Construction Procurement: Modelling Bidders’ Learning in Recurrent Bidding

Abstract

Construction remains a significant area of public expenditure. An understanding of the process of changes in construction pricing, and how the process can be manipulated through the release of bidding feedback information is vital, in order to best design clients’ procurement policies. This paper aims to statistically model inexperienced individual bidders’ learning in recurrent bidding under partial and full information feedback conditions. Using an experimental dataset, the developed linear mixed model contains three predictor variables, namely: time factor, information feedback conditions, and bidding success rate in the preceding round. The results show nonlinearity and curvature in the bidders’ learning curves. They are generally less competitive in time periods after a winning bid with lower average bids submitted by those subjected to full information feedback condition. In addition, the model has captured the existence of heterogeneity across bidders with individual-specific parameter estimates that demonstrate the uniqueness of individual bidders’ learning curves in recurrent bidding. The findings advocate for adequate bidding feedback information in clients’ procurement design to facilitate learning among contractors, which may in turn lead to increased competitiveness in their bids.

Mark-up on construction projects: what have we learnt in the last 20 years?

“…(2011) examined bidders’ bidding trends in their experimental study. Soo (2015), on the other hand, proposed a theoretical framework for construction price formation through a synthesis of four concepts and theories, namely, (1) marketing pricing theory; (2) resource-based view; (3) neoclassical microeconomic theory; and (4) experiential and organisational learning theories. This study provides a generalised assessment of the importance of critical factors affecting mark-up size on construction projects using meta-analysis.…”

Release of Construction Clients’ Pre-tender Cost Estimates: An Experimental Study

“…Using inexperienced student subjects, these experiments provide evidence on variations in bids and learning over time for varying information feedback conditions. Nonetheless, there is a need for more empirical work, particularly using field data in exploring the ideal level of feedback information in optimizing procurement design (Oo, Ling and Soo, 2015). The focus of this study is, however, on the extent to which the release of client's pre-tender cost estimate prior to bidding affects bidders' bidding behaviour.…”