Bidding Contingencies and Probabilities

Abstract

Bidding contingencies are categorized into the following four groups: Mistakes; subjective uncertainties; objective uncertainties; and chance variations. In each case a formulation is developed to quantify the dollar value of the contingent event. Also treated under this heading is the problem of optimizing levels of performance (expense) as it applied to substitutions. Objective uncertainties are formulated in terms of the optimum height of a cofferdam as a function of the probability of flooding. Chance variation is treated in three ways. First, in terms of breaking even and the break-even chart. Then, productivity is considered as a triangular distribution. And finally profit is formulated in terms of the confidence level (standard deviation). The single most important thesis is that project should be bid on the basis of breaking even rather than on the basis of an arbitrary allowance for profit. If the former condition is satisfied, the latter is practically certain.