Client‐contractor bargaining on net present value in project scheduling with limited resources

Abstract

Abstract:The client-contractor bargaining problem addressed here is in the context of a multi-mode resource constrained project scheduling problem with discounted cash flows, which is formulated as a progress payments model. In this model, the contractor receives payments from the client at predetermined regular time intervals. The last payment is paid at the first predetermined payment point right after project completion. The second payment model considered in this paper is the one with payments at activity completions. The project is represented on an Activity-on-Node (AON) project network. Activity durations are assumed to be deterministic. The project duration is bounded from above by a deadline imposed by the client, which constitutes a hard constraint. The bargaining objective is to maximize the bargaining objective function comprised of the objectives of both the client and the contractor. The bargaining objective function is expected to reflect the two-party nature of the problem environment and seeks a compromise between the client and the contractor. The bargaining power concept is introduced into the problem by the bargaining power weights used in the bargaining objective function. Simulated annealing algorithm and genetic algorithm approaches are proposed as solution procedures. The proposed solution methods are tested with respect to solution quality and solution times. Sensitivity analyses are conducted among different parameters used in the model, namely the profit margin, the discount rate, and the bargaining power weights.

Simulated annealing for financing cost distribution based project payment scheduling from a joint perspective

“…Firstly, this technique has been successfully applied to a number of project scheduling problems by researchers (e.g. Boctor 1996;Shtub et al 1996;Etgar et al 1997;Cho and Kim 1997;Hapke et al 1998;Viana and Sousa 2000;Dayanand and Padman 2001a;Jozefowska et al 2001;Bouleimen and Lecocq 2003;Mika et al 2005;Kavlak et al 2009;He et al 2009); and second, it is often characterized by fast convergence and ease of implementation.…”

“…A great variety of cooling schemes have now been suggested by different authors and these have been classified in Collins et al (1988), Eglese (1990), and Koulamas et al (1994). On the basis of the literatures (Jozefowska et al 2001;Mika et al 2005;Kavlak et al 2009) and a few preliminary computational experiments conducted, the cooling scheme and its parameters used in this study are designed as follows.…”

“…Ulusoy and Cebeli (2000) propose a double-loop genetic algorithm in which the outer loop represents the client and the inner loop the contractor to find an equitable payment schedule of the project for the two parties of contract. Kavlak et al (2009) extend the work of Ulusoy and Cebeli (2000) by introducing a bargaining power concept into the objective of the problem and use simulated annealing algorithm and genetic algorithm approaches as solution procedures for the problem. He and Xu (2008) analyze the effects of the bonus-penalty structure on project payment scheduling and find that the structure can enhance the flexibility of project payment scheduling and be helpful for the two parties of contract to get more profits from the project synchronously.…”

Financial Optimization of the Resource-Constrained Project Scheduling Problem with Milestones Payments

“…According to Szmerekovsky [6] both parties (client and contractor) are willing to maximize their profit instead of looking for a plan that satisfies them both. PPS problems are analyzed, where the solution from the perspective of client [7], the contractor [4,8,9] or both is sought [10][11][12][13].…”

“…Contractor expenditures (cash outflows) are generally known or may be estimated by them prior to the project, while client payments are determined by negotiation. Different approaches are considered in which total costs for executing activities may be incurred at their beginning [6,9] or completion [14], or may be proportionally allocated to the beginning and end of their execution [15,16], or distributed depending on their progress [11]. Fixed costs related to the activities are most often incurred at the start time and other costs, such as resource consumption, may arise during their execution.…”