COMPETITIVE BIDDING FOR BUILDING CONSTRUCTION CONTRACTS

THE COMPETITIVE BIDDING LITERATURE WAS REVIEWED AND THE COMPETITIVE BUILDING PROBLEM IN THE BUILDING CONSTRUCTION INDUSTRY WAS EXAMINED. THE FOLLOWING ELEMENTS MUST BE CONSIDERED IN ORDER TO DETERMINE OPTIMAL BID: (1) THE PROBABILITY DISTRIBUTION OF THE COST OF PERFORMING THE WORK, (2) THE CONTRACTOR'S UTILITY FUNCTION, AND (3) THE ASSESSMENT OF THE PROBABILITY OF WINNING WITH DIFFERENT BID AMOUNTS. THREE WAYS OF DETERMINING THE PROBABILITY FUNCTION OF THE TOTAL COST WERE MENTIONED AND SEVERAL OF THE FACTORS THAT INFLUENCE THIS PROBABILITY DISTRIBUTION WERE DISCUSSED. THE THREE METHODS OF ESTIMATING THE PROBABILITY DISTRIBUTION OF THE TOTAL COST WHICH WERE CONSIDERED WERE: (1) THE CONVOLUTION OF NORMALLY DISTRIBUTED ELEMENTAL COSTS, (2) THE CONVOLUTION OF SUBJECTIVELY DETERMINED BETA DISTRIBUTED ELEMENTAL COSTS, & (3) ESTIMATION OF THE DISTRIBUTION OF THE ACCURACY OF THE CONSTRUCTION COST ESTIMATE AS DETERMINED BY THE RATIO OF THE TRUE COST TO THE ESTIMATED COST ON THE BASIS OF HISTORICAL INFORMATION. FACTORS THAT CONTRIBUTE TO THE UNCERTAINTY OF THE CONSTRUCTION COST ESTIMATE DISCUSSED ARE: SUBCONTRACTOR BIDS, MATERIAL COSTS, LABOR COSTS, LOCATION OF THE JOB, TYPE OF CONSTRUCTION, AND SUPERVISORY TALENT. THE AXIOMS OF UTILITY THEORY WERE INTRODUCED. THE EQUATIONS OF THE BILINEAR AND EXPONENTIAL UTILITY FUNCTIONS USED IN THE DEVELOPMENT OF THE PROPOSED BIDDING MODELS WERE DEVELOPED. VARIABLES THAT AFFECT THE DISTRIBUTION OF THE BID WERE USED IN A REGRESSION TYPE MODEL TO ASSESS THE PROBABILITY OF WINNING WITH DIFFERENT BIDS. THE COMPETITIVE BIDDING PROBLEM WAS CAST AS A TWO STAGE LOTTERY AND A NUMBER OF EQUATIONS WERE DEVELOPED EXPRESSING THE EXPECTED UTILITY CONDITIONAL ON WINNING AS A FUNCTION OF THE BID AMOUNT AND THE PARAMETERS OF THE DISTRIBUTION OF COST. DIFFERENT PROBABILITY DISTRIBUTIONS WERE USED IN COMBINATION WITH THE BILINEAR AND EXPONENTIAL UTILITY FUNCTIONS, AND REPRESENTATIVE CURVES WERE SHOWN FOR THE CASES OF THESE UTILITY FUNCTIONS ACROSS THE UNIFORM PROFIT LOTTERY.

  • Supplemental Notes:
    • Tr No 106, 106 PP, 16 FIG, 2 APP
  • Corporate Authors:

    Stanford University

    Stanford, CA  USA  94305
  • Authors:
    • Benjamin, N B
  • Publication Date: 1969-6

Subject/Index Terms

Filing Info

  • Accession Number: 00215276
  • Record Type: Publication
  • Files: TRIS
  • Created Date: Jul 27 1970 12:00AM