Chao, L C and Liou, C N (2007) Risk-minimizing approach to bid-cutting limit determination. Construction Management and Economics, 25(8), pp. 835-843. ISSN 1466433X
Abstract
Intense price competition is quite common in the construction industry. In many markets, contractors have to cut their bids to compete, giving priority to winning enough contracts to sustain normal operation, and it is common to see a winning bid close to the expected project cost. While cutting bids not only gives up profits but also undoubtedly increases the risk of making a loss, the behaviour of contractors in intense competition is difficult to explain by existing academic bidding models. An approach to determining the lower limit of the bid for a project is proposed based on minimization of the overall loss risk defined by a probabilistic model. The approach can be used to prevent arbitrary over-cuts in final bid decision where price competition is intense. Factors influencing the suggested bid-cutting limit for a project are analysed. An illustrative example using real case data is provided.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | bidding; estimating; Monte Carlo simulation; probability; risk analysis |
| Index terms: | Monte Carlo simulation, markets, construction industry, profit, project cost, minimization, risk analysis, bidding, estimating, competition |
| Subjects: | algorithms, economics, industry analysis, environmental hazards, market analysis, bidding, financial and cost management, economic analysis, modelling and simulation |
| Topics: | Digital Applications, Sustainability, Procurement, Cost Management, Business Strategy, Research Practice |
| Descriptive scope: | 4 PCTA |
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