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Lecture

ADMS 1010 Lecture Notes - Econometrics


Department
Administrative Studies
Course Code
ADMS 1010
Professor
Rebecca Jubis

Page:
of 1
The effect of client and type and size of construction work on a contractor's bidding strategy
Contractors making strategic decisions in respect of:
(1) The selection of contracts to bid for
(2) The bid levels necessary to secure them. If a contractor opts to bid, the pricing of the bid normally
comprises a two-stage formulation process consisting of a baseline cost estimate and subsequent mark-
up. E.g. overheads, profit and risk
The contractor `must choose a price high enough to provide sufficient contribution to overheads and
profits, yet low enough to ensure that a sufficient volume of work is actually obtained . . . in an
environment of considerable uncertainty about the behaviour of the competitors'
Factors influencing bidding behaviour were grouped by Drew and Skitmore [17] into those affecting: (1)
the behaviour of contractors as a group (e.g. market conditions, number and identity of competitors);
(2) individual contractor behaviour (e.g. contractor size, work and tenders in hand, availability of staff);
and (3) behaviour toward the characteristics of the contract (e.g. type and size of construction work,
client, location)
Bid mark-up models proposed using a probabilistic approach to determine the most
appropriate mark-up level for a given contract.
Three approaches to bid modelling as being: (1) models based on probability theory; (2)
econometric models; and (3) regression models. Carr and Sandahl [7] suggested that regression
modelling has many potential uses for contractors in a competitive bidding environment and
used regression modelling to determine a contractor's optimum mark-up level.
Male identifies that contractors define a strategic domain at the corporate strategy level with
the domain establishing the market dimensions within which contractors plan to operate and
compete for work. Contractors then make decisions on which contracts to bid for at the
business strategy level. If opting to bid, the cost estimate is then formulated at the operational
strategy level and fed back to the business strategy level where senior management then
decides the appropriate level of mark-up at an adjudication meeting.
Factors influencing bidding behaviour were grouped by Drew and Skitmore [17] into those
affecting: (1) the behaviour of contractors as a group (e.g. market conditions, number and
identity of competitors); (2) individual contractor behaviour (e.g. contractor size, work and
tenders in hand, availability of staff); and (3) behaviour toward the characteristics of the
contract (e.g. type and size of construction work, client, location).