Lowest Bid Price Research Articles

The Varying Impact of Cognitive Biases on Different Types of Decisions An Experimental Study

To what extent are different types of decision-making susceptible to cognitive biases? And to what extent should normative conclusions be derived from such differences? In the current paper, we investigate these questions by referring to decision-making in the field of competitive bidding ("CB"). A substantial concern exists with regard to CB procedures, namely, that when bid evaluators are exposed to the bid price, this may affect their judgment, even with regard to decisions that should not be affected by this information. More specifically, there is a concern that in the first stage of the CB process, bid evaluators will allow defective bids to qualify when they are aware of the fact that such bids carry the lowest bid price. Similarly, there is a concern that at the second stage of the competitive process, the evaluation and scoring of the qualitative criteria of competing bids (such as experience, recommendations, and so forth) could be affected by knowledge of the bid price in a way that gives an undue advantage to the lower bidder. We term this failure the "lower bid bias" ("LBB"). The purpose of the current study is to examine whether, and under what conditions, such bias influences decision-making in CB processes, and to explore the differences between the two stages of the CB process in this regard. To this end, we conducted a series of experiments, with the participation of real decision-makers, in situations that largely resemble their daily work. Our main finding is that even though procurement officials are susceptible to the LBB at the scoring stage of the CB process, they succeed in overcoming this bias at the qualifying stage. We cautiously ascribe this difference in susceptibility to the LBB to differences in the type of decision-making involved, and suggest further ramifications of these insights.

Contractor Selection Model for Highway Projects Using Integrated Simulation and Analytic Network Process

Selecting the appropriate contractor is a significant step to highway project success. The process of selection is subjected to uncertainty and influence of criteria other than bid price. This paper presents an approach to prioritize competitive contractors at the prebidding stage for highway projects by utilizing the analytic network process (ANP) and Monte Carlo simulation. Both techniques are integrated on a single platform to build the proposed model. Initially, the main quantitative and qualitative criteria affecting the contractors’ selection process are identified and studied. The effective criteria in the selection process were obtained from experts and literature. A structured questionnaire was designed and sent to experts in highway projects. The ANP was used to prioritize these criteria subsequently, and Monte Carlo simulation was utilized to develop the selection model. The applicability of the proposed model was tested using four real cases of highway projects. It was concluded that using the lowest bid price as a sole criterion for selecting the best contractors may not result in an optimum solution.

Implied liquidity: Model sensitivity

The concept of implied liquidity originates from the conic finance theory and more precisely from the law of two prices where market participants buy from the market at the ask price and sell to the market at the lower bid price. The implied liquidity λ of any financial instrument is determined such that both model prices fit as well as possible the bid and ask market quotes. It reflects the liquidity of the financial instrument: the lower the λ, the higher the liquidity. The aim of this paper is to study the evolution of the implied liquidity pre- and post-crisis under a wide range of models and to study implied liquidity time series which could give an insight for future stochastic liquidity modeling. In particular, we perform a maximum likelihood estimation of the CIR, Vasicek and CEV mean-reverting processes applied to liquidity and volatility time series. The results show that implied liquidity is far less persistent than implied volatility as the liquidity process reverts much faster to its long-run mean. Moreover, a comparison of the parameter estimates between the pre- and post-credit crisis periods indicates that liquidity tends to decrease and increase for long and short term options, respectively, during troubled periods.

Implied Liquidity: Model Sensitivity

The concept of implied liquidity originates from the conic finance theory and more precisely from the law of two prices where market participants buy from the market at the ask price and sell to the market at the lower bid price. The implied liquidity lambda of any financial instrument is determined such that both model prices fit as well as possible the bid and ask market quotes. It reflects the liquidity of the financial instrument: the lower the lambda, the higher the liquidity. The aim of this paper is to study the evolution of the implied liquidity pre- and post crisis under a wide range of models and to study implied liquidity time series which could give insight for future stochastic liquidity modelling. In particular, we perform a maximum likelihood estimation of the CIR and Vasicek mean-reverting processes applied to liquidity and volatility time series. The results show that implied liquidity is far less persistent than implied volatility. Moreover, a comparison of the parameter estimates between the pre- and post credit crisis periods indicates that liquidity tends to decrease and increase for long and short term options, respectively, during troubled periods.

공공주택공사에서의 도급단가 리스크 규명에 관한 연구

Currently, the unit price of public construction projects are not being evaluated appropriately for several reasons. First, the evaluation of the unit price differ per nature of the bidding process and its estimation process. In fact, pricing is determined to meet the total price in turnkey projects and to pass the low bid price deliberation process in unit price projects, and thus, such prices cannot be said to be reasonable prices per public project. After the contract is awarded, however, the prices determined without taking into consideration the characteristic of each bidding process and price estimate process are used for the valuation of progress payment, design changes, and escalation. Furthermore, this is also being applied to other low bid deliberation process as actual public project unit price, thereby affecting other processes as well. In effect, this system increases the risks for both the owner and the bidder who have determined the unit price. This research examines the risk factor and its extent in order to properly manage it in preparation for the future.

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.

Correlating Bid Price with the Number of Bidders and Final Construction Cost of Public Street Projects

The vast majority of highway and street projects in the United States are procured by state or local governments through a competitive bidding process. In a competitively bid public project, awarding the contract to the lowest bidder is a predominant practice. A few studies measured the effect of awarding the contract to the lowest bidder on construction cost growth. This paper analyzes a sample of 435 bids on 113 public street projects in Clark County, Nevada, to determine a correlation between a lowest bid price and construction cost growth. The sample included projects completed between 1991 and 2008 and more than $554 million in construction value. The study also determined a correlation between the number of bidders and the deviation of the bid cost from the engineers’ estimate. The study showed no correlation between the lowest bid price and the construction cost growth. It showed that public owners would have received the lowest construction bid price if more bidders had been involved in the bidding process. The study found a strong correlation between the lowest bid price and the final construction cost. Therefore, a regression model was developed to predict the final construction cost of a street project by using the lowest bid price. A validation of the model showed that on average the predicted cost of a project was within 3.51% of the actual construction cost. Other findings included recommendations for future study.

