Client’s Expectations vs Contractor’s Pricing. Fair Prices or Bid Rigging

Abstract

The road construction sector is a specific part of the construction industry. It happens very rarely that a section of a road is financed also by a private entity. The other factor distinguishing it-is a significant value of road construction contracts. The Client's estimates of the value of the prospective contracts have to be based on the market prices in case of public procurement. However, this market is dominated by public orders. There is no comparison to the value of works ordered on the private part of the construction market, which is found more efficient by economists. Widely applied the "design and build" type of orders make the comparisons of the unit prices more difficult. The huge differences between the Client's estimates and the winning prices in the road construction public tender procedures are the bases of speculations about the fairness of the procedures. These differences can have a varied origin. There are several reasons for them e.g. varied contractor's risk, the size of the structure, type of order, the dynamics of the road construction market. Nevertheless, fraudulent practices can make the winning price much higher than the Client's estimate. The article is an attempt to finding the limit i.e. what part of these differences can be explained by fair, market reasons. If the found limit is exceeded, it should make the Client carefully consider the offers placed. The analysis is based on collected data concerning almost 400 tender procedures for the sections of roads in Poland in 2014-2017.