BID STRATEGY for different projects .pdf

Bidding strategies of a constyruction project

1. 投标策划
Bidding Strategy

2. For a contractor to sustain success in the
construction business, he or she has to be the
lowest bidder for a sufficient number of
projects while that bid price is not too low, in
order to make a reasonable profit. It is
important, therefore, to strike a balance
between profitability and the chances of
winning.
1. Analyzing the Bidding Behavior of
Key Competitors

3. To enable us to establish a winning bidding
strategy, we need to keep track of our past bids,
analyze their information, and depict any
bidding pattern our key competitors use. First,
let’s see what kind of information we have:

4. •Our cost estimate ( C=direct cost + indirect
cost ) for any past bid is known to us.
Because we cannot know the cost estimate of
other competitors, let’s assume that the cost
estimates of all bidders are the same. This
assumption is not true but can be realistic if
we assume that all bidders have access to the
same subcontractors and follow standard
construction technology.

5. •The bid prices of competitors in past bids
are known to us as a public information
published by most owners after the bid is let.
Government agencies such as public works
(largest owner organizations) make this
information public.

6. Therefore, the relationship between the bid
price and the cost estimate in any bid is as
follows:
Bid Price (Bi) of competitor i = C*(1+markup)
Thus, Bi/C= 1+ markup
And, markup = Bi/C - 1

7. 1 1.11.21.31.4
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No. of past
bids
against the
competitor
B/C=
Competitor’s bid (B)
Our cost estimate (C)
What can be learnt from
the histogram?
Analyzing Past Bids against One Key Competitor

8. μ
Assumed normal
distribution (μ, σ)
B/C
Desired markup=m
Then, B/C = (m+1)
Calculating the Probability of Winning This Competitor Using
a Given Markup Value

9. 2. Estimating Optimum Markup
In order to optimize our markup decision, we
need to define what optimum means by
providing a measure of optimality. Notice that
we have two conflicting objectives: to reduce
markup to improve the probability of winning;
and to increase markup to improve
profitability.
Expected profit

10. Expected profit of
a given markup
=(Profit value)X
(Probability of
winning all
competitors using the
specified markup)

11. Beating All Competitors
Simultaneously
Friedman, in 1956, was the first to suggest a
model that predicts the probability of
winning a bid knowing the previous
performance of other competitors(mean and
standard deviation of B/C distributions) .
Friedman employed a basic assumption in
his bidding model that different competitors’
probability distributions are mutually
independent.

13. Friedman’s and Gates’s models give different
results, and debate over the years has not been
able to resolve this conflict. Instead, these models
have generated controversy and confusion about
their application in the construction industry. A
number of studies concluded that Friedman’s
model is more correct when the variability of bids
is caused only by markup differences, while
Gates’s model is more correct when the variation
in bids is caused only by variations in cost
estimates.

14. A comprehensive study of a contractor’s
application of both models over a period of several
years showed that Gates’s model produces higher
markups than that of Friedman’s. In this sense,
Friedman’s model could represent a pessimistic
approach whereas Gates’s represent an optimistic
one. Despite their differences, however, over the
study period, both models have led, approximately,
to the same total of potential profits.

15. The Optimum-Markup Estimation Process
1. Assume a percentage markup in the range from
1-20%, with 1% increments. Later we can repeat
this process with finer increments to refine the
calculations.
2. At each markup, we calculate the expected profit.
•Profit = cost X markup (%)
•Probability to win each competitor (from his past history)
•Combined probability P(win
all)
•Calculate expected profit = profit X P(win
all)
•Tabulate the markup and expected profit value
•Increment markup and repeat the calculations in this step

16. 3. Plot the markup versus expected profit
values.
Expected
profit
Markup
Optimum
Markup
4. Choose the optimum markup from the
plot.