Low-bid Method Research Articles

Owner’s Perspective on Evolution of Bid Prices under Various Price-Driven Bid Selection Methods

AbstractIn the construction industry, it is crucial for owners to select the appropriate contract delivery method to achieve best performance on their projects. The low-bid method has been the most...

Investigating the Winner’s Curse Based on Decision Making in an Auction Environment

Background. The majority of bidding models, such as those developed by Friedman and Gates focus on the mark-up decision. Despite a large body of literature, particularly related to the construction industry, these bidding models largely ignore human behavior. Aim. This article has two aims. The first is to contribute to the potential use of business games to study the results of auction behavior in a construction business environment. The second is to investigate the winner’s curse and its effects on individual companies and the market. Method. The methodology for this study is rooted in game theory. The reasoning which leads to the winner’s curse is explored through a behavioral multi-actor experiment. I developed a database-driven, online multiplayer auction game which served as a laboratory experiment. The study included 42 participants. Data were collected during the game, and debriefing results were analyzed. Results. The results show that contractors suffer from the winner’s curse for a variety of reasons including their own bidding strategy, strong competition within the construction market, and inaccurate estimates of project costs. These reasons affect the behavior of contractors and the intention to win the project’s bid as well as their willingness to take risks. Conclusion and Recommendations. The approach outlined in this article contributes to decision-making research in the context of the ‘reverse’ auction low bid method. I recommend that future researchers consider second-price, sealed-bid auctions (Vickrey auctions); this type of auction is also easy to implement.

Evolutionary Simulation of Contractors’ Learning and Behavior under Two Bid-Tendering Approaches

AbstractBidding and determining the optimum markup are two major decisions that a contractor has to think about thoroughly when faced with a new project. Several bidding models have been presented in the literature to help contractors make these two decisions; however, they mostly considered the perspective of one contractor bidding on a single project, obscuring the interaction and learning components among contractors and the observation of emergent bidding patterns at both individual and aggregate levels. This research uses an evolutionary approach to model construction-bidding market dynamics and study the effect of contractors’ risk attitude on their markups, and on the long-term progression of bid prices under two bid-tendering approaches, namely the low and average bid methods. Simulation results showed that the most risk-tolerant contractors submit the lowest bid prices under the low-bid method and the highest prices under the average bid method. Moreover, the low-bid approach revealed long-term e...

Average Bid Method – An Alternative to Low Bid Method in Public Sector Construction Procurement in Nepal

Federation of Contractor Associations of Nepal (FCAN) has asked the government to amend the law so that bidders quoting the average price would be awarded the contract. The competitive bidding process for awarding construction contracts in Nepal is based on the low bid method. According to this method, the construction firm submitting the lowest bid receives the right to the construction contract. Promoting competition amongst contractors and maintaining transparency are the clear benefits but delays in meeting the contract duration, increment of the final project cost, tendency to compromise quality, and adversarial relationship among contracting parties are the major drawbacks.As alternative of low bid method, some countries are using Average bid method.In this method, contract is awarded to the contractor whose price is closest to the average of all bids submitted. It is assumed that with a fair price they would conform to quality requirements of the project, would complete on time, and would not have adversarial relationships with the consultant of the employer. Awarding tenders to the lowest bidders is the major reason behind lingering construction projects and failure in meeting its standards in Nepal. To avoid such problems, Average bid Award system may be practiced by public agencies for procurement of works in Nepal.DOI: http://dx.doi.org/10.3126/jie.v10i1.10888Journal of the Institute of Engineering, Vol. 10, No. 1, 2014,pp. 125–129

Comparison of Concrete Properties determined by Destructive and Non-Destructive Tests