Online Reverse Auctions for Outsourcing Small Software Projects: Determinants of Vendor Selection

Online service marketplaces have enabled small firms to efficiently outsource small-scale IT projects by providing reduced transaction costs and increased competition among bidders. This paper presents an explanatory study that examines the vendor selection process using data from a large online service marketplace. Theories from production economics, resource dependency, and software risk management are applied in a small-firm context. The empirical results suggest that a client’s utility function increases with a lower bid price, shorter lead-time, higher vendor average feedback rating, higher degree of vendor experience, and domestic (U.S.) location. There was not sufficient evidence to support strategically differentiated vendor selection behavior with respect to project value (or price). This study’s findings help understand patterns of bid evaluation in online auctions, where a large percentage of transactions consist of small IT projects.

Success of Supplier Alliances for Capital Projects

Energy sector capital projects typically cost hundreds of millions and even billions of dollars. Managing the engineered equipment is important not only because of their high dollar value but also because the long manufacturing lead times often drive the overall project schedules. In recent years, several supplier alliances have been successfully implemented on such projects leading to initial price savings in the range from 6 to 10%. This paper presents the result of a study to assess the opportunities and barriers with such partnerships. Interviewed company executives perceived that time savings and quality improvements, mostly due to the suppliers’ specialized expertise, are of much greater value than a lower bid price. Most surprisingly, very few companies use metrics to measure performance, thus leaving them in the dark on the question of how well an alliance worked or why it failed. The relevance of the presented work is in the amount of actual field data that has been generated and processed.

Method to Determine Minimum Contract Bid for A+B+I /D Highway Projects

More and more state highway agencies (SHAs) have begun to consider the value of time in highway construction. The ’A (cost) + B (time cost) + I/D (incentive/disincentive)’ bidding concept is designed to shorten the total contract time by allowing each contractor to bid the number of days in which the work can be accomplished, in addition to the traditional cost bid. I/D are not only used to provide an incentive to the contractor for earlier completion, but also to provide a disincentive for late completion of a project. Contractors are then presented with the problem of determining the best strategy of bid estimation, including construction cost, time cost, and incentive/disincentive. SHAs are also faced with the problem of placing a maximum and/or minimum on the time bid. To provide users a useful tool to estimate project time more accurately using this advanced method, this study develops a quantified model of the price-time bidding contract. The functional relationship between the construction cost and time duration is developed based on data from the Florida Department of Transportation (FDOT). The contractor’s construction cost ’A’ is then combined with the road user cost and incentive/disincentive to determine the optimum low bid price and time. This optimum can then be used by the SHA to set limits on the range of acceptable time bids. Finally, several projects completed by the FDOT will be used to illustrate the validity of this model.

Predicting final cost for competitively bid construction projects using regression models

This paper studies the relationship between the low bid and completed cost for competitively bid highway projects. Data are analyzed from several agencies managing highway and dredging projects. A natural log transformation of the low bid and final cost was found to produce regression models for each agency that had high R and R 2 values. These models can predict completed project cost using only the project low bid as input. A separate regression model was determined for each agency. Based on the form of the calculated models it appears that highway agencies construct projects where the final cost increases as an increasing percentage of the low bid price as the project magnitude increases. The dredging projects appear to follow different mechanisms of cost increase than the highway projects and were not predicted as well by the regression models. The regression models can also be used for budgeting purposes by submitting the sum of the low bids for a group of projects as input. The regression models output a prediction of the cost of the group of projects that was found to be highly accurate.

A method to determine minimum contract bids for incentive highway projects

An increasing number of state highway agencies (SHAs) are using Incentive/Disincentive (I/D) bidding for highway construction. The I/D bidding concept is designed to shorten the total contract time by allowing the contractor to obtain incentives for early completion and pay disincentives for late completion of a project. Contractors are then presented with the problem of determining a better strategy to develop their bid estimate, including construction cost, construction time, and I/D. This research offers a quantifying model to determine an optimum low bid to submit for both linear I/D and escalating I/D type projects. A functional relationship between the construction cost and time duration is developed from the Florida Department of Transportation (FDOT) projects. The equation is then combined with the I/D to determine the optimum low bid price and time. Finally, several projects completed by the FDOT will be utilized to illustrate the validity of this model.

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.

Effectiveness of a cephalosporin education program--a pharmacy education program.

In October, 1977, a cephalosporin drug-use review and an educational program were initiated to maximize savings in the pharmacy budget at UCSF and to revise the formulatory to include only one parenteral cephalosporin. The results of the drug-use review were presented to the Pharmacy and Therapeutics Committee where our proposal for an education campaign to encourage appropriate dosing of cefazolin was approved. An explanatory document comparing cephalosporin costs and equivalency was developed for hospital-wide distribution. Pharmacy staffs were informed of program objectives to coordinate education efforts. Physician education was undertaken via document and personal contact with pharmacy personnel. A drug-use review one month after institution of the cephalosporin education program showed marked changes in physician prescribing habits, with greater impact on services where pharmacists were members of the medical rounding team. A change to appropriate dosage prescribing of cefazolin resulted in significant cost savings to the pharmacy budget. These findings resulted in formulary revision to cefazolin as the single cephalosporin available at UCSF. Because cefazolin is available from more than one manufacturer, we were able to obtain a lower bid price the following year, thus realizing an additional cost savings.