Contract Bidding Research Articles

Calcul économique et incertitude socio-politique : une procédure d’évaluation des projets publics

Public Contract Bidding : Fixed-Price Contracts Amended by Change Orders or Incentive Contracts ? French procurement contracts are usually awarded by fixed-price contracts. However, fixed prices can be raised by change orders that occur after the contract is signed. The authors develop a model of this procedure that gives an explanation for low-ball bidding strategies and cost overruns. Then the authors show that this procedure can yield an expected price lower than the optimal linear incentive contract of McAfee and McMillan (1986).

Bid cutting: an empirical study of practice in South-East Queensland

The nature, status and role of bid cutting in construction bidding are examined from economic, legal, ethical and management perspectives. Some possible means of countering its negative effects are considered including its prohibition by legislation, the use of bid depositories, earlier formalisation of subcontracts, withdrawal of subcontract prices and through alternative procurement methods. An empirical survey of bid cutting practice is described involving a sample of main contractors (MCs) and subcontractors (SCs) in SouthEast Queensland. The practice of bid cutting was found to be widespread. All the MCs considered the practice to be ethical and all the SCs considered it to be unethical. In some cases, MCs awarded contracts elsewhere, even after telling SCs they had the job. Most of the SCs had tried individually to counteract bid cutting but were unable to continue this while others were complying with MC bid cutting attempts. SC bid withdrawals are very rare and litigation is never applied by either MCs or SCs. Mainly as a result of incomplete project documentation, MCs disliked the idea of making the subcontract binding at the time of main contract bid subject to its success, although it was generally recognised that it would reduce bid-cutting by the MC – view that was also shared by half the SCs. Most respondents thought the construction management procurement option might reduce bid cutting but none had sufficient direct experience to be sure.

The globalisation of defence industries

Since the end of the nineteenth century, defence industries have been regarded as clearly defined national assets, supported by national governments. But the globalisation process is creating or accelerating the emergence of transnational defence markets and corporate structures. 'National' defence industries, especially in Europe, have already been diluted by international collaboration to develop specific projects. And the operation of international supply chains and foreign direct investment in national-defence companies is increasing the level, depth and complexity of global industrial integration. The globalisation process in defence is also driven by governments trying to maintain competition in national markets by soliciting bids for key contracts from international suppliers. Finally, in order to meet the demands of emerging technologies associated with the Revolution in Military Affairs (RMA), governments and specialist defence companies alike will have to tap a wider global stream of innovation that will probably force both to change the way they do business. Moreover, the cumulative impact of all of these changes will require governments and politicians in the core stages of the West to find new policies and attitudes that can reconcile national security with transnational industrial operation.

Issues in bidding for contracts for occupational therapy services.

There is an increasing number of occupational therapists in Canada who are involved in bidding for contracts to deliver occupational therapy services. Occupational therapists working in an institutional or community-based setting may not have had the responsibility of developing a proposal or a marketing plan for bidding purposes. However, the responsibility of developing a bid to compete for a service delivery contract often rests on occupational therapists who are sole practitioners in a private practice setting. The purpose of this paper is to highlight issues in the literature such as service delivery plans, marketing strategies and costing of services that can assist the occupational therapist in the development of a contractual bid. A specific clinical example, school therapy services, has been used to illustrate how these strategies can be applied to practice. Success in contractual bids appears to be primarily influenced by cost of the service, the expertise of the service provider, ability to provide coordinated care, ease of access for clients, and inclusion of methods to measure client outcome.

Construction bid price evaluation

To overcome the disadvantages of the low bid price policy in open competitive contracts, many are advocating the average bid method for bid evaluation. However, as elucidated in this study, this method has some disadvantages. The purpose of this paper is to propose an alternate statistical procedure for bid evaluation. Such procedure applies simple statistical analysis to identify unrealistically low-priced bids, based on either the t-distribution or the normal distribution of a previously established database of similar bids. In this procedure, the ratio of a contractor's bid to owner cost estimate is used to eliminate the distorting effect of the project size. The unrealistically low-priced contracts are then excluded and the bid with the lowest price among the remaining bids is accepted. The procedure requires establishing a database of previous bids.Key words: bid evaluation, competitive bidding, contractor qualification, tender evaluation, contract administration, contract management, bid management.

