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Construction work is usually initiated by an owner who signs a contract with a contractor. This contract fully describes the nature of the work to be carried out, and the contractor is entitled to payments as per the agreement. An owner may select a contractor through competitive bidding, negotiation, or a combination of these methods. There are different types of competitive bidding, such as the lowest-bidder system and the non-lowestbidder system: the latter includes the nearest to the average of all bids, limited to the owner's estimate bid, and weighted average bids (the Danish system).
This article reviews some of the different bid-awarding systems available worldwide, with special emphasis on the systems used in Saudi Arabia and Germany.
COMPETITIVE BIDDING
Lowest Bidder
One of the most common methods used to award contracts is the lowest-bidder system. It is a competitive system, and many contractors obtain their work through it. Generally, all public works are bid for using this method.
The basic idea behind competitive bidding is that the lowest-bidder system protects the public from extravagance, corruption, and other improper practices by public officials [1]. The system encourages efficiency and innovation by contractors, which (hopefully) results in a completed project of specified quality at the lowest possible price. However, competitive bidding sometimes leads to the selection of incompetent contractors, excessive claims by a contractor against an owner, disputes and litigation between parties, bid shopping, and other problems [2]. There are two types of competitive bidding, open and closed. In open bidding, all contractors use the same proposal form that is provided with the bidding documents, and the bids are opened publicly to preclude accusations of favoritism. In closed bidding, no prescribed proposal form is used, and there is no public opening of bids.
Table 1 is an example of bid tabulation. The data are used here to demonstrate different bid-awarding systems. The table shows six bids, including the highest and the lowest bids, the bids' average, the engineer's estimate, and the average of the six bids along with the engineer's estimate. The engineer's estimate is assumed to be equal to the base project budget. In the lowest-bidder system, the contract is awarded to the second bidder.
It is very important to understand that not every country...