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Factors influencing tender pricing strategies of construction SMEs in Ghana

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Factors influencing tender pricing strategies of

construction SMEs in Ghana

Ernest Kissi, Kofi Agyekum, Benard K. Baiden, Tannor Reuben Agyei, Bridget
Tawiah Badu Eshun & Edward Badu

To cite this article: Ernest Kissi, Kofi Agyekum, Benard K. Baiden, Tannor Reuben Agyei,
Bridget Tawiah Badu Eshun & Edward Badu (2019): Factors influencing tender pricing strategies
of construction SMEs in Ghana, International Journal of Construction Management, DOI:
10.1080/15623599.2019.1625995

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INTERNATIONAL JOURNAL OF CONSTRUCTION MANAGEMENT
https://doi.org/10.1080/15623599.2019.1625995

Factors influencing tender pricing strategies of construction SMEs in Ghana

Ernest Kissi, Kofi Agyekum, Benard K. Baiden, Tannor Reuben Agyei, Bridget Tawiah Badu Eshun and
Edward Badu
Department of Construction Technology and Management, Kwame Nkrumah University of Science and Technology, Kumasi, Ghana

ABSTRACT KEYWORDS
Pricing strategy is a critical aspect of how a firm generates its revenue or profit and as such, it Pricing strategies; small-
remains an issue of prime importance to the construction industry. This article examines the medium enterprises (SMEs);
relationship between factors that influence tender pricing and pricing strategies of SMEs con- partial least square
structural equation
struction firms in relation to competition-based, value-based and cost based pricing. In this art- modelling; Ghana
icle, Partial Least Square Structural Equation Modelling (PLS-SEM) is used to establish the
relationship between factors that influence tender pricing and pricing strategies (constructs)
derived from an analytical review of literature, coupled with a pilot study. The view of pricing
experts working with SMEs construction firms was solicited using a structured questionnaire.
Results showed that all nine constructs that were considered and that influence tender pricing
had a high influence on the three pricing strategies identified (Cost – Based, Value – Based and
Competition – Based). The findings of this study may be useful to SMEs construction firms in
pricing as it will serve as a measure for achieving maximum profit. The study demonstrates how
tender pricing factors can influence the choice of pricing strategies using PLS-SEM analysis
based on the perspective of the SMEs.

Introduction price competition that result in low profit margins.

Pricing is a process of determining what manufac-
turers receive in exchange of their products. Price is
one of the most flexible elements of the marketing
mix, which interferes directly and in a short term
over the profit-ability and cost effectiveness of a com-
pany (Simon et al. 2008). Price remains a critical vari-
able in every industry because it serves as the main
regulator of any economy, and as such, it allocates
the factors for production (Kumar 2016). Guerreiro
et al. (2012) argues that price is a vital variable in
other crucial dimensions such as profitability, market
share, product image and signalling of product qual-
ity. Pricing of construction contracts has been
regarded as a composite task due to the fragmented
nature of the industry. The competitive nature of the
industry allows for contractors to bid for contracts
while dealing with uncertainty and risks (El-Sayegh
and Rabie 2016). Pricing has become management’s
most vital conclusion in marketing activities and is
the chance for achieving the balance for an enterprise
to operate in a free economy (Mochtar and Arditi
2001). Lin and Chen (2004) elaborated that contrac-
tors are responsible for the long-term problem of
Mochtar and Arditi (2001) also revealed that unlike
other industries, dealings and contracting in the con-
struction industry is done under immense competitive
processes such that pricing takes place in the bidding
process. Prices are set not only based on demand, but
on how buyers use the product or service and can
have a lasting impact on customer relationships
(Gourville and Soman 2002). Precise pricing requires
a strong link between the marketing department and
other spheres of the company.
Pricing in the construction industry has been char-
acterized by various challenges that make stakeholders
dissatisfied with various approaches adopted in pric-
ing construction products (Kissi et al. 2017c). The
aim of every client in terms of pricing is achieving
value for money and serving as surety for effective
pricing. However, studies in both developed and
developing countries have shown that this cannot
always be achieved (Mochtar and Arditi 2001;
Flyvbjerg et al. 2002). Lin (2012) elaborated on the
long-term problem of price competition which results
in low profit margins on the part of contractors.
Currently in Ghana, one tenacious problem in the
construction industry is that the quality and

