontractors for the specified tasks of the project.
The role of the outsourcing firm would either culminate
post the selection and awarding of the subcontractor or
based on the contract between the GC and the outsourcing
firm, both parties would monitor and manage the vendors
till the completion of the scope of the work. In this study,
while the outsourcing firm was not involved in the vendor
management process, they undertook activities to optimize
the selection process, improve project governance and pro-
vide value-added services to the client. Figure 1 illustrates
the set of tasks involved at the offshore and onshore unit
and the sequence of the workflow across the boundaries.
In particular in this study, the received work package
included 250–300 drawings for each of the two projects.
Figure 2 shows a sample of the drawing received in the
work package and the estimation and quantity take-off
done using the OST software, wherein, each element was
colour-coded and the quantity estimated.
Further, during the review process, the teams in the
outsourcing firm interacted virtually with the client team
over e-mail and telephone for analysis and clarification
134 IIM Kozhikode Society & Management Review 9(2)
Figure 1. Process Flow Sequence
on the project. The following vignette from one of the
respondents during an interview elucidates the Request for
Information (RFI) raised:
In case some component is mentioned in the drawings but the
description of that component is not given in specification
or insufficient data is provided, then we enquire about it to
the architect/engineers of the client to get the relevant data.
On-screen take-off sheet is done accordingly and made avail-
able for rectifications, if necessary.
Some of the clarifications made included: a) Are metal
lockers present in the project? b) There is a door marked on
sheet no. XXX but no description is given for that. c) In the
specifications, two types of canopies are described but, in
the drawing, only one type is mentioned. d) Dimensions of
Figure 2. Quantity Take-off Using OST Software, Project Crest
laundry equipment are different in specifications and draw-
ings. The responses from the client were primarily over
mail were: a) It is on sheet no. XXX. b) Wait for addendum
1. c) It is in addendum 1. Please refer to it. d) Go as per the
specifications.
As discussed, a bid sheet was generated and dispatched to
the client (the GC) to inform about the scope of the work,
various tasks and the quantities involved in the project. It
required four weeks for the team to prepare the bid sheet
based on which the client initiated the bidding process and
invited tenders from local subcontractors and vendors. The
received bids were subsequently packaged back to the team
in India for evaluation of the bids and preparation of a bid
book for each project. Preparation of a bid book required a
duration of 10 days.
Ramalingam
Probing further, the next three subsections provide a
detailed understanding on the Evaluate, Negotiate and
Optimize phases to unearth critical aspects of the process.
Vendor Selection Criteria and Negotiation Strategy
This subsection focuses on the activities in the Evaluate
and Negotiate phases to understand the bidder selection
criteria, the negotiations that take place with respect to the
bid amount and the nuances involved. When multiple bid-
ders submitted their bid, the bidder with the bid amount
closest to the actual price estimated by the outsourcing
team was shortlisted and communicated to the GC. Figure
3 shows a sample of the bid list created. The highlighted
rows in green were the selected bids in each category. For
instance, for concrete, 11 bids were received. The vendor
with a bid amount of $1,694,847.00 was shortlisted.
Revised bids had to be received when a bidder was found
to have included only a limited scope in the estimate or had
submitted an incomplete bid. Such practices ensured accu-
racy in the cost estimate and functioned as a warning signal
to the main contractor.
As informed by the respondents, the negotiation strategy
was with respect to number of bidders and the bid amount.
Figures 4(a) and 4(b) shows a sample of the bid package for
projects Crest and Hill respectively, that include information
on the bid amount, percentage of the bid amount to total cost
of the project and the number of subcontractors / vendors
competing for the various project tasks.
Figure 3. Selection Criteria of Bid Amount
135
Scope of work with larger bid amount and minimal
competitors was of significant concern to the GC as shown
in red in Figures 4(a) and 4(b). The pricing strategy by
the vendors/ subcontractor had to be examined critically.
In certain instances, only one bid was received for tasks
with a larger scope of work, leading to no competition and
with a possibility of higher pricing strategy put forth by the
vendor. For example, in the case of Project Crest, it was
observed that electrical works accounted for 11.99 per cent
of total project cost and the bid amount quoted was
$1,140,000.00, highest tender amount (see Figure 4(a)).
