Analysis of the distribution of the number of bidders in construction contract auctions

Abstract

The number of bidders, N, involved in a construction procurement auction is known to have an important effect on the value of the lowest bid and the mark up applied by bidders. In practice, for example, it is important for a bidder to have a good estimate of N when bidding for a current contract. One approach, instigated by Friedman in 1956, is to make such an estimate by statistical analysis and modelling. Since then, however, finding a suitable model for N has been an enduring problem for researchers and, despite intensive research activity in the subsequent thirty years little progress has been made -due principally to the absence of new ideas and perspectives. This paper resumes the debate by checking old assumptions, providing new evidence relating to concomitant variables and proposing a new model. In doing this and in order to assure universality, a novel approach is developed and tested by using a unique set of twelve construction tender databases from four continents. This shows the new model provides a significant advancement on previous versions.Several new research questions are also posed and other approaches identified for future study.

Improving the estimation of probability of bidder participation in procurement auctions

“…Nonetheless, forecasting the number and identity of bidders is challenging, since no conclusive solution has yet been found for its accurate prediction, nor exists a suitable quantitative model to forecast the identities of a single or a group of specific key competitors likely to submit a future tender (Ballesteros-Pérez et al, 2015b). This is the gap of knowledge identified and, therefore, the point of departure of this research.…”

Standard Deviation of Bids for Construction Contract Auctions

“…Alternatively, other models have tried to break down the bid modelling problem into smaller chunks with more manageable scopes. In this regard, some attempts have been made to anticipate the total number of potential bidders who might submit a bid in an upcoming auction (Ballesteros-Pérez et al 2015b). Some models focus on anticipating the identities of specific participating bidders (Ballesteros-Pérez et al 2016a).…”

Estimating the number of new and repeated bidders in construction auctions

“…Many attempts are reported in the tendering literature to forecast the total number of bidders, N, for a future auction (Ballesteros-Pérez et al, 2015c). The first proposals by Friedman (1956) contain several alternatives to forecast the expected value of N. One of the most popular of these has been to treat N as a purely stochastic variable, with values being drawn randomly from a known probability distribution.…”

“…Poisson, Normal, Log-Normal, Uniform, Weibull, Gamma, Laplace) have been tested, but with inconclusive results (Stark andRothkopf 1979, Engelbrecht-Wiggans et al 1986, Skitmore 2013, Ballesteros-Pérez et al 2015a, 2015c). Nowadays, despite an extensive multi distribution fit analysis performed by Ballesteros-Pérez et al (2015c), the debate concerning the appropriate distribution for modelling the statistical variation of N remains open, although the Poisson distribution is still commonly adopted in the analysis of online auctions (Mohlin et al, 2015) and numerical simulations (Takano et al, 2014).…”

“…Also, since 1986 there have been no significant contributions in this area with the exception of some adjacent studies concerning new advances on the statistical nature of N (e.g. Athias & Nuñez, 2009;Ballesteros-Pérez et al, 2015c;Costantino et al, 2011;Skitmore, 2008).…”