CONTACT Ernest Kissi kisernest@gmail.com

ß 2019 Informa UK Limited, trading as Taylor & Francis Group
2 E. KISSI ET AL.
dependability cost of estimates provided by cost
experts remains dubitable (Laryea and Hughes 2011).
Compared to the construction industry, a lot of
research has gone into the service industry pertaining
to the processes and stages involved in pricing strat-
egies. Pricing strategies, therefore, need to be adapted
to changing conditions, of which the following are
important: rapid technological progress, growing
number of new products, wider and more insistent
demand for services (Mochtar and Arditi 2001).
Project participants in pursuit of presenting effective
and efficient pricing system face numerous challenges
rendering construction activities unproductive (Kissi
et al. 2017c) These challenges in pricing of projects
have remained inert over the years which have led to
many negative impacts in the industry. Such impacts
include project abandonment, dispute between the cli-
ent and the contracting parties and a drop-in building
activity (Ahadzie and Amoah-Mensah 2010;
Vamsidhar et al. 2014). Such impact has the tenden-
cies to determine the cost of acquiring a decent house
(Danso et al. 2018).
Literature review
Why SMES construction firms?
Building construction firms in Ghana should be regis-
tered according to the categories criteria set out by
the Ghanaian Ministry of Water Resources, Works
and Housing (MWRWH). The four categories of
company classifications are D (building), K (civil
engineering), E (electrical works) and G (plumbing
works) (Agyekum et al. 2018). The MWRWH also
provides four financial sub-classifications within these
categories, namely Classes 1 (>500,000 USD), 2
(200,000–500,000 USD), 3 (75,000–200,000 USD) and
4 (>75,000 USD) (Agyekum et al. 2018). These classi-
fications set the limits for the companies with respect
to their assets, plant and labour holdings, together
with the nature and size of projects in which they can
engage. Class 1 has the highest resource base, and
decreases through Classes 2, 3 and 4 in that order.
Based on this classification, each firm can tender
for projects within a certain financial limit. However,
tendering of projects is done based on the
Procurement Act 914 of 2016. It must however be
noted that high tendering costs worsens the plight of
small-medium firms in that several criteria must be
met for a tender to be complete with bidding require-
ments. Kheni (2008) pointed out the average number
of factors that contractors must consider in order to
win a contract and indicated that pricing of the
tender and strategies adopted are key. Kheni (2008)
further indicated that these factors are likely to result
in under-pricing by many SMEs in a bid to win con-
tracts and subsequently not performing upon award
of a public contract (Kheni 2008). Notwithstanding,
important factors that influence pricing strategies
adopted by SMEs in developing countries are hardly
reported in literature making it operose for pricing
experts to determine relevant factors to adhere to
when pricing construction projects. Therefore, con-
ducting a study to examine the relationship between
factors that influence tender pricing and pricing strat-
egies of SMES construction firms in a developing
country like Ghana is valuable. It is also worth noting
that little is known of smaller construction firms as
compared to larger construction firms (even though,
the small-scale construction firms constitute a larger
proportion of the number of firms in the construction
industry) (Amoah et al. 2011). Research has shown
that 90% of registered contractors belong to the lower
classes in Ghana (Egmond and Erkelens 2007).
Regardless of the sizes of these SMEs construction
firms, they collectively contribute significantly to the
overall construction Gross Domestic Product (GDP),
especially in the development of decentralized and
local government areas (Amoah et al. 2011). Thus,
this study would advance the knowledge of members
of the construction industry on the factors and their
exact influences on pricing strategies in the construc-
tion industry. Better understanding of pricing strat-
egies will go a long way to improve the performance
of SMEs construction firms.
Model constructs and hypothesis development
Previous studies on pricing strategies have discussed
several pricing strategies in the building construction
industry. Best (1997) claimed that there are basically
two extreme pricing strategies: cost-based pricing and
market-based pricing. Any other pricing strategy is
always in between these two extremes. Garbor (1977)
grouped pricing strategies into two basic approaches;
cost-based pricing and market-oriented pricing.
Generally, pricing in the construction industry are
cost oriented and such makes it difficult for consum-
ers to adjust to prevailing economic conditions
(Mochtar and Arditi 2001). Companies continue to
look to their competitors as standards for pricing
their projects in a bid to win contracts. Morris and
Calantone (1990) for example, have indicated that
price should reflect value and customer’s willingness
to pay. In other words, value and customer’s

