Contractor’s bid pricing strategy: a model with correlation among competitors’ prices
The approach used by construction companies to determine bid prices is an element of their strategy used to win jobs in competitive tenders. Such strategies build upon an analysis of the contactor’s potential and capabilities (am I able to deliver? am I eligible to participate in the tender?), and t...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
De Gruyter
2019-06-01
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| Series: | Open Engineering |
| Subjects: | |
| Online Access: | https://doi.org/10.1515/eng-2019-0021 |
| _version_ | 1818583555728474112 |
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| author | Jaśkowski Piotr Czarnigowska Agata |
| author_facet | Jaśkowski Piotr Czarnigowska Agata |
| author_sort | Jaśkowski Piotr |
| collection | DOAJ |
| description | The approach used by construction companies to determine bid prices is an element of their strategy used to win jobs in competitive tenders. Such strategies build upon an analysis of the contactor’s potential and capabilities (am I able to deliver? am I eligible to participate in the tender?), and the analysis of the economic environment, including the expected behavior of competitors. The tender strategy sets out both the guidelines and the procedure in deciding whether or not to bid as well as the rules for determining the price. The price, on the one hand, should be high enough to cover expected direct and indirect costs as well as risk-adjusted profit. On the other hand, it needs to be low enough to be considered most attractive (typically: the lowest) among the prices offered by the competitors. The paper focuses on the price definition component of the bidding strategy. It provides a brief overview of the existing methods that support bidding decisions by comparing their demand for input and limitations in practical applications and presents a simulation-based method supporting the determination of the profit ratio. This probabilistic method assumes the existence of a positive correlation between the prices offered by the competitors. Its application is illustrated by means of a numerical example. The outcomes of the simulation prompt the amount of the profit margin that maximizes the expected value of the contractor’s profit. |
| first_indexed | 2024-12-16T08:07:09Z |
| format | Article |
| id | doaj.art-d871cee4635c4a8dae5173b461871a53 |
| institution | Directory Open Access Journal |
| issn | 2391-5439 |
| language | English |
| last_indexed | 2024-12-16T08:07:09Z |
| publishDate | 2019-06-01 |
| publisher | De Gruyter |
| record_format | Article |
| series | Open Engineering |
| spelling | doaj.art-d871cee4635c4a8dae5173b461871a532022-12-21T22:38:26ZengDe GruyterOpen Engineering2391-54392019-06-019115916610.1515/eng-2019-0021eng-2019-0021Contractor’s bid pricing strategy: a model with correlation among competitors’ pricesJaśkowski Piotr0Czarnigowska Agata1Politechnika Lubelska, Lublin, PolandPolitechnika Lubelska, Lublin, PolandThe approach used by construction companies to determine bid prices is an element of their strategy used to win jobs in competitive tenders. Such strategies build upon an analysis of the contactor’s potential and capabilities (am I able to deliver? am I eligible to participate in the tender?), and the analysis of the economic environment, including the expected behavior of competitors. The tender strategy sets out both the guidelines and the procedure in deciding whether or not to bid as well as the rules for determining the price. The price, on the one hand, should be high enough to cover expected direct and indirect costs as well as risk-adjusted profit. On the other hand, it needs to be low enough to be considered most attractive (typically: the lowest) among the prices offered by the competitors. The paper focuses on the price definition component of the bidding strategy. It provides a brief overview of the existing methods that support bidding decisions by comparing their demand for input and limitations in practical applications and presents a simulation-based method supporting the determination of the profit ratio. This probabilistic method assumes the existence of a positive correlation between the prices offered by the competitors. Its application is illustrated by means of a numerical example. The outcomes of the simulation prompt the amount of the profit margin that maximizes the expected value of the contractor’s profit.https://doi.org/10.1515/eng-2019-0021competitive bidding strategybid pricemarkupcorrelation among bidsprobability of winning |
| spellingShingle | Jaśkowski Piotr Czarnigowska Agata Contractor’s bid pricing strategy: a model with correlation among competitors’ prices Open Engineering competitive bidding strategy bid price markup correlation among bids probability of winning |
| title | Contractor’s bid pricing strategy: a model with correlation among competitors’ prices |
| title_full | Contractor’s bid pricing strategy: a model with correlation among competitors’ prices |
| title_fullStr | Contractor’s bid pricing strategy: a model with correlation among competitors’ prices |
| title_full_unstemmed | Contractor’s bid pricing strategy: a model with correlation among competitors’ prices |
| title_short | Contractor’s bid pricing strategy: a model with correlation among competitors’ prices |
| title_sort | contractor s bid pricing strategy a model with correlation among competitors prices |
| topic | competitive bidding strategy bid price markup correlation among bids probability of winning |
| url | https://doi.org/10.1515/eng-2019-0021 |
| work_keys_str_mv | AT jaskowskipiotr contractorsbidpricingstrategyamodelwithcorrelationamongcompetitorsprices AT czarnigowskaagata contractorsbidpricingstrategyamodelwithcorrelationamongcompetitorsprices |