A similar scenario was observed for plumbing works
with 9.92 per cent of total cost and an amount of
$1,574,000.00 in Project Hill (see Figure 4(b)). Only one
quotation was received for those tasks. On being informed
by the outsourcing team, the GC subsequently sought more
quotations for this work package from other bidders and, in
the process, anticipating a stiff competition, the first bidder
also revised his quotation and resubmitted his bid, presum-
ably by reducing his profit margin, as informed by one of the
team members in the firm. This process consequently led to
optimizing project costs and helped to take account of the
bid value for future projects.
Figure 5 shows various bidder scenarios. Figure 5(a)
shows a 0 to 2 bidder scenario, wherein wherein, there
were instances when no bids were received for tasks such
as foundation, metal stair nosing, rough carpentry and
re-roofing. Figure 5(b) shows instances of single bidder for
tasks such as glazing, fire alarm, electrical and laboratory
136 IIM Kozhikode Society & Management Review 9(2)

Figure 4(a). Bid Package, Project Crest

Figure 4(b). Bid Package Sample, Project Hill

equipment installation and Figure 5(c) shows instances of
3–5 bidders for tasks such as door frame, drywall, plumbing
and mechanical respectively.
In such situations, it was crucial to inform the client and
receive more bids wherever there was only one bidder (or
no bidder) in order to ensure a fair competition, ethical bid-
ding and project cost optimization. This entire exercise was
therefore iterative till the final selection of subcontractors
and vendors for the project tasks.
Process Challenges and Coping Methods
This subsection focuses on the activities in the Evaluate
and Negotiate phases to understand the process challenges.
‘Accuracy’ in estimate and ‘document control’ were two
major ingredients for successfully executing the work
packaged by the client as informed by one of the respond-
ents. However, the team faced three major challenges:
Foremost was the lack of knowledge on different trades
that led to inaccurate estimates by the outsourcing team,
which in turn led to providing the client with inappropriate
selection criteria. This also often led to rework. Respondents
from the outsourcing firm informed that re-work in projects
had often led to 20 per cent or more increase in total project
costs and eventually resulted in loss of goodwill. To over-
come this challenge, the outsourcing team insisted bidders
quantify the scope and bid quotation as per the work break-
down structure of the respective trades. Further, to diffuse
this knowledge, the team members were constantly provided

Figure 5(a). 0–2 Bidder Scenario Figure 5(b). Single Bidder Figure 5(c). 3–5 Bidders
Ramalingam
Figure 6. Combined Vendor–Cost Comparison Across Projects for Major Activities
with in-house training on country-specific trade activities
and estimation techniques.
Second, the bidders would submit a lumpsum quote for
the tasks instead of a detailed item rate quote. This would
lead to ambiguity in the scope of work and result in a
discrepancy in the bid amount. In certain instances, the
bidders would refuse to re-submit the bid as an item rate
quotation even if it was insisted. Such quotations were
risky, and an accurate estimate and selection criteria were
challenging.
Third, the selection criterion was more often based on
the lowest bidder. However, certain vendors/subcontractors
would quote for multiple tasks in the project. While the bid
analysis helped to identify the quantum of work for which
the vendor submitted a bid, it was difficult to assess the
capability of the subcontractor to perform multiple tasks.
It was therefore required to assess the vendor’s current
workload and other parameters including reputation and
past experience by the GC. However, due to time constraint,
this was not always possible and it caused a discrepancy in
judicious selection, leading to poor project performance
post bid award.
Improving Project Governance
This section focuses on the activities in the Optimize phase
to understand the team’s effort to optimize the process.
Through a process of self-inquiry and as an effort towards
improving project governance that could enhance the abil-
ity of the GC to select vendors/subcontractors for future
works with little variation in pricing strategy, the teams
developed several value-addition processes. One such ini-
tiative was to compare the major activities in a project that
contributed to a larger scope of the work with higher cost
component across all projects in order to identify the opti-
mum cost of execution and economize on project costs.
Ten major activities were thus identified that had a higher
137
cost component in most of the projects. They included con-
crete works, masonry works, structural steel combo, roof-
ing system, glass and glazing, drywall and ACT, plumbing,
mechanical, electrical works and site utilities. An in-depth
analysis allowed the team to arrive at a standardized unit
rate for each of the above activities. This in turn helped
to educate GCs on market rate per unit of quantity and
standardize the bid practices. Figure 6 shows the combined
vendor–cost analysis across projects that led to identify the
rate per unit of a quantity.