willingness to pay are market-oriented considerations.
Consequently, the method adopted for pricing is
either cost or market oriented as perceived to be early
cash-recovery or value pricing (Mochtar and Arditi
2001). Empirical study by Skinner (1970) showed that
most service firms adopt the cost-plus approach to
pricing. Advocates of competition-oriented and
demand-oriented pricing strategies have further
criticized the use of cost-plus pricing policy as a
reflection of general level of naivet
e among managers
responsible for pricing strategies. Notwithstanding,
there are generally three main strategies to pricing
used in all industries which construction industry is
not exception to this development. These are cost-
based, competition-based and value-based, however,
the third is considered superior by marketing scholars
and pricing practitioners. But only a few industrial
firms have adopted it: cost-based and competition-
based approaches continue to play a dominant role in
industrial pricing practice (Noble and Gruca 1999).
The evidence is that pricing has traditionally been
dominated by balancing costs with competitor prices
whether in complex quantitative pricing models or on
‘the back of an envelope’. Even new products have
too often been priced based on the price of existing
products. Basic principles for determining prices have
tended to be cost-oriented, competition-oriented or
demand-oriented (Cravens et al. 2009).
The complexity of pricing in the building industry
has led to a lot of research into the factors that influ-
ence tender pricing. Mbachu (2011) stated that the
actual cost of construction contains material cost,
labour cost and plant cost; whereas, the mark-up con-
tains allowances for overheads, profits and risks/con-
tingencies. Elhag et al. (2005) argued that factors that
influence pricing strategies are quantitative in nature,
since the nature of qualitative factors makes it diffi-
cult to measure. According to Hinterhuber (2008),
prices have a high impact on companies’ profitability,
and pricing strategies differ substantially between sec-
tors and market situations. Also, pricing strategies are
affected by the pricing objectives of the firm, that is,
what the firm hopes to achieve with the price tag
placed on their products. Pricing in the construction
industry depends on several factors such as the proj-
ect’s location, speed of constructing the project, com-
plexity of the project and its extent of unfamiliarity
(Creedy 2006). Enshassi et al. (2006) attested that the
industry is becoming more complex, therefore it is in
the best interest of most construction firms to ensure
that they are fully aware of the impact of the factors
which influence their decisions to bid for a project.
INTERNATIONAL JOURNAL OF CONSTRUCTION MANAGEMENT 3
Some of these factors are based on tender figures
which include input cost, market condition, target
group, fixed and variable cost, competition, company
objectives, etc. Tahmaseb et al. (2015) stated that the
size of a firm as well as its age can influence its pric-
ing strategies. Bubshait and Al-Juwairah (2002) identi-
fied a total of 42 factors that can affect construction
cost in Saudi Arabia, hence pricing strategies. These
factors were grouped into the following five major
categories: environmental factors; construction factors;
factors of construction items; cost estimating factors;
financing factors (Bubshait and Al-Juwairah 2002).
Bari et al. (2012) identified seven main factors that
influence construction cost for industrialized building
system projects in Malaysia. The identified factors
include characteristics of general contracts; methods
of procurements; attributes of contractors; design
parameters and external market factors. An empirical
study by Memon et al. (2010) in Malaysia also
revealed seven main factors influencing cost of con-
struction, these included cash flow and financial deci-
sions faced by contractors, poor site management and
supervision on the part of contractors, shortage of
contractor experience, insufficient site labour and
inadequate construction planning and scheduling.
Chan and Park (2005) evaluated factors that influ-
enced construction costs in Singapore, and identified
level of technology, special skills of the contractor,
and publicly administered contracts, technical expert-
ise of contractor and financial factors to be the key
factors. Another study, conducted by Akintoye (2000)
in the UK identified 24 cost influencing factors, of
which project complexity, scale and scope of con-
struction, market conditions and method of construc-
tion were identified as the most significant factors.
Dissanayaka and Kumaraswamy (1999) investigated
factors influencing construction cost, based on proj-
ects in Hong Kong. Kissi et al. (2017b) surmised all
these factors into nine constructs namely contractor
attributes (CON), project attributes (PRO), contract
procedures and procurement methods (CONT), exter-
nal factors and market conditions (EXT), client attrib-
utes (CL), consultant and design team (CS),
sustainable and technological attributes (SS), fraudu-
lent attributes (FA) and cultural attributes (CA) (see
Table 1 for individual variables for each construct).
Drawing from the above it can be deduced that
there exists relationship between pricing strategies
and factors that influence pricing of tender. It is
worth noting that in pricing the type of strategies
adopted will automatically have influence on the fac-
tors that should be considered in pricing, here tender
4 E. KISSI ET AL.

Table 1. Factors affecting pricing and pricing strategies.

