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CivilComp Proceedings
ISSN 17593433 CCP: 81
PROCEEDINGS OF THE TENTH INTERNATIONAL CONFERENCE ON CIVIL, STRUCTURAL AND ENVIRONMENTAL ENGINEERING COMPUTING Edited by: B.H.V. Topping
Paper 17
BidPrice Determination Considering Cashflow Effects W.C. Wang, C.L. Lin and Y.H. Lu
Department of Civil Engineering, National Chiao Tung University, Taiwan W.C. Wang, C.L. Lin, Y.H. Lu, "BidPrice Determination Considering Cashflow Effects", in B.H.V. Topping, (Editor), "Proceedings of the Tenth International Conference on Civil, Structural and Environmental Engineering Computing", CivilComp Press, Stirlingshire, UK, Paper 17, 2005. doi:10.4203/ccp.81.17
Keywords: bidding, utility theory, cash flow, fuzzy integral, simulation.
Summary
Appropriate decisions for the bid price of a construction project are crucial for a contractor in
winning a project contract with a reasonable profit margin. Numerous models have also been
proposed to support such bidprice decisions [1,2,3]. This work proposes an innovative procedure
for determining a reasonable bid price. The proposed procedure, shown in Figure 17.1, is developed
based on a multicriteria evaluation model (on the left of the) and a cost model (on the right of the
figure). The multicriteria evaluation model is applied to reflect the contractor's preferences
regarding the determination criteria, while the cost model (considering the economic effects) is
used to generate a cumulative distribution of construction cost of the project.
Several decision criteria guide a contractor in deciding how to price their work above or below the estimated construction costs to the contractor. The criteria that affect the bidprice appraisal may be broadly divided into three categories  environmental, companyrelated and projectrelated. The environmental criteria relate to the market conditions, bidding competition, and project value. The companyrelated criteria include profitability (including the risk of bidding below the cost of the project to the company), continuity of the work force, bids and work in hand. The projectrelated criteria involve project complexity (such as site conditions, project scale and the required construction methods), construction duration, and the contractual specifications. To capture the contractor's preferences regarding these criteria, a multicriteria evaluation model is developed using an analytical hierarchical procedure (AHP) and the fuzzy integral method. A utility curve of reference for a particular project will be established and an expected utility value will be computed after applying this model, as shown on the left of Figure 17.1. After conducting a quantity takeoff analysis and unitprice quotation for each cost item of a construction project, the total construction cost of the project can be estimated. To further consider the effect of several economic criteria of the project, a cashflowbased cost model is developed. These economic criteria are such as the performance bond, payment bond, advanced payment, interest rate, subcontracting amounts and price inflation. The amounts of performance bond, payment bond and advanced payment can be found in the bid documents of the project. However, the interest rate, subcontracting amounts and price inflation are treated as uncertain variables in this study. The impact of each criterion on the cost is captured in a cash flow analysis. After simulating the cost model for a specified number of iterations (i.e., randomly drawing the values of those criteria variable sin each iteration), a cumulative distribution of project cost can be generated. Then, the procedure executes the following steps: (1) after evaluating the utility value of each criterion of the project, the expected utility value of project x, Eu(x) is computed. (2) According to the utility curve described shown on the left of Figure 17.1, find a probability, Px, with respect to Eu(x). (3) Based on the value of Px, find a recommended bid price from the cumulative distribution of the project cost. The details of the proposed procedure are demonstrated by its application to a construction project for a contractor in Taiwan. This application showss that the suggested bid price is very close to that proposed by the contractor. Namely, the proposed procedure can support contractors in bidprice assessment. References
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