Bid cutting: an empirical study of practice in South‐East Queensland

The nature, status and role of bid cutting in construction bidding are examined from economic, legal, ethical and management perspectives. Some possible means of countering its negative effects are considered including prohibition by legislation, the use of bid depositories, earlier formalization of subcontracts, withdrawal of subcontract prices and through alternative procurement methods. An empirical survey of bid cutting practice is described involving a sample of main contractors (MCs) and subcontractors (SCs) in Southeast Queensland. The practice of bid cutting was found to be widespread. All the MCs considered the practice to be ethical and all the SCs considered it to be unethical. In some cases, MCs awarded contracts elsewhere, even after telling SCs they had the job. Most of the SCs had tried individually to counteract bid cutting but were unable to continue this while others were complying with MC bid cutting attempts. SC bid withdrawals are very rare and litigation is never applied by either MCs or SCs. Mainly as a result of incomplete project documentation, MCs disliked the idea of making the subcontract binding at the time of main contract bid subject to its success, although it was generally recognized that it would reduce bid cutting by the MC‐a view that was also shared by half the SCs. Most respondents thought the construction management procurement option might reduce bid cutting but none had sufficient direct experience to be sure.

Bidding behavior in the department of defense's commercial activities competitions

From 1978 to 1994, the Department of Defense conducted more than 2,000 competitions in which private contractors and the government's in-house team bid to provide a service performed in-house before the competition. A three-equation model is constructed, which is used to estimate the in-house bid, the minimum contractor bid, and the in-house team's baseline cost. The model accounts for the fact that the in-house bid is constrained not to exceed its baseline cost. The estimates are used in simulations of the savings from the completed competitions ($1.55 billion annually, 35 percent of the baseline cost) as well as the savings from various alternative policies, including competitively tendering all the functions on the Department of Defense's list of potential candidates ($7.58 billion annually). © 2001 by the Association for Public Policy Analysis and Management.

Sequential Procurement With Subcontracting

Two symmetric sellers are approached sequentially by fragmented buyers. Each buyer conducts a second‐price auction and purchases from the seller who offers the lower price. Winning an auction affects bidding for future contracts because the sellers have nonconstant marginal costs. We assume that the sellers are completely informed, and we study the unique equilibrium that survives iterated elimination of weakly dominated strategies. If subcontracting between the sellers is impossible, the final allocation of contracts is generally inefficient. If postauction subcontracting is possible, the sellers can be worse off, ex ante, than when subcontracting is impossible.

Suggested Practices for Installations Using Horizontal Directional Drilling

In recent years, the utilization of horizontal directional drilling (HDD) in urban areas for the installation of telecommunication, utilities, or municipal services has experienced a rapid growth. The hazards and complexity of working in urbanized areas, together with the ever increasing volume of construction activities, make the development of suggested practices much needed for engineers and inspectors whose primary responsibility is to oversee the project to a safe and successful completion. This paper presents suggested practices for underground installations of pipelines and conduits using HDD technology. Written feedback from numerous consulting engineers, contractors, owners, and research institutions in North America were solicited in the development of this paper. Contracting and construction aspects of HDD projects including design rules-of-thumb are incorporated to provide designers with the necessary tools for enhancing the probability of a successful HDD project. Topics include contract considerations, contractor bid submission, site evaluation, preconstruction, drilling operations, drilling fluid collection and disposal, site restoration, construction, and postconstruction evaluation. Additionally, provisions for measurement and payment are presented and discussed.

Contractor Selection for Design/Build Projects

As traditional construction procurement approaches are found to be inadequate in meeting the demands and challenges of recent times, alternative procurement routes such as through management contracting or build-operate-transfer are increasingly being adopted. Although design-build is one of the more popular alternative procurement methods that also has a long history, it does not appear to have well-established contractor selection procedures. This paper focuses on developing a model for contractor prequalification and bid evaluation in design-build projects. For this purpose, it presents a comparative overview of some international practices in the design-build contractor selection process. The overall objective is to identify the core aspects of selecting a suitable bidder in order to achieve the best value for money. The strengths and weaknesses of current practices of contractor selection are highlighted while identifying some of the best practices followed in design-build projects by various clients.

A Study of Collusion in First-Price Auctions

This paper examines the bidding for school milk contracts in Florida and Texas during the 1980s. In both states firms were convicted of bid-rigging. The data and legal evidence suggest that the cartels in the two states allocate contracts in different ways: One cartel divides the market among members, while the other cartel also uses side payments to compensate that both forms of cartel agreements are almost optimal, provided the number of contracts is sufficiently large. In the auction the cartel bidder may face competition from non-cartel bidders. The presence of an optimal cartel induces an asymmetry in the auction. The selected cartel bidder is bidding as a representative of a group and has on average a lower cost than a non-cartel bidder. The data support the predicted equilibrium bidding behaviour in asymmetric auctions in accordance with optimal cartels.

Bid dispersion, competition and wage regulation: some field evidence from public contract bidding in British Columbia

The paper uses data from British Columbia to show that bid dispersion (the difference between the winning and next-lowest bids) in public school construction contract bidding is very compact, and that it varies inversely with the degree of competition. It also examines the impact of the Skill Development and Fair Wage Law (SDFWP), which promulgated wage scales and required contractors to pay them in public construction projects, on the bid dispersion. Multivariate analysis shows that bid dispersion declined after SDFWP. One possible interpretation of this result is that the contractors became less prone to the winner's curse following the SDFWP.