Constructs Variables
Contractor Attributes Partnerships between the contractor and local governments
Productivity effects (managerial, organizational, labour, technology)
Competitiveness of contractor
Estimation method and cost control technique
Availability of contractor’s staff and workers
Financial capability
Management/labour relationships and confidence in workforce
Levels of communications within the contractor’s organization
Management team (suitability, experience, performance)
Percentage of main contractor, direct work and percentage of subcontracted work
Record of payments to subcontractors
Need for work
Planning capability and level of resource deployment/utilization/reliability
Record of payments to subcontractors
Cost management competence of contractor
Number of subcontractors
Status quota of business operation
Previous claims record (assessment of ‘low tender’ – ‘high claims’ performance
Accidents record on sites
Mark up policies and percentages
Current workload
Experience on similar projects
Past relationship with clients
Project Attributes Height/number of stories
Level of uncertainty of soil condition
Quality of finishing
Priority of the project
Intensity/complexity of building services
Type of foundation
Off/on – site operations
Scale and scope of construction
Type/function of building
Type of cladding and external walls
Project duration
Phasing requirements
Access to site
Complexity of construction and design
Site conditions/ site topography
Construction location
Size/ gross floor area
Construction method/ technology
Number of basement level
Contract procedures and procurement methods Form of procurement and contractual arrangement
Claims and dispute resolution methods
Pre-qualification of selected prospective contractors
Tender selection method
Bureaucracy in tendering method
Type of contract/use of standard form of contract
Spread of risk between construction parties
Tender period
Method of procurement
Payment modalities
Efficiency of tendering agency
Client Attributes Labour nationality
Social demand of the project types
Inadequate production of raw materials by the country
Stability of market conditions
Weather condition
Interest rate/inflation rate
Labour costs/availability/supply/ performance /productivity
Lack of productivity standard
Level of competition/level of construction activities
Annual investment size of public
Fluctuations of prices of materials
Project duration
Number of bidders on competitive projects
Government regulations/policies
Material prices/availability/supply/ performance /productivity
High cost of transportation
Domination of construction industry by foreign firms and aid
Insurance cost
(continued)
 INTERNATIONAL JOURNAL OF CONSTRUCTION MANAGEMENT 5

Table 1. Continued.
Constructs Variables
Plant costs/availability/supply/ performance /productivity
Absence of construction cost data
Anticipated frequency of construction variations
Consultants and design team Experience of design team
Capacity of the designer
Track record of project consultants
Completeness and timeliness of project information
Accuracy and consistence of design
Quality of design and specification
Variation orders and additional works
Repeatability and standardization
Buildability of design
Expertise of consultants
Insufficient estimating time
Extent of completion of pre-contract stage
Sustainable and technological attributes Skill and scope of construction
Technical requirement
Life span of building
Reuse of material e.g. formwork
Type of structure
Level of technology and innovation
Complexity of design and consumption
Type of sustainable construction policy
The use of local material
Fraudulent Attributes Conflict of interest
Unethical professional practices
Deceitful practices and kickbacks
Level of influence of procurement procedures
Bureaucratic barriers
Intentional poor tender documentation
Cultural Attributes Attitude towards price fixing
Laidback attitude towards time
Attention to or correctness of details
Sacred practices (prohibited days, special sacrifices)
Degree of formalities
Attitude towards pricing determination (the usage of percentages for contingencies,
preliminaries, margins, attendances)
Cost Based Pricing Construction method
Labour costs/availability/supply
Material prices/availability/supply
Intensity of competition
Work availability
Company coverage
Market type (monopolistic, oligopolistic, etc.)
Competition Based Pricing Type of contract
Competitor’s prices
Type of industry
Location of Company
Method of procurement
Economic conditions
Accuracy of data acquired from market
Value Based Pricing Value of project
Development of new products
Target market
The cost/benefit trade-off
Lifetime cost of product including maintenance
Client requirement
Innovation Strategies
Demand for product

