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Synthetic cash flow model with singularity functions for unbalanced bidding scenarios

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  • Yi Su
  • Gunnar Lucko

Abstract

Construction contractors may utilize unbalanced markup bidding strategies, e.g. front-loading, to seek more beneficial cash flows, or even protect their target profits. A difference between ethical and unethical unbalanced bidding is whether the bid has been mathematically or even materially modified: the former may be allowable, but the latter should be rejected, as it fails to cover even the cost of later activities. Unbalanced bidding adds to the complexity of cash flow models and requires a new model that can calculate different scenarios accurately and efficiently. Basic new theory is explored for unbalanced bidding in cash flow models by employing the range-based class of singularity functions. First, a new synthetic balanced cash flow model that can accurately consider the time value of money (TVM) and retainage is derived to serve as the foundation; second, various unbalanced markup functions including two-phase, linear, and non-linear types are defined both cumulatively and non-cumulatively; third, the performance of the extended synthetic cash flow model for unbalanced bidding is investigated mathematically.

Suggested Citation

  • Yi Su & Gunnar Lucko, 2015. "Synthetic cash flow model with singularity functions for unbalanced bidding scenarios," Construction Management and Economics, Taylor & Francis Journals, vol. 33(1), pages 35-54, January.
    • Handle: RePEc:taf:conmgt:v:33:y:2015:i:1:p:35-54
    DOI: 10.1080/01446193.2015.1012527
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    References listed on IDEAS

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    1. David Arditi & Ranon Chotibhongs, 2009. "Detection and prevention of unbalanced bids," Construction Management and Economics, Taylor & Francis Journals, vol. 27(8), pages 721-732.
    2. Symeon Christodoulou, 2008. "A bid-unbalancing method for lowering a contractor's financial risk," Construction Management and Economics, Taylor & Francis Journals, vol. 26(12), pages 1291-1302.
    3. Qingbin Cui & Makarand Hastak & Daniel Halpin, 2010. "Systems analysis of project cash flow management strategies," Construction Management and Economics, Taylor & Francis Journals, vol. 28(4), pages 361-376.
    4. X.-X. Yuan, 2011. "A correlated bidding model for markup size decisions," Construction Management and Economics, Taylor & Francis Journals, vol. 29(11), pages 1101-1119.
    5. Gunnar Lucko, 2013. "Supporting financial decision-making based on time value of money with singularity functions in cash flow models," Construction Management and Economics, Taylor & Francis Journals, vol. 31(3), pages 238-253, March.
    6. Lawrence Friedman, 1956. "A Competitive-Bidding Strategy," Operations Research, INFORMS, vol. 4(1), pages 104-112, February.
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    2. Polat Gul & Turkoglu Harun & Damci Atilla & Akin Firat Dogu, 2020. "Detecting unbalanced bids via an improved grading-based model," Organization, Technology and Management in Construction, Sciendo, vol. 12(1), pages 2072-2082, January.

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