Federation of Contractor Associations of Nepal (FCAN) has asked the government to amend the law so that bidders quoting the average price would be awarded the contract. The competitive bidding process for awarding construction contracts in Nepal is based on the low bid method. According to this method, the construction firm submitting the lowest bid receives the right to the construction contract. Promoting competition amongst contractors and maintaining transparency are the clear benefits but delays in meeting the contract duration, increment of the final project cost, tendency to compromise quality, and adversarial relationship among contracting parties are the major drawbacks.As alternative of low bid method, some countries are using Average bid method.In this method, contract is awarded to the contractor whose price is closest to the average of all bids submitted. It is assumed that with a fair price they would conform to quality requirements of the project, would complete on time, and would not have adversarial relationships with the consultant of the employer. Awarding tenders to the lowest bidders is the major reason behind lingering construction projects and failure in meeting its standards in Nepal. To avoid such problems, Average bid Award system may be practiced by public agencies for procurement of works in Nepal.DOI: http://dx.doi.org/10.3126/jie.v10i1.10889Journal of the Institute of Engineering, Vol. 10, No. 1, 2014, pp. 130–139

Best-Value Bid Selection Methods for Performance-Based Roadway Maintenance Contracts

Performance-based contracts for roadway maintenance extend over multiple years and shift the responsibility to the contractor to maintain roadway assets at specific performance levels. Thus contractors need to be selected with best-value methods rather than with the conventional low-bid method. Best-value bid selection considers both the bid price and technical aspects of the proposal (e.g., contractor qualifications, quality management plan, experience). This study evaluated the best-value bid selection methods used by four highway agencies in the United States (Florida, North Carolina), New Zealand, and the United Kingdom to procure roadway maintenance contracts on the basis of performance. A numerical analysis of these four methods indicated that those best-value bid selection methods that used the adjusted price concept balanced price and technical marks, those that used direct price and technical weights favored low bids, and those that considered the maximum technical quality offered by the bidders favored bids with high technical marks.

Below-Average Bidding Method

The low-bid method, typically used for competitive bidding in the United States, may result in a contract with a firm that submits either accidentally or deliberately an unrealistically low-bid price. Such an occurrence hurts both the owner and the contractor by promoting disputes, increased costs, and schedule delays. To address this problem, other countries have adopted bidding methods based on the average of the bids submitted. One such approach is the below-average method where the winning bid is closest to but below the average of all bids. A competitive bidding model for the below-average-bid method is presented and its merits relative to the average-bid method and the low-bid method are explored. The below-average-bid process is investigated analytically and through Monte Carlo simulation. The results of bidding models for the below-average, the average, and the low-bid methods are presented in four easy-to-use nomograms which allow contractors to determine the optimal lump-sum bid price for each method without the need for complicated analysis. A comparison of the three methods provides information and insights to help owners with the difficult choice of a suitable bidding method for the project at hand.

Bidding strategies for conventional and trenchless technologies considering social costs

With recent rapid advances in trenchless technologies, acceptance of such methods for inspection, repair, upgrade, and installation of underground infrastructure systems has been increasing. Trenchless technology has greatly reduced the footprint of the construction site and the need for much of the trenching that is normally associated with underground construction. The reduction of the construction footprint and the amount of trenching has greatly impacted a class of costs called social costs. Social costs can be considered the costs of a construction project which are not carried in the construction bid such as traffic delays, reinstatement of public and private property, and public perception. Social costs are not clearly defined, nor is their estimation straightforward. What is the actual cost for replacing a lawn damaged through trenching or the political cost for closing a main thoroughfare close to an election? Inclusion of social costs with project costs can greatly impact the normal tendering process. Inclusion of social costs allows the municipality to estimate the true costs of the project and therefore identify the most economically efficient bid based on minimizing the total cost. From the taxpayers point of view the inclusion of at least a subset of the social costs in the selection process is desirable. However, from the point of view of a competitive bidder, inclusion of costs not under their control (social costs) in the selection process makes the determination of the optimal bid difficult for a contractor. This paper discusses traditional bidding strategies in which the bidder can optimize the bid based on a probabilistic approach using the expected-value approach to bidding under the assumption that the low-bid method is used. This paper also puts forward two methods for the estimation of social costs which can be used in conjunction with the bidding methodology discused. A worked example demonstrates the application of one of the estimation methods and the bidding methodology.(A)

Average‐Bid Method—Competitive Bidding Strategy

The major drawback of the lowbid method, often used for competitive bidding in the U.S. construction industry, is the possibility of awarding a construction contract to a contractor that submits, e...