Soo, A and Oo, B L (2014) The effect of construction demand on contract auctions: An experiment. Engineering, Construction and Architectural Management, 21(3), pp. 276-290. ISSN 0969-9988
Abstract
Purpose - The purpose of this paper is to present an experiment to test the effect of construction demand on the mark-up price level in construction contract auctions. Design/methodology/approach - An experimental approach was adopted for this study. In a controlled laboratory environment, a first-price sealed bid auction was simulated with varying number of projects available over ten rounds to simulate changing construction demand. Two experimental treatments were run in parallel, one exhibiting a "booming" demand over time, and the other group with a "recession" scenario. The experiment involved student (inexperienced) bidders with a construction project management background. Findings - The results show that inexperienced bidders do behave differently when subjected to varying levels of construction demand. Variations in the bid price level are affected by varying levels of construction demand and the general mark-up level for the bidders experiencing a booming scenario was higher on average compared to bidders subjected to the recession scenario. Research limitations/implications - An identified limitation of this study is the use of student subjects in the experiment, thus the experiment results are limited in generalisation to inexperienced bidders. Further studies may be able to replicate the experiment with experienced industry practitioners to observe the results. Practical implications - The results allow for industry practitioners to gain a stronger understanding of the effects of varying levels of construction demand and the need to consider construction demand in construction contracting. For construction clients, the level of construction demand may be used as an indicator to assist in the timing to call tenders to achieve a desirable price. For contractors, increased awareness of how demand affects competition and the price level will allow additional optimisations to be achieved in the bid price. Originality/value - Construction demand has been widely known to be one of the key factors affecting contractors' bidding decisions. However, there has been little empirical investigation of the changes in bidders' behaviour due to varying levels of construction demand. This paper attempts to add to the empirical research knowledgebase through an experimental setting.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | construction bidding; construction demand; contract auctions; experiment |
| Index terms: | variation, methodology, practitioner, competition, bidding, laboratory, mark-up, experiment, construction demand, bidder, construction project management, investigation, construction contract, recession, construction client |
| Subjects: | economic analysis, bidding, contract type, data collection methods, practitioner, research management, market analysis, price determination, research methods, project management theory and practice, contractual condition |
| Topics: | Contract Administration, Roles and Professions, Procurement, Business Strategy, Project Management, Research Practice |
| Descriptive scope: | 5 PCTEA |
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