Abstract:

(1) To what extent do construction contractors bid in accordance with auction theory?

Auction theory offers best strategies for different auction designs based on rational behavior. Auction theory sets out that the best strategy in a first price sealed bid auction is to assume you are the lowest bidder (otherwise there is little point in bidding) and adjust your bid upwards to your lowest competitor's bid (to minimize the difference between the lowest and second lowest bid) while for a second price sealed bid auction (where the lowest bidder is awarded the contract at the second lowest bid price) it is not to make any competition adjustment (since this results in higher profit in the long run). Given that many construction contractors win work via sealed bid auctions, this research focuses on the extent to which contractors bid in accordance with auction theory's best strategies.

(2) Analyzing contractor - client competitiveness in construction bidding

The bidding process is not costless to contractors. It is therefore important that contractors identify those bid competitions they have a reasonable chance of winning and avoid those bid competitions they have no chance of winning. This research models the bid behavior of a contractor towards its clients over a series of competitions using the cost estimate / low bid ratio. A lower value indicates greater cost estimate competitiveness and a value less than unity indicates that in a particular competition the contractor is able to produce a cost estimate lower than the lowest bid. A value greater than unity indicates that a competitor has submitted a bid which is lower than the contractor's cost estimate. By aggregating the values over a series of competitions, the contractor�s average cost estimate competitiveness for each of its clients is determined. The resulting standard deviation is used as a measure of consistency with lower values indicating greater consistency. A classification system is proposed using cost estimate competitiveness (C) and consistency (C) in which clients are classified as 1st preferred (low C and low C  values), 2nd preferred (low C� and high C� values), 3rd preferred (high C�and high C� values) and least preferred (high C� and low C� values). The dividing axis is based on unity and the mean of the sample standard deviation.

(3) Correcting the Hong Kong SAR Government�s formula approach to tender evaluation for scaling differences

The Hong Kong SAR Government awards construction contracts to contractors by converting competing contractors� bid prices and performance ratings to ratio scores which are then multiplied by predetermined weightings. The weighted ratio scores are aggregated and the contractor with the highest overall score is awarded the contract. However, a problem with the government formula is that the highest performance rating score is given as the ratio denominator, whereas the lowest bid price is given as the ratio numerator. The result is a ratio scaling mismatch which distorts the predetermined weightings, affects the aggregated total scores and can also affect which particular contractor is awarded the contract. This scaling mismatch can be overcome by inverting the bid ratio and deducting the performance rating ratio. The contractor with the lowest overall score is then awarded the contract. From a mathematical perspective this proposed formulation is better than the existing formulation since the scaling differences are corrected. The scaling problem is presented in this research.

Biography:

Dr Derek Drew worked six years as a consultant quantity surveyor with a new town development corporation in the UK before switching to academia in 1981 when he joined the then Hong Kong Polytechnic. He has taught on diploma, professional, undergraduate and post graduate courses, successfully supervised PhDs, developed academic and professional courses, served as external examiner, served on professional committees and examined MPhil and PhD theses. Derek has also practised in Hong Kong on a part time basis and has worked as a consultant to one of Hong Kong�s largest quantity surveying practices. Derek's main research interests are in construction contract bidding and consultant fee bidding. His overall research goal is to improve construction related bidding systems in terms of their efficiency, effectiveness and fairness and to help both contractors and consultants develop suitable bidding strategies and analyze their bidding performance effectively.