3 Mature Procurement of Large Scale Systems: A Better Way to Buy

ABSTRACTThis paper examines current procurement practices in the systems engineering industry, and identifies some underlying features of the system that sometimes make it fail. It will mainly focus on the structure of rewards within and between organisations, and will also touch briefly on the unrealistic treatment of requirement specification. Finally it will be argued that a more mature approach to procurement is needed, and describe some features that ‘mature’ organisations might be expected to have.Performance metrics and fixed price contract bids have been central in the systems engineering industry for the past decade. These have provided some important management tools, but there can be a damaging downside to these practices. This paper will examine a characteristic of some metrics within companies, contractual arrangements between organisations, and procurement policies, that can result in the opposite outcome to the intended goal.A further point will examine the unrealistic assumptions about requirement specifications made by current commercial practice. It will be suggested that large scale projects based upon such false premises are inevitably flawed from the outset, and that a more realistic approach is needed to achieve program plans that actually deliver a satisfactory product on time and within budget.Finally, it will be suggested that the next generation of management and commercial policy should refine their current approach in order to take account of these factors. A possible means by which this might be achieved is outlined.

Areawide Performance-Based Rehabilitation and Maintenance Contracts for Low-Volume Roads

To address internal inefficiency and accountability issues, a number of Latin American countries have moved decisively and successfully over the last decade from force-account (direct labor) to contract maintenance. Also, there has been considerable progress in the region in transferring to the private sector, through concessions, the responsibility for improving, maintaining, and operating high-traffic-volume roads, the cost of which is recovered from tolls. Argentina, Brazil, and Chile are among the most advanced countries in this respect. More recently, some countries—particularly Argentina—have switched from the traditional quantities and unit price–based short-term maintenance contracts to long-term performance-type or results-based contracts. The new approach encompasses either routine maintenance activities alone or integrated contracts involving both the rehabilitation and routine maintenance of road networks. The latter form, the so-called CREMA system (Contrato de Recu-peración y Mantenimiento), is now being implemented in Argentina and covers approximately 12 000 km (i.e., about 40 percent of the national paved road network). Such contracts comprise the rehabilitation and subsequent maintenance over a 5-year period of 200-km- to 300-km-long subnetworks. A framework for extending the CREMA concept to low-volume roads is presented. The means by which this newly developed system could be extended to cover both the paving and future maintenance of low-volume roads is explained. Reasons are analyzed as to why this type of contract, which extends the contractor’s share of responsibility over a relatively long period of time, would be well suited to the specific design and construction features of low-cost, low-volume paved roads—in particular, in the risks related to uncertain traffic projections and in the use of local or nontraditional materials in thin pavement structures. Finally, issues related to the use of the CREMA system—especially the need to prepare adequate contract bidding documents, conduct proper bid proposal evaluations, and monitor contractor’s performance during the rehabilitation/paving and maintenance phases—are explored.

Using a genetic algorithm-based classifier system for modeling auditor decision behavior in a fraud setting

This paper addresses a classification problem involving the decisions of Defense Contractor Audit Agency (DCAA) auditors when they are estimating the likelihood of fraud by contractors developing bids for government contracts. The objective of the study is to investigate if this decision involves non-algebraic processes associated with a posited simultaneous decision model or algebraic processes posited by sequential decision processes. We propose that in classification decision models involving simultaneous processing, genetic algorithms represent an innovative heuristic approach, which may produce improved models when compared to traditional mathematical approaches. © 1998 John Wiley & Sons, Ltd.

Contractor selection using multicriteria utility theory: An additive model

A systematic multicriteria decision analysis technique is described for contractor selection and bid evaluation based on utility theory and which permits different types of contractor capabilities to be evaluated. A U.K. case study is used to illustrate the technique. The theoretical basis and the advantages of the technique are also presented.

Do Small Business Set-Asides Increase the Cost of Government Contracting?

