Lo, W; Lin, C L and Yan, M R (2007) Contractor's opportunistic bidding behavior and equilibrium price level in the construction market. Journal of Construction Engineering and Management, 133(6), pp. 409-416. ISSN 0733-9364
Abstract
The competitive bidding system has been to blame for abnormally low bids, which are considered as one of the main causes of poor project quality. Previous studies have regarded the pricing of bidders as an optimum decision based on contractor's cost and market competition level. However, the sell to produce characteristic of construction projects may induce contractors to offer a low bid and then make up the amount initially sacrificed from beyond-contractual reward (BCR) gained through cutting corners and claims. System dynamics was adopted in this study to develop a contractor's pricing model with consideration of the dimensions of cost, market competition, and BCR. The model was then examined by statistical analysis of data collected from 44 highway projects in Taiwan. It was found that the equilibrium market price is significantly associated with BCR, which is assumed to be determined by the strictness of the owner's construction management, including both soundness of contract and tightness in construction supervision. Research results suggest that contractors divide the market into different segments according to the owner's strictness of construction management and the equilibrium price level of each market segment varies. The price level for projects with a strict owner is remarkably higher than for those with relatively less strict owners. Improvement in the construction management system of projects is crucial to lower the possibility that contractors gain BCR and do opportunistic bidding, and to further enhance project quality.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | bids; pricing; simulation models |
| Index terms: | Taiwan, competitive bidding, management system, market segment, construction project, system dynamics, competition, bidding, pricing, owner, statistical analysis, bidder, highway construction, dimension, supervision, construction market |
| Subjects: | bidding, data science, economic analysis, health monitoring assessment and metrics, control systems, computing systems, market analysis, sociology, Geography, production management, management, civil engineering |
| Topics: | Digital Applications, Organizational Design, Business Strategy, Health and Safety, Research Practice, Project Management, Geographical Context, Engineering Principles, Stakeholder Management, Procurement |
| Descriptive scope: | 4 PCTA |
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