price. On this basis the following hypothesis were for-
mulated (see Figure 1).
Research method
A quantitative approach of enquiry was adopted for
this study. A critical review of literature on the sub-
ject was conducted to discover the pricing strategy
practices and the factors for tender pricing in the
construction industry. The information gathered from
the review at this stage was used to develop question-
naire, which was piloted among (5) experts to validate
the variables identified from literature. These experts
were selected based on experience on the subject mat-
ter of the study. Experts were asked to determine the
reasonableness and comprehensiveness of the
6 E. KISSI ET AL.
Figure 1. Hypothetical conceptual framework.
identified variables. They were given the option to
either delete or add on to a variable. After the pilot-
ing, a structured questionnaire was developed and
administered to professionals who are involved in
pricing in the construction industry. The participative
firms, that is, D3/K3 and D4/K4 contractors in this
survey were purposively sampled. This helped in
locating key informants with regards to pricing strat-
egies and the factors that influence them.
The questionnaires were distributed online and
supplemented by self-administration. The developed
questionnaires were used to draw out perceptions and
opinions of respondents concerning influence of fac-
tors for tender pricing on pricing strategies. The
respondents were asked to indicate the significance of
each strategy based on a Likert scale of 1 to 5 (where
1: highly insignificant; 5: extremely significant). The
respondents were further asked to score the factors
for tender pricing which were frequently used on a
Likert scale of 1 to 5 (where 1: highly infrequent to 5:
highly frequent). Out of the 90 questionnaires distrib-
uted, 65 were retrieved representing a high response
rate of 72%. This high response rate can be credited
to the use of the online survey (Hoonakker and
Carayon 2009), constant reminders and follow-ups.
The questionnaire administration and collection lasted
for a period of 3 months, and its collection was aided
by three (3) assistants. The sample size was
considered acceptable as it satisfied the recommenda-
tions of many researchers that a sample of 30 for any
group could be deemed representative (Ott and
Longnecker 2001). Fifty-one-point seven (51.7%) per-
cent of the respondents were Quantity Surveyors, 20%
were Civil Engineers and 18.3% represented Project
Managers. Respondents had rich backgrounds in their
respective professional practices: 40% of them had
less than 5 years of experience, 36.7% had more than
5 years of experience in professional practice, 16.7%
had experience between 11 and 20 years and 6.7% had
over 20 years of experience in professional practice.
Results
The response data from the survey was subjected to
statistical analysis for interpretation suited to the aim
of the study. The analysis of this study required the
combination of multiple regressions and factor analysis
to establish the relationship between the measured var-
iables and latent variables, hence, Structural Equation
Modelling (SEM). To determine the relationship
between the respective constructs being studied, the
Partial Least Square Structural Equation Modelling
(PLS-SEM) tool was used. The PLS-SEM approach was
adopted for this study because of the following merits:
it combines variables relating to both econometric and
psychometric in modelling for statistical purposes; it

works well for studies with comparatively small sample
sizes; and it also supports non-normal data (Hair et al.
2011; Rigdon 2016; Sarstedt et al. 2017). The analysis
of the data obtained for this study was done in accord-
ance with the guidelines and serial arrangements sug-
gested by Hair et al. (2014) and Sarstedt et al. (2017).
The guidelines involved the appraisal of both the meas-
urement and structural models.
Assessment of measurement model
Table 2 presents details on the Factor loading,
Cronbach’s alpha, the Average variance extracted
(AVE) and the complex reliability of the constructs
captured in this study. Computation of the factor
loadings were done for each construct to assess the
reliability of the variables. The measure for the reli-
ability using factor loadings, has a recommended
threshold of 0.70 (Fornell and Larcker 1981; Hair
et al. 2014). The measures obtained and presented in
Table 2 depict that, all constructs had a satisfactory
level of individual variable reliability. The Cronbach’s
alpha was carried out to check the internal consist-
ency of a test scale which gave an appraisal of the
reliability of the constructs. This appraisal was based
on the inter-correlations between the variables (Straub
et al. 2004). The measures are expressed as values
between 0 and 1 but the acceptable range for justifica-
tion is between 0.700 and 0.950 (Nunnally and
Bernstein 1994; Bland and Altman 1997; DeVellis
2003; Tavakol and Dennick 2011). Table 2 finally
presents the complex reliability values, and this was
described as the different outer loadings of the indica-
tor variables by Straub et al. (2004). A complex reli-
ability threshold of 0.700 was recommended by Hair
et al. (2014). In assessing the internal consistency and
reliability of the constructs, AVE was employed. A
threshold of 50% was further recommended by Hair
et al. (2017) for AVE values, all measures were intern-
ally consistent for this study as depicted in Table 2.
The factor loadings for all the constructs are summar-
ized as shown in Table 2. Constructs had a satisfac-
tory level of individual variable reliability. However,
some indicators with loadings below 0.700 were not
removed in order to avoid the construct being meas-
ured with a single item (Sarstedt et al. 2014). The
results indicate that all the other outer loading values
exceeded the standardized loading threshold of 0.70.
The final step in the assessment of the model was
the analysis of the discriminant validity. The discrim-
inant validity is the degree to which constructs vary
from other constructs by empirical measures (Hair
INTERNATIONAL JOURNAL OF CONSTRUCTION MANAGEMENT 7
et al. 2017). The criteria for the measurement of the
discriminant validity was the Fornell-Larcker criter-
ion. From the results shown in Table 3, the discrimin-
ant validity of the measurement model at both
constructs and indicator levels were sufficient.
Assessment of the structural model
It is relevant to ascertain the degree to which the
hypothesis is supported by the empirical data gath-
ered from the survey; hence the structural model
must be evaluated. In the evaluation of this structural
model, the assessment of the path coefficients and the
use of the coefficients of determination (R2) as pro-
posed by Sarstedt et al. (2014) was carried out. The
results from the bootstrapping were used to assess the
significance of the relationships. The predictive accur-
acy of the model is represented by the R2 value. R2
values of 0.75, 0.50, 0.25 describes significant, moder-
ate or weaker levels of predictive accuracy respectively
(Hair et al. 2014; Henseler and Fassott 2009). R2 val-
ues shown in Table 4 portray that, the independent
constructs significantly affect the dependent con-
structs (pricing strategies).
The next step was for the testing of the hypothesis
based on the path coefficients and significance. To
facilitate this, a bootstrapping method was calculated.
With a bootstrap sample of 5000 and a confidence
level of 10% (a ¼ 0.10; two-tailed test) the bootstrap-
ping calculation was undertaken. Therefore, when the
t-value is above 1.65, it can be concluded that, the
hypothesis is statistically supported. Out of the 27
hypotheses, 18 were not supported. Table 5 and
Figure 2 shows the summary of path coefficients and
significance levels and final model respectively.
Discussion
Results from the model indicate that some of the vari-
ables had an influence on the competition-based,
cost-based and value pricing. In competition-based
pricing, observed or anticipated price levels of other
competitors are used, cost based pricing obtains infor-
mation from cost accounting and the value-based
makes use of the value that product or service carries
as basics for setting prices (Hinterhuber 2008).
Lovelock and Wirtz (2007) described factors that
influence the pricing strategy of firms to be cost,
competition and demand, which corroborates the
findings from the model. Industries differ in their
economic features, competitiveness and profit pros-
pects. Studies indicate that the competition-based
8 E. KISSI ET AL.

