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Risk assessment on contractors' pricing strategies

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  • TIANJI XU
  • ROBERT L.K. TIONG

Abstract

TIn a competitive tender, pricing strategies are often used by contractors to facilitate their cash flows. Usually, the decisions are based on contractors' experience, intuition, and personal bias. The existing mark-up or cash-flow forecasting models simulate the pricing strategies in a simplified manner which may depart from real situation and therefore could lead to inaccurate cash-flow forecasting. There is a lack of practical models that could quantify risks associated with pricing strategies. For construction projects, the quantity values of break-down cost items are random variables. A new approach to the risk assessment of contractors' pricing strategies is presented. By using the quantities as random variables, the approach developed in this paper enables the contractor to find the global optimal pricing through the stochastic programming model. The risks caused by contractors' pricing strategies are then assessed in a quantitative manner. A real case analysis using the approach is demonstrated.

Suggested Citation

  • Tianji Xu & Robert L.K. Tiong, 2001. "Risk assessment on contractors' pricing strategies," Construction Management and Economics, Taylor & Francis Journals, vol. 19(1), pages 77-84, January.
    • Handle: RePEc:taf:conmgt:v:19:y:2001:i:1:p:77-84
    DOI: 10.1080/01446190010002561
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    Cited by:

    1. Mohammed Fadhil Dulaimi & Hon Guo Shan, 2002. "The factors influencing bid mark-up decisions of large- and medium-size contractors in Singapore," Construction Management and Economics, Taylor & Francis Journals, vol. 20(7), pages 601-610.
    2. C. Y. Yiu & C. S. Tam, 2006. "Rational under-pricing in bidding strategy: a real options model," Construction Management and Economics, Taylor & Francis Journals, vol. 24(5), pages 475-484.

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