Signor, R; Love, P E D; Marchiori, F F and Felisberto, A D (2020) Underpricing in social infrastructure projects: Combating the institutionalization of the winner's curse. Journal of Construction Engineering and Management, 146(12), ISSN 0733-9364
Abstract
Research examining underpricing in social infrastructure projects has been limited (e.g., schools), yet this is a reality that confronts many governments worldwide. The upshot of underpricing is often contractual claims and delays, which can harm the social and economic well-being of citizens. Cognizant of experiencing potential cost overruns, this paper demonstrates that agencies within the Brazilian public sector institutionalized the winner's curse to ensure their infrastructure projects did not exceed their budgets. This action resulted in contractors abandoning works before they were completed and, in doing so, being subjected to contractual sanctions. For the government agencies, this led to increased costs because an alternative contractor was required to complete works. The decision to accept a low bid, therefore, had the opposite of the desired effect because the final project costs exceeded their budgets. It is proposed that government agencies introduce an irresponsible bid threshold, which acts as a benchmark for determining a bid's disqualification to address the winner's curse phenomenon.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | auction; bid; Brazil; infrastructure; procurement; underpricing; winner's curse |
| Index terms: | cost overrun, institutionalization, public sector, infrastructure project, Brazil, project cost, government agency, agency, well-being |
| Subjects: | Geography, economics, administrative law, infrastructure and transport systems, sociology, mental health and wellbeing, financial and cost management |
| Topics: | Roles and Professions, Engineering Principles, Research Practice, Geographical Context, Health and Safety, Cost Management, Legal Issues |
| Descriptive scope: | 3 PCT |
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