Such value-added initiatives by the team led to minimiz-
ing of variation and disparity among the contractors of vari-
ous projects and thereby improved project governance. Yet
another initiative for improving project governance included
providing bid tracking features as an add-on to enable the
GC to compare and analyse the bids according to inclusion
or exclusion of the work scope during project execution as
against the contracted work package and sum. This service
aided the GC to monitor and manage vendors with ease, in
case the outsourcing team was not involved post selection of
the subcontractors, until project completion.
Discussion
This study explores the subcontractor selection process in
an outsourcing strategy. Foremost, the study identifies five
phases and the activities involved in each phase of the
process flow sequence (see Figure 1). The identified five
phases and the flow sequence is as follows:
Assess à Identify à Evaluate à Negotiate à Optimize
Based on insights from practice theory put forth by Barley
and Kunda (2001) and Feldman and Orlikowski (2011), the
phases in the life cycle of an outsourcing project from the
time when work is contracted with an outsourcing unit and
138 IIM Kozhikode Society & Management Review 9(2)
packaged for execution till task completion and handover
to the client are coined as verbs. This framework further
identifies the activities involved in each of these phases
(see Figure 1), which is a significant contribution of this
study. Comparing and contrasting the five phases in this
study with the procedural steps put forth by Beil (2010), a
distinction was evident in the outsourcing context. For
instance, the outsourcing team evaluated the received bids
in Stage 3, compared and verified the quantities estimated
by the vendor and assessed its accuracy to the defined
scope. Based on the assessment, bidders were shortlisted,
and the GC was informed for further evaluation and
negotiation. It is therefore proposed that in Stage 3, the
process sequence would be the Evaluate phase. However,
post negotiation, re-assessment and re-evaluation would
take place, prior to final selection and award of the contract.
Additionally, it was observed that in the Assess phase, the
outsourcing team assessed the project scope, estimated
quantities and informed the client (the GC) of various
subcontracting tasks based on which the client floated a
notice inviting tender (RFP) to solicit information from the
vendors in the form of quotations. This was an activity in
the Identify phase and therefore not earmarked separately
from solicit information phase as proposed by Beil (2010).
Further, setting contract terms was not carried out by the
outsourcing team on the two projects and therefore it is not
considered as a separate work practice in this study.
Second, through this framework, a comprehensive under-
standing can be drawn on the pre-selection, the Assess phase
and post-award, the Optimize phase, in the process sequence.
These activities are not evident or significantly informed
in the existing literature. For instance, the GC foremost
dispatched the project scope as a bundle of drawings to the
outsourcing firm. The team in the outsourcing unit had to
subsequently review, organize, assess the scope of work and
prepare a bid sheet, based on which the GC would float a
tender or RFP. This Assess phase was quite critical to iden-
tify all necessary tasks for which the GC would invite bids
and subcontracts. Proper understanding of the project scope,
good knowledge of the local regulations and by-laws of
the country where the project was being commissioned
and sound technical know-how to accurately - estimate were
critical parameters at this phase for the outsourcing team.
This also meant that the outsourcing unit had to develop
technical and managerial competencies to handle contrac-
tual technicalities and legal know-how in the global context
(Leonardi & Bailey, 2008; Mahalingam & Levitt, 2007).
Subsequently, in the Optimize phase, if vendor management
was part of the contract of the outsourcing firm, then transi-
tioning the contracted scope of work and resources to the
vendor/subcontractor for execution and monitoring the task
completion comprised the vendor management portfolio.
In this study, the outsourcing team did not manage the ven-
dor portfolio post vendor selection and bid award. However,
reflecting on the sequence of tasks performed and to add
value to the services provided, the outsourcing team took the
initiative of comparing a total of 10 bid books developed
during the same period to establish the vendor selection cri-
teria and arrive at a standard unit rate for every quantity, an
important information that would standardize the bid rates
across projects and aid clients in a judicious vendor selection
process. Such initiatives aimed to optimize the process and
maintain a long-standing relationship with the clients and
improve project governance. ‘Optimize’ was thus an opera-
tional responsibility which continued till the termination
of the contract. Deloitte (2013) argue that this phase could
ensure that the vendor execution was optimally managed
and continually improved through constant feedback in the
operation and by also looking ‘inward’ into the process and
the organization. The benefits would then include continual
improvement of the agreed governance model, long-term
planning and impact assessment for effective contractual
obligation.
