Multi-objective subcontractor selection model based on performance measurement framework in international construction projects

Turkish contracting companies have been increasingly providing contracting services in the international construction markets for many years. Turkish contracting companies have expanded their operations in foreign markets due to developments such as domestic market contraction, increasing competition, development of international trade, the establishment of official international cooperation and financial transfers to international construction projects made by the international financial institutions. There are four main processes to be considered by contractors to enter foreign markets that are; (1) international business decision, (2) market selection, (3) bid/no bid decision (or project selection) and (4) bid price determination. Making the decision to do business in the international markets creates many opportunities for contracting companies. Especially global changes in transport, communication, and logistic sectors – all of which represent sub-sectors of construction industry – create significant opportunities for construction companies not only in developed countries but also in developing countries. For this reason, experienced and well-qualified construction companies prefer to offer contracting services in international projects given the high-profit margins and high volume of the markets. Contracting companies deciding to do business in international markets must also determine the suitable markets for them. The number of potential countries where construction projects can be undertaken is approximately 200 worldwide. Therefore, determination of the accurate strategies and heading towards the right markets constitute a critical decision for contracting companies. Analysis of market uncertainties, cost of initial investment, potential opportunities and market potential regarding unpredictable risks are factors to be primarily considered for market selection. Another decision to be made by the contracting companies is the selection of the project to make a bid/no-bid decision, following the market selection. It is of critical importance to bid for the right projects for a contracting company to be successful in international markets and to have business continuity. Thus, bid/no-bid decision is a complicated and complex process. Project selection is essentially made based on company's expertise and strategic plans. However, the competitiveness of the company, appeal of the project, profitability of the project, and the potential opportunities and risks of the project altogether represent the criteria impacting the bid/no-bid decision. It is not realistic for a contractor company to bid on every project. Accordingly, time is limited to prepare for many projects of interest the contractor may be interested in to make a bid. In such case, the contractor must determine the ones that can maximize its profits with limited resources, and primarily bid for these projects. Contractor's anticipation of the risks that may arise during the execution of a project is important to avoid damages to the reputation of the company in international markets since losses are more frequently experienced than profits in the construction sector. However, it is often impossible to predict and assess all of the potential risks of a project within the limited time during which the bid decision is made. Therefore, contractor companies tend to share the potential risks with their stakeholders in construction projects they plan to undertake. Following the determination of appropriate projects to bid, bid preparation process starts. Bid preparation is a process during which the project price is comprehensively and studiously evaluated and determined. In this process, project base cost is estimated. Total project cost estimation is calculated by adding company's general overhead, the desired profit of the company from the project and the bid mark-up including the risk premium. The proposed bid price of the contractor company must be determined both be competitive and also to be sufficient regarding covering the potential project risks. Turkish contracting industry is ranked second worldwide regarding the number of companies providing services in international markets. However, Turkish contractors are ranked ninth in the international markets in terms of the total project cost. While having a lower market share in terms of project cost, Turkey has a significant advantage in terms of the number of contractor companies operating in international markets. With this advantage, Turkish contractor companies can sustain their business continuity in international markets, notably becoming more competitive by successfully completing the projects they undertake by the contract they agreed upon and ensuring customer/employer satisfaction. Therefore, contractors' success will allow them to expand their business volume and the markets they operate in, and also increase their potential to undertake prestigious high-budget projects in international markets. Consequently, it is necessary for the Turkish contractor companies operating in international markets as general contractors to complete the construction projects they undertake successfully by the agreement they are bound with. Turkish contractor companies frequently benefit from subcontracting services in projects they undertake in international markets as main contractors. In these projects, the general contractors act as if they are in the form of construction management firms. In other words, the general contractors predominantly undertake worksite organization and management; control and ensure the quality and progress of the construction activities carried out by subcontractors, as well as the coordination and communication between them. International construction projects are often complex. Qualified labor, equipment, technical skills, and expertise are required for undertaking many construction activities in the project. Since technical capabilities and/or financial means of general contractors are limited, they mostly prefer to use subcontracting services for sharing project risks and reduce work pressure on them. At the same time, working with specialized subcontractors enable the general contractor to complete a project in a shorter time, at a reduced cost and a higher quality. In international construction projects, a large number of subcontracting companies physically carry out the construction of different work packages at the same time. Thus, it is considerably a rigorous task to manage and coordinate a large number of subcontractors operating on the site. The general contractor is fully responsible to the employer to complete the project by the details prescribed by the contract. In projects carried out with the use of subcontracting service, the main contractor is the responsible party to the employer for the performance of all of the construction activities undertaken by subcontractors. Therefore, general contractors are responsible to supervise and ensure the quality and progress of the work produced by subcontractors, as well as to control and assure the communication and coordination between subcontractors. In projects carried out with the use of subcontracting service, project success directly relies on the performance demonstrated by selected subcontractors for work packages. Thus, the general contractor should be able to foresee the performances of subcontractors they select to work with or determine the subcontractors by systematically evaluating their performances. In this study, the development of an integrated, rapid, efficient and realistic "performance based multi-objective optimization model" taking all of the project objectives of "time-cost-quality-safety-environmental impact" into account is aimed for the subcontractor selection problem, which is of critical importance for the Turkish contractors to successfully complete the projects they undertake in international markets. The performance based subcontractor selection model is developed by integrating: (1) the multi-criteria decision making model, and (2) the multi-objective optimization model. To assess the applicability and the performance of the developed integrated subcontractor selection model, data has been collected from the subcontractor candidates of an international construction project. The "Multi-Criteria Subcontractor Performance Measurement Framework" developed to determine the performances of subcontractor candidates enable general contractors to evaluate and make their decision based on the candidates' performances regarding "Time, Cost, Quality, Safety and Environmental Effects" systematically and rationally. With the developed measurement framework model, the performances of subcontractor candidates bidding on each work package measured through the 45 Key Performance Indicators categorized into 5 main groups (Time-Cost-Quality-Safety-Environmental Effects) are evaluated to make a rational and systematic decision. The performance evaluations of subcontractor candidates are used as the main input of the multi-objective subcontractor selection model. The "Multi-Objective Subcontractor Selection Model" is designed with 5 dimensions based on the performance of subcontractors in terms of "time", "cost", "quality", "safety", and "environmental effects", all of which are considered as main objectives in international construction projects. The essential aim of the model is to determine the most suitable subcontractor plan for the entire project and subcontractors to work together for all of the work packages in the project, by optimizing all of the project objectives ("time-cost-quality-safety-environmental effect") simultaneously. The selection model is primarily used to determine the most suitable candidate for each work package of the project. However, the interactions between the subcontractors selected for the work packages and their impact on the overall project performance were also taken into account in this model. In the subcontractor selection model, meta-heuristic algorithms are benefited from for the trade-off between 5 conflictive main criteria of the project. For the solution of the multi-objective subcontractor optimization problem, two evolutionary algorithms are used independently that are: Non-dominated Sorting Genetic Algorithm (NSGA-II) and Multi-objective Particle Swarm Optimization (MOPSO). The optimal or close-to-optimal subcontractor plans obtained by the use of two algorithms were presented to decision makers based on which they were enabled to select the appropriate subcontractor plans according to their objectives and interests among the alternative subcontractor plans.