Table 2. Factor loadings, cronbach’s alpha, composite reliability and AVE.

Indicators Loadings Cronbach’s Alpha Composite Reliability AVE
Cost-Based Pricing 0.747 0.841 0.577
CB1 0.623
CB3 0.870
CB6 0.894
CB7 0.604
Competition-Base Pricing 0.813 0.863 0.525
COB1 0.897
COB3 0.706
COB5 0.417
COB6 0.626
COB7 0.697
COB9 0.891
Value-Based Pricing 0.781 0.851 0.525
CV1 0.934
CV3 0.415
CV4 0.934
CV5 0.493
CV7 0.946
CV8 0.310
Contractor Attributes 0.884 0.910 0.502
CON1 0.614
CON10 0.623
CON11 0.659
CON13 0.781
CON14 0.592
CON15 0.720
CON2 0.849
CON22 0.843
CON4 0.875
CON6 0.625
CON9 0.873
Contract Procedures and Procurement Methods 0.778 0.848 0.530
CONT2 0.724
CONT3 0.760
CONT4 0.703
CONT5 0.817
CONT6 0.620
Consultant and Design Team 0.727 0.827 0.546
CS11 0.713
CS3 0.847
CS4 0.700
CS6 0.684
External Factors and Market Conditions 0.857 0.891 0.541
EXT1 0.640
EXT13 0.752
EXT14 0.702
EXT15 0.810
EXT2 0.719
EXT5 0.706
EXT6 0.805
Project Attributes 0.800 0.857 0.500
PRO1 0.749
PRO15 0.731
PRO2 0.639
PRO3 0.699
PRO4 0.671
PRO6 0.747
Sustainable and Technological Attributes 0.748 0.834 0.506
SS4 0.655
SS5 0.540
SS6 0.728
SS7 0.820
SS8 0.779
Fraudulent Attributes 0.791 0.800 0.505
FR1 0.858
FR3 0.576
FR4 0.715
FR5 0.665
Client Attributes 0.818 0.872 0.539
CL10 0.576
CL3 0.865
(continued)
 INTERNATIONAL JOURNAL OF CONSTRUCTION MANAGEMENT 9

Table 2. Continued.
Indicators Loadings Cronbach’s Alpha Composite Reliability AVE
CL5 0.808
CL6 0.877
CL7 0.600
CL9 0.609
Cultural Attributes 0.705 0.834 0.716
CA2 0.877
CA6 0.813

Table 3. Fornell-Lacker Criterion.