Third, in this study, the Negotiation phase culminates
into a ‘contract’ unlike the study by Beil (2010) wherein
‘negotiation’ and ‘contract’ are two distinct phases. The
negotiation strategy explored in this study was with respect
to the selection criteria, bid amount and the number of
competing subcontractors. Further, Beil (2010) argue that
the negotiation processes in practice may combine take-it-
or-leave-it offering, competitive tendering and bargaining.
This aspect was evident in this study. The negotiations
were in fact a trade-off between various dimensions such
as price and time. For instance, high price and shorter task
duration vs low price and longer duration. As Beil (2010)
informs, the challenge lies in constructing the trade-off for
a ‘win-win’ strategy to both parties. When the bids were
negotiated, vendors were inclined to revise and re-submit
the bids, which had to be re-evaluated and. if necessary,
re-negotiated, till final selection and award of the contract.
Thus, the entire process was iterative in nature, more spe-
cifically in the evaluation and negotiation phases between
the vendors, the GC and the outsourcing team.
Fourth, multiple bids for a particular task ensured fair
competition and pricing strategy. Hence, to induce competi-
tion and avoid overpriced bid estimates, especially in cases
where there were less than three bidders, the GC would
invite further tenders. During such instances, it was interest-
ing to note that the initial bidder would revise his quotation
anticipating a stiff competition. In essence, such negotiation
strategies curtail malpractices such as ‘bid rigging’ (Porter
& Zona, 1993). The Competition Act 2002 (Competition
Commission of India, 2000) has laid provisions related to
‘bid rigging’ and connote that subcontracting arrangements
Ramalingam
are often part of a bid rigging scheme wherein competitors
who agree not to bid or to submit a losing bid collude to keep
the bid amount at a predetermined level, thereby stifling
fair market competition. In such instances, the rigged price
could be higher than the competitive bidding price. This was
explicitly evident in the two projects explored as explained
in subsection Vendor Selection Criteria and Negotiation
Strategy. Bid rigging is an illegal and fraudulent practice, a
criminal offense that can be investigated in the Court of Law.
Bid rigging practice have some sort of monetary benefit for
the bidders. For instance, a low bidder may agree to with-
draw their bid in favour of the next low bidder in exchange
of a lucrative subcontract in the next project or so. OECD
(Organization for Economic Cooperation and Development)
countries that support free-market economy have estab-
lished stringent laws to curtail this practice and suggest
designing the tender process to maximize participation
(OECD, 2013). Researchers like Foremny and Dorabialski
(2018) say that one practical way to prevent collusion is
to expand the list of potential bidders by inviting a wider
group of qualified subcontractors or suppliers to participate,
as was also evident in this study. Further to ensure this prac-
tice, they suggest that effective competition can be enhanced
if a sufficient number of credible bidders are able to respond
to the invitation to tender and have an incentive to compete
for the contract.
Fifth, the process challenges evident in this study were
quite interesting and relate to earlier studies that reflect
these aspects significantly in the literature such as due to
cultural and institutional differences across national bound-
aries; lack of local knowledge (Mahalingam & Levitt, 2007;
Scott et al, 2011); interpretation issues in construction
drawings; communication challenges due to technology-
mediated interaction and complexity in projects (Leonardi
& Bailey, 2008; Iorio, Peschiera, Taylor, & Korpela, 2011)
augmented with the need to ensure ‘accuracy’ and ‘reliabil-
ity’ in cost estimation (PMBOK®, 2013). Providing con-
stant ‘training’ on local work practices and construction
methods was one of the coping mechanisms adopted by the
firm in this study as is also explicitly informed in the litera-
ture. The outsourcing team depended heavily on the GC as
a ‘knowledge broker’ for clarifications and understanding.
However, the team also informed that they looked at the
possibility of accessing additional information through
advanced technology instead of heavy reliance on the GC as
is evident from the vignette below:
From our experiences, and assessing our performance and
challenges, we can say that it can be improved by better col-
laboration and coordination using the latest technologies to
access additional information instead of singularly depend-
ing on only one source of information, the client, and also to
improve understanding the scope, accuracy in estimates and
139
reliability of documentation, which eventually would help in
reducing rework due to wrong assessment of the bid package
and estimate.
Apart from training to overcome the issues due to lack of
knowledge of specific trades, the team also proposed to the
GC to request for a detailed breakup of the vendors’ esti-
mate according to the work breakdown structure of their
respective trades in the RFP. These insights address the
second research question in this study.
Finally, it was noted that when bidders bid for multiple
tasks, it was a challenge to assess their current workload
and capacity to execute multiple tasks in the project.
