Impact of considering need for work and risk on performance of construction contractors: An agent-based approach

Authored by Rita Awwad, Sadegh Asgari, Amr Kandil, Ibrahim Odeh

Date Published: 2016

DOI: 10.1016/j.autcon.2016.01.004

Sponsors: No sponsors listed

Platforms: No platforms listed

Model Documentation: Other Narrative

Model Code URLs: Model code not found

Abstract

Competitive bidding is the main mechanism of allocating projects in the construction market. In the traditional single criterion bidding method, the markup decision has a significant impact on a contractor's business success. Contractors usually take into consideration several factors in the process of determining their markup. This study has reviewed the literature and identified a range of contractors' behaviors when making their markup decision within a competitive bidding environment. An additive markup function consisting of three components, namely competition, risk, and need for work, was developed in order to replicate markup behaviors of contractors. Then, agent-based modeling has been employed for simulating the bidding process within a market formed of a set of heterogeneous contractors with different risk attitudes and defined markup behaviors. This model was used to study the impact of considering need for work and risk allowance in markup determination on financial performance of contractors in various market scenarios. Results suggest that the optimal policy is moderation in both dimensions of risk attitude and need for work. (C) 2016 Elsevier B.V. All rights reserved.

Tags

systems Model Decisions Key factors Competitive-bidding strategy Markup estimation