Li, M; Baek, M and Ashuri, B (2021) Forecasting ratio of low bid to owner's estimate for highway construction. Journal of Construction Engineering and Management, 147(1): 04020157, ISSN 0733-9364
Abstract
Several state departments of transportation (state DOTs) have encountered significant challenges to accurately estimate costs of their highway projects. It is not uncommon that states' DOT estimates (owner's estimates) are significantly different from contractors' submitted bids. This is a critical problem for state highway agencies that strive to develop more accurate cost estimates, deliver projects within the budget, and optimize constrained funds for their highway programs. This inaccuracy problem is a temporal issue since the engineer's estimate is developed ahead of time before the project is advertised and bids are received. The question that transportation agencies are interested in finding an answer to is: are there any significant risk factors in the construction market indicating to the increased likelihood of the deviation between owner's estimate and the submitted low bid? In this research, a temporal perspective is selected to answer this question through identifying risk factors affecting the accuracy of the owner's estimate. The ratio of low bid to owner's estimate is examined using time-series analysis. The objectives of this research are to (1) examine several variables representing local highway construction market, overall construction market, macroeconomic conditions, and energy market, to identify the leading indicators of ratio of low bid to owner's estimate; and (2) use the identified leading indicators to develop an appropriate time-series model to forecast the ratio of low bid to owner's estimate. Four variables are identified as the major leading indicators: (1) number of projects awarded in the same month at the state level; (2) average number of bidders last month; (3) producer price index for steel mill products (PPISM); and (4) construction cost index (CCI). Several seasonal autoregressive integrated moving average with explanatory variable (ARIMAX) models are developed that are capable of forecasting the ratio of low bid to owner's estimate with a high accuracy. This research contributes to the state of knowledge of analyzing the difference between owner's estimate and low bid through: (1) identification of leading indicators of ratio of low bid to owner's estimate that convey the extent of risk and uncertainty associated with construction projects at the cost estimation phase; and (2) development of appropriate multivariate time-series models (i.e., ARIMAX models) to predict the ratio of low bid to owner's estimate. It is anticipated that the results will help cost estimating professionals in transportation agencies better understand the variability between their estimates and submitted bids by highway contractors, and thus, prepare more accurate cost estimates and develop appropriate risk management strategies for enhanced decision-making.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | construction bidding; cost estimating; ratio of low bid to owner's estimate; seasonal autoregressive integrated moving average; time series analysis |
| Index terms: | highway construction, estimate, construction market, engineer, transportation agency, owner, number of bidders, program, decision-making, forecasting, construction project, deviation, time-series analysis, agency, risk factor, accuracy, cost estimating, construction cost index, bidding, strategy, cost estimate, risk management, variability |
| Subjects: | research evaluation and metrics, bidding, profession, risk assessment, market analysis, decision analysis, sociology, cost indicators, statistical analysis, financial and cost management, software systems, production management, civil engineering, transportation engineering, professional development, environmental hazards, prediction and forecasting, management |
| Topics: | Cost Management, Procurement, Business Strategy, Project Management, Engineering Principles, Sustainability, Information Management, Digital Applications, Risk Management, Roles and Professions, Research Practice, Stakeholder Management, Design Practice |
| 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