CL COB CS CONT CON CB CA EXT FR PRO SS CV
CL 0.734
COB 0.335 0.725
CS 0.472 0.412 0.739
CONT 0.651 0.194 0.577 0.728
CON 0.485 0.670 0.509 0.325 0.709
CB 0.523 0.355 0.616 0.467 0.411 0.760
CA 0.483 0.609 0.304 0.202 0.700 0.323 0.846
EXT 0.606 0.526 0.554 0.478 0.655 0.477 0.511 0.735
FR 0.518 0.147 0.466 0.517 0.228 0.710 0.148 0.446 0.711
PRO 0.607 0.422 0.638 0.539 0.690 0.607 0.523 0.701 0.481 0.707
SS 0.602 0.499 0.603 0.657 0.544 0.680 0.509 0.663 0.637 0.696 0.711
CV 0.484 0.296 0.527 0.470 0.303 0.643 0.248 0.432 0.661 0.530 0.660 0.725

Table 4. Predictive accuracy of the model.
Dependent variables R2 values
Competition-based pricing 0.777
Cost-based pricing 0.754
Value-based pricing 0.789
pricing remains the most dominant in pricing prac-
tice. The construction industry competition is very
fierce, with high risks and relatively lower profit mar-
gins as compared to other industries (Mochtar and
Arditi 2001; Kissi et al. 2017a). Competition-based
pricing, mostly influences pricing strategies of con-
struction firms as it presents the advantage of consid-
ering the actual pricing condition of competitors. The
model shows that client, contractor, cultural, fraudu-
lent, project and sustainable design attributes as well
as external market condition factors, consultant and
design team had an influence on competition-based
pricing. This is reinforced by Cunningham (2014)
who indicated that factors that may affect pricing of a
QS may include the nature or identity of the client,
the design team, prevailing market condition and pro-
curement options available. Several studies affirm the
assertion that the level of competitiveness in the con-
struction industry affects how firms in the industry
price their works (Wilson et al. 1987; Kim and
Reinschmidt 2011; Laryea and Hughes 2011), in rela-
tion to factors such as the client, design team, pro-
curement, quality and existing market conditions.
The cost-based pricing involves the addition of a
profit margin or markup to the average cost of the
product or service. Studies identified issues with the
cost-based pricing which includes producing sub-
Effects standard profitability or lower than average profit lev-
Substantial els (Myers et al. 2002; Simon et al. 2003). However,
Substantial
Substantial Mochtar and Arditi (2001), argue that the pricing
strategy in the construction industry is predominately
cost-based. The typical procedure is the estimation of
the actual cost of the project then applying a mark-up
for profit. Factors such as project attributes, contract
procedures and procurement methods, external fac-
tors and market conditions, fraudulent attributes and
sustainable design attributes have an influence on the
selection of cost-based pricing by a firm as its pricing
strategy. Cost factors that affect the pricing of con-
struction projects include contract management,
design, the contractual method, fraudulent practices,
economic stability and government policies among
others (Eshofonie 2008). Furthermore, the client, con-
tractor and consultant characteristics influence the
pricing strategy to be adopted. Bubshait and Al-
Juwairah (2002) also indicated that construction cost
and pricing decisions are affected by cost estimating
factors, environmental factors and sustainable factors,
as buttressed by this study. The price generated by
this strategy could be too high or too low relative to
offers made by other firms; this is because the price is
set based on internal margin requirements and
internal costs. Hence there is a possibility of under-
pricing a project foregoing high levels of profits or
overpricing the project relative to the client’s cost and
offers from other bidders.
Decisions by a firm relating to pricing directly
influences its market performance and profitability.
10 E. KISSI ET AL.

Table 5. Summary of path coefficients and significance levels.

