An integrated approach to risk management during competitive tendering for local authorities by emerging building contractors in Botswana

Abstract

The construction industry in Botswana has in the recent years come under severe pressure due to increased competition and a critical shortage of construction work. The competition has been as a result of a dramatic influx of foreign firms that have set up base in Botswana in recent years due to Botswana’s good economic performance. The abundant diamond resources coupled with the government’s sound macroeconomic policies have largely driven this economic growth. As a result of the shortage of construction work, locally owned emerging construction companies have had to change their bidding strategies in order to be competitive and secure construction work. This in turn has led these companies tendering at very low prices and sometimes submitting sub-economic bids. In doing so, these construction companies do not price for all the risks they are expected to carry if their bids mature into a construction contract. This paper investigates the sources of risk due to the client (Botswana local authorities) and due to statutory requirements and whether these sources are perceived by the emerging building contractors to have an influence in their (contractors) pricing strategies. The paper also investigates the risk management strategies, which are employed by these contractors in order to minimize risks during competitive tendering. The study concentrated on those building projects tendered in the public sector within the local authorities in Botswana. This was further narrowed down to specifically those projects tendered for the district councils located in the southern region of Botswana. The study concentrated on building projects and excluded civil engineering projects and projects that are overwhelmingly of specialized electrical or mechanical installations.