Small Businesses The encouragement of small businesses is an important goal of many modern governments. Government support of small businesses is strong in the United States, Germany, Switzerland, and Japan (Bannock, 1981). In the United States, a major piece of legislation, the Small Business Act of 1953, sets aside a certain number of federal contracts for businesses are independently owned and operated; are not dominant in their field of operation; and meet a specified size criterion. In addition, various congressional committees have been formed to encourage small businesses. The Small Business Act has been strengthened by the Small Business Investment Act (1958), which helps small businesses raise capital, and the creation of the Office of Advocacy (1976), which alerts government agencies and Congress to the effect of burdensome regulations on small businesses. A series of other legislation was passed after 1980 to further ease regulatory burdens on small businesses (White, 1982; Brock and Evans, 1986; Small Business Advocate, 1996). Most small businesses are involved in agriculture, construction, wholesale trade, retail trade, and services, where firms with less than 100 employees account for a majority of sales (Brock and Evans, 1986). In general, small businesses thrive in industries that require little capital investment. The shift in U.S. industry from manufacturing to services bodes well for the proliferation of small businesses (White, 1982; Brock and Evans, 1986). Other researchers have shown that small businesses have been very strong in manufacturing as well. Small businesses create new jobs at a higher rate in manufacturing than in either services or finance (Curran and Watkins, 1986; Acs and Audretsch, 1990). The unexpected strength of small firms in manufacturing is certainly attributable to the development of new, small-scale production technologies. Acs and Audretsch (1990) maintain that the flexibility of small firms enables them to compete and thrive in the capital-intensive manufacturing industry. Small businesses have been viewed as an important part of the economy of modern nations because they diversify economic power. individually, small businesses are price takers and are not capable of influencing the movement of prices as are large businesses, particularly those in concentrated markets (Bannock, 1981; Brock and Evans, 1986). In addition, small businesses create a stable employment environment because the loss of a few small businesses does not have the social repercussions of the loss of a large business (Bannock, 1981). Small businesses are regarded by many as more innovative than large businesses. Since they have little individual influence on an economy, small businesses must adapt readily to change. They are seen as producing more innovation per unit dollar of research and development as well as per employee (Holton, 1965; Bannock, 1981; Acs and Audretsch, 1990; Pratten, 1991). Other benefits of small businesses include the rendering of specialized services and products not offered by large businesses, and the potential for job creation (Brock and Evans, 1986; Acs and Audretsch, 1990). In addition, small businesses have higher growth rates than large firms (Storey, 1990). In large measure, the proliferation of small businesses at certain times in the economic cycle may be seen as a reallocation of societal resources in response to market forces. When recessions occur, large businesses often lay off workers. A measure of reallocation of resources enables some of these workers to either start small businesses or be absorbed by the small business sector (Binks and Jennings, 1986). Do Set-Asides Increase Contracting Costs? Restricting some federal contracts to bidders of a certain size restricts competition. Many economists have found that loss of competition may result in bids for federal contracts being higher than they would be in the face of full competition. …

Auctioning Conservation Contracts: A Theoretical Analysis and an Application

AbstractAuction theory is used to analyze the potential benefits of auctions in allocating contracts for the provision of nonmarket goods in the countryside. A model of optimal bidding for conservation contracts is developed and applied to a hypothetical conservation program. Competitive bidding, compared to fixed‐rate payments, can increase the cost effectiveness of conservation contracting significantly. The cost revelation mechanism inherent in the bidding process makes auctions a powerful means by which to reduce the problems of information asymmetry. Strategic bidding behavior, which may adversely affect the performance of sequential auctions, is difficult to address by means of auction design.

Economic Espionage as Strategic Trade Policy

In an interview on NBC's Expose in September 1991, Pierre Marion, a former Director of the French intelligence service, stated that: It would not be normal that we do spy on the (United) States in political matters; we are really allied. But in the economic competition, in the technological competition, we are competitors; we are not allied (Security Management 1992). Is it 4normal for competing nations to conduct economic espionage? This paper will show that there may be indirect strategic benefits from spying that go beyond the obvious direct benefits from access to valuable economic secrets. In such situations, economic espionage acts as a form of strategic trade policy that shifts profits from foreign firms to domestic firms and potentially improves national welfare. Porteous (1993) has sketched a similar argument. Many types of sensitive information may be obtained by means of economic espionage. If spying unearths the blueprints of a prodluct or the source code of software, the fixed costs associated with research and development can be reduced for domestic firms. In such a case, there are direct benefits for domestic firms, but no strategic benefits because the behaviour of the domestic firms in global markets will remain unchanged. On the other hand, information on contract bids, marketing plans, or costs of rival foreign firms may give rise to strategic benefits in global markets even though there are no direct benefits. Finally, if the production technology of foreign firms is obtained, there will be both a direct benefit from lower total costs for domestic firms and a strategic benefit on global markets due to lower marginal costs. This paper will focus on espionage performed to obtain marginal-cost reducing production technologies. While this paper considers espionage by the government on behalf of domestic firms, the analysis could easily be adapted to allow for spying by

STRATEGIC INFORMATION REQUIREMENTS IN CONTRACT BIDDING: FRAMEWORK FOR DEVELOPMENT OF A DECISION SUPPORT SYSTEM

The results of a case study involving two major construction contracting companies are presented indicating the informational and other needs and considerations of construction contract bidding adjudication decision makers. A strategic information model is described and the development of prototype decision support system based on Executive Information System technology.