Decisions had to be taken for sole-award contracting vs
multiple-award contracting based on selection criteria such
as timely completion, reputation, financial capability, qual-
ity of work and the price. On this aspect, Beil (2010) argue
that there could be many other considerations for such
decisions. For instance, to avoid monopoly and continued
presence in future projects, multi-award contracting could
be favoured. Alternatively, sole-award contracting would
be beneficial when it is unduly costly or risky to deal with
multiple suppliers (subcontractors).
In short, it was significantly evident that both a formal
procedure and selection criteria complemented each other in
the process. Selection criteria or a formal procedure alone
did not suffice for a robust selection. Further, as noted in the
literature, ‘accuracy’ in estimation and ‘document control’
were critical governing principles.
Conclusion
This study aimed to explore the bidding procedure in the
subcontractor selection process through an outsourcing
strategy in construction. Two projects were selected in an
outsourcing firm in India that contracted with a GC in the
USA to support subcontractor selection process using
vendor bid analysis technique. A participatory research
approach to the study ensured rich insights on the formal
procedure adopted. A process flow chart was developed
that illustrated the sequence of workflow through five
phases across the organizational interface. They include
a) Assess, b) Identify, c) Evaluate, d) Negotiate and e)
Optimize. An understanding of the activities in each phase
and the process sequence addresses the first research ques-
tion and is a major contribution for improved theoretical
understanding.
Second, it was evident that a formalized procedure was
necessary, which would complement the subcontractor
selection criteria in the evaluation and negotiation phases
of the process. Thus, while vendor bid analysis is by itself
140 IIM Kozhikode Society & Management Review 9(2)
a structured technique to systematically evaluate and select
vendors/subcontractors (PMBOK®, 2013), nonetheless, it
required to be backed by two factors: a) a robust formal
procedure wherein ‘accuracy’ of information, ‘document
control’, ‘reliability’ and ‘verification’, all of these param-
eters are critical and b) subcontractor selection criteria for
judicious evaluation and negotiation in order to identify
responsive and responsible bidder.
Third, the nuances involved in the process and the mana-
gerial implications to overcome the same were evident by
delving deeper into evaluate, negotiate and optimize phases
of the process flow sequence, which addressed the second
research question. For example, during instances of a single
bidder or less than three bidders with high pricing, the GC
was informed to invite more bids. In such situations, single
bidders were also found to revise and resubmit their bids.
Such selection criteria and negotiation strategy ensured
curtailing the probability of unethical practices. Further,
providing in-house training on trade-specific activities
or country-specific construction practices or requesting a
breakup of the submitted estimate based on bidders trade
specific work breakdown structure, were some of the mech-
anisms adopted to overcome interpretation issues and to
ensure reliability and accuracy of the bid estimate for judi-
cious selection of a responsive and responsible bidder.
This study suffers from certain practical limitations. For
instance, the subcontractor selection criteria that can back
the formal process, such as during the evaluation and nego-
tiation stages, were not explored. It was apparent in this
study that the teams in the outsourcing unit primarily based
their evaluation on the pricing strategy of the bidders and
had limited knowledge on the bidder’s pre-qualification as
well as selection criteria, which predominantly influenced
vendor selection. It would therefore be more holistic to iden-
tify the selection criteria that are critical in the various stages
of the process. Taking forward, future studies could also
explore the correlation between vendors’ pre-qualification
and selection criteria along with the stages of construction to
make the framework more robust, especially in the context
of engineering outsourcing services. In perspective, though
the findings cannot be generalized due to a single firm analy-
sis, it is believed that the developed process flow chart with
an understanding about its challenges can benefit practition-
ers in similar settings to eliminate or minimize contractor’s
risk for improved project performance and delivery in the
construction industry.
Acknowledgement
I would like to acknowledge the contribution of Mr. Vishu
Goyal, former post graduate student in Advance Construction
Management at NICMAR, Pune for being part of the study and
instrumental in collecting data and compiling the results. I am
profoundly thankful to the team in the outsourcing firm for their
time and support during data collection and analysis and for
sharing information on two of their projects for academic and
research purpose.
Declaration of Conflicting Interests
The author declared no potential conflicts of interest with respect
to the research, authorship and/or publication of this article.
Funding
The author received no financial support for the research,
authorship, and/or publication of this article.
ORCID iD
Shobha Ramalingam https://orcid.org/0000-0003-4026-5866
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