No Paths Path coefficients T Statistics P Values Inference
1. Client attributes_ -> Competition-based pricing_ 0.273 2.453 0.015 Supported
2. Client attributes_ -> Cost-based pricing 0.005 0.050 0.960 Not Supported
3. Client attributes_ -> Value-based pricing 0.074 0.775 0.438 Not Supported
4. Consultant and design team -> Competition-based pricing_ 0.225 2.872 0.004 Supported
5. Consultant and design team -> Cost-based pricing 0.253 2.827 0.005 Supported
6. Consultant and design team -> Value-based pricing 0.128 1.651 0.010 Supported
7. Contract procedures and procurement methods -> Competition-based pricing_ 0.008 0.074 0.941 Not Supported
8. Contract procedures and procurement methods -> Cost-based pricing 0.152 1.667 0.024 Supported
9. Contract procedures and procurement methods -> Value-based pricing 0.081 0.775 0.439 Not Supported
10. Contractor attributes -> Competition-based pricing_ 0.164 1.775 0.041 Supported
11. Contractor attributes -> Cost-based pricing 0.013 0.107 0.914 Not Supported
12. Contractor attributes -> Value-based pricing 0.051 0.449 0.654 Not Supported
13. Cultural attributes -> Competition-based pricing_ 0.705 6.795 0.000 Supported
14. Cultural attributes -> Cost-based pricing 0.073 0.671 0.502 Not Supported
15. Cultural attributes -> Value-based pricing 0.086 0.764 0.445 Not Supported
16. External factors and market conditions -> Competition-based pricing_ 0.319 2.354 0.019 Supported
17. External factors and market conditions -> Cost-based pricing 0.221 1.668 0.096 Supported
18. External factors and market conditions -> Value-based pricing 0.157 1.688 0.098 Supported
19. Fraudulent attributes -> Competition-based pricing_ 0.040 0.456 0.649 Not Supported
20. Fraudulent attributes -> Cost-based pricing 0.608 6.788 0.000 Supported
21. Fraudulent attributes -> Value-based pricing 0.753 9.870 0.000 Supported
22. Project attributes -> Competition-based pricing_ 0.455 3.092 0.002 Supported
23. Project attributes -> Cost-based pricing 0.248 1.670 0.034 Supported
24. Project attributes -> Value-based pricing 0.166 1.659 0.07 Supported
25. Sustainable and design attributes_ -> Competition-based pricing_ 0.256 2.091 0.037 Supported
26. Sustainable and design attributes_ -> Cost-based pricing 0.165 1.667 0.029 Supported
27. Sustainable and design attributes_ -> Value-based pricing 0.184 1.662 0.062 Supported

Properly set price is the most effective way a company
can maximize its profits and ensure success of the
enterprise. Value-based pricing is increasingly recog-
nized in the literature as superior to all other pricing
strategies (Ingenbleek et al. 2003) and Docters et al.
(2004) refer to value-based pricing as ‘one of the best
pricing methods’. Despite the predominance of cost-
based pricing in the construction industry, there is
increasing endorsement of value-based pricing among
academics and other practitioners in other industries
(Hinterhuber 2008). This is because keys to sustain-
able profit lie in the features of value-based pricing
including designing to meet client’s needs. Table 5
depicted that project attributes, external factors and
market conditions, fraudulent attributes and sustain-
able design attributes had an influence on the selec-
tion of value-based pricing by a firm as its
pricing strategy.
Conclusion
There are several factors that can affect the pricing
strategies selected by a firm or contractor, each firm
has its own pricing objectives and the level at which
factors influence their pricing strategies. This study
examined how pricing factors for tendering may
influence the selection of a particular pricing strategy.
Although there are several factors that have tenden-
cies to influence the choice of pricing strategies in the
construction industry, a price of a tender remains one
of the bases for selecting a qualified contractor.
Hence, the price of a tender has some sort of relation-
ship with factors that may be considered in pricing.
From the study, it can clearly be concluded that all
the pricing strategies showed a strong relationship
with the pricing factors. This suggests that stakehold-
ers in the construction industry should critically
assesse factors that are considered in pricing vis-a-vis
pricing strategies. Thus, there must be a measure for
choosing a particular pricing strategy. This study fur-
ther provides an insightful understanding to the prac-
tices of pricing in general, it is therefore quite
interesting to note that in pricing of tender factors
such fraudulent and cultural attributes have tenden-
cies to affect the choice strategy that one may select.
Although cultural and fraudulent attributes are
dynamic and geographic specific, SMEs construction
firms are mostly indigenous, and these two main
attributes remain a game changer in their quest to
achieve a better pricing system. The study is of sig-
nificance to students and other researchers because
literature generated will not only serve as an add-
itional source of knowledge but will serve as a refer-
ence point in the conduct of similar studies.
Notwithstanding the valuable contribution this study
makes to both practice and knowledge, the data col-
lection is geographically limited to Ghana and SMEs
construction firms. However, it is worth noting that
the results of the study can be adequately implemented
in other countries with similar construction industry
 INTERNATIONAL JOURNAL OF CONSTRUCTION MANAGEMENT 11

Figure 2. Final model.

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