de Neufville, R and King, D (1991) Risk and need-for-work premiums in contractor bidding. Journal of Construction Engineering and Management, 117(4), pp. 659-673. ISSN 0733-9364
Abstract
Contractors add significant premiums, on the order of 3%, to their bids when they have a low need for work or projects have high risk. An empirical study of the effect of need-for-work and project risk on contractor bid markups was conducted by assessing and analyzing utility functions obtained from construction contractors in a bid-simulation exercise. Thirty New England contractors participated in the study. The statistical analysis of utility data indicates, with a high level of confidence, that need for work and risk significantly affect contractor bid markups. A revised model of bidding is presented. The paper also discusses the implications of these need-for-work and risk premiums for owners, contractors, and the insurance industry. Specifically, project managers should seriously consider investing at least 1% of the project cost in studies that reduce the risk perceived by contractors.
| Item Type: | Article |
|---|---|
| Index terms: | bidding, construction contractor, project cost, risk premium, insurance, empirical study, statistical analysis, owner, project manager, exercise, England |
| Subjects: | economic analysis, data science, bidding, practitioner, health behaviours and lifestyles, profession, sociology, Geography, economics, research methods |
| Topics: | Geographical Context, Research Practice, Cost Management, Business Strategy, Health and Safety, Procurement, Stakeholder Management, Roles and Professions |
| Descriptive scope: | 3 PCA |
N.B. Descriptive scope is a count of how many of the five facets of empirical research are indicated by the words used in title, abstract and keywords. It is not intended as a judgement on the research; merely a count of the kind of word we would expect to indicate Phenomenon, Concepts, Theoretical framing, Empirical techniques, Analytical techniques. If all five are present, then a code of “5 PCTEA” will indicate this. If you feel the coding for this record is questionable, we welcome discussion around the terms we matched or the way we categorized them. The facet you would expect may not be coded, or a facet may be coded inappropriately. This can also bear on a larger question, of which facets should be treated as defining in construction management research. Please get in touch, and we will look at it. More details here