A novel cost of quality simulation to better select bidders in public private partnerships projects

Abstract

Bidder selection is a complex procurement decision that often surfaces in most project-based industries. The widely preferred institutional logic of low-cost bidder causes quality-related issues and poor revenue generation in the operations and maintenance phase. Therefore, the present research aims to evaluate bidder selection using the cost of quality principles. The research framework based on the cost of quality is formulated, and the risk of bidder selection associated with the cost of quality and revenue generation is assessed using @risk simulation software. The revenue generation of the facility is simulated with bid price and cost quality and subsequently validated using a case of a public-private partnership water supply project of Latur City in India. The research contribution entails that bidder selection based on price can be undertaken, provided the bidder has demonstrated evidence of the investment in the cost of quality. The research has demonstrated that the bidders possessing the larger water augmentation capacity and lower cost of quality expenditure are more likely to generate higher revenue than the competing bidders. Therefore, the bidder selection based on price alone will not yield adequate revenue generation during water operations and maintenance phases of water supply projects.