Term Paper: Strategy for a Large EU Contractor

Term Paper: Strategy for a Large EU Contractor

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Term Paper: Strategy for a Large EU Contractor

Introduction

The industry of construction is multifaceted, and there is a high competitive. The most benevolent climate of economy entered into contracts that deal with the risk properly, and it is not easy to tackle such risk. The risk becomes more adverse, as well as the process still more tricky and difficult. In the prior period, there is a downward turn evident in the construction industry. One of the prominent reasons of this downward turn is the practice of “suicide bidding” by the major contractors to obtain work or contracts.

In 2010, a procurement report was published by CIOB (Chartered Institute of Building), in which suicide bidding is defined as the practice of contractors to make sure that they have some work for their skilled labour, no matter if contracting companies have to bid less than the cost of a project, or have to bear losses (CIOB, 2010, p. 8).

The suicide bidding is still practiced by the contractors, particularly in the construction industry of European countries. This practice is so popular among contractors because it helps them in creating business relationship that is based on price, as well as keep the skilled labour of a company employed. In a study, Prior (2010) identifies that the foremost factor that lead to bid below the cost incurred in order to get contract is cut-throat tendering or suicide bidding. This practice is very common in the construction sector, and mostly done by large construction companies result in immense competition. Moreover, he affirmed that the process of bidding, start from bidding to winning a contract is immensely time consuming. In this sector, the contractor selection is solely based on the lowest bid, which signifies the credibility of a contractor and shows that the contractor is well-establish and posses excess of resources. Gardiner and Theobald (2008, pp. 3-11) indicates that there will be a fall in the tender price inflation of about -3.5 percent and -3 percent in 2009 and 2010 respectively in Britain.

Discussion

Restructuring of Construction Contractors in the EU

During hard times, the turnover is considered to be more important than profit because it facilitates in keeping the pace of business. This has directed a number of contractors to suicide bidding practice, means the contractor bid for a tender with a negative margin of profit in order to gain the tender. For an outsider it sounds quite odd that the construction contractors bid lower than profit margin to win a contract. It frequently raises the question why to bid low and bear losses, or why contractor enter such contracting and not keep that money in the pocket. This process sound quite similar to gambling, as contractors entered into bidding to win it. Additionally, these losses are negotiated later with claims and variations of employer or subcontractors; that assist in getting some profit or at least break-even. Furthermore, these losses ...