IDEAS home Printed from https://ideas.repec.org/a/taf/conmgt/v25y2007i8p835-843.html
   My bibliography  Save this article

Risk-minimizing approach to bid-cutting limit determination

Author

Listed:
  • Li-Chung Chao
  • Chang-Nan Liou

Abstract

Intense price competition is quite common in the construction industry. In many markets, contractors have to cut their bids to compete, giving priority to winning enough contracts to sustain normal operation, and it is common to see a winning bid close to the expected project cost. While cutting bids not only gives up profits but also undoubtedly increases the risk of making a loss, the behaviour of contractors in intense competition is difficult to explain by existing academic bidding models. An approach to determining the lower limit of the bid for a project is proposed based on minimization of the overall loss risk defined by a probabilistic model. The approach can be used to prevent arbitrary over-cuts in final bid decision where price competition is intense. Factors influencing the suggested bid-cutting limit for a project are analysed. An illustrative example using real case data is provided.

Suggested Citation

  • Li-Chung Chao & Chang-Nan Liou, 2007. "Risk-minimizing approach to bid-cutting limit determination," Construction Management and Economics, Taylor & Francis Journals, vol. 25(8), pages 835-843.
    • Handle: RePEc:taf:conmgt:v:25:y:2007:i:8:p:835-843
    DOI: 10.1080/01446190701393018
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/01446190701393018
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/01446190701393018?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pablo Ballesteros-P�rez & Martin Skitmore & Eugenio Pellicer & M. Carmen Gonz�lez-Cruz, 2015. "Scoring rules and abnormally low bids criteria in construction tenders: a taxonomic review," Construction Management and Economics, Taylor & Francis Journals, vol. 33(4), pages 259-278, April.
    2. João Adelino Ribeiro & Paulo Jorge Pereira & Elísio Brandão, 2013. "Volume Uncertainty in Construction Projects: a Real Options Approach," CEF.UP Working Papers 1309, Universidade do Porto, Faculdade de Economia do Porto.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:conmgt:v:25:y:2007:i:8:p:835-843. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RCME20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.