Underpricing in Social Infrastructure Projects: Combating the Institutionalization of the Winner’s Curse
Publication: Journal of Construction Engineering and Management
Volume 146, Issue 12
Abstract
Research examining underpricing in social infrastructure projects has been limited (e.g., schools), yet this is a reality that confronts many governments worldwide. The upshot of underpricing is often contractual claims and delays, which can harm the social and economic well-being of citizens. Cognizant of experiencing potential cost overruns, this paper demonstrates that agencies within the Brazilian public sector institutionalized the winner’s curse to ensure their infrastructure projects did not exceed their budgets. This action resulted in contractors abandoning works before they were completed and, in doing so, being subjected to contractual sanctions. For the government agencies, this led to increased costs because an alternative contractor was required to complete works. The decision to accept a low bid, therefore, had the opposite of the desired effect because the final project costs exceeded their budgets. It is proposed that government agencies introduce an irresponsible bid threshold, which acts as a benchmark for determining a bid’s disqualification to address the winner’s curse phenomenon.
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Data Availability Statement
Data generated or analyzed during the study are available from the corresponding author by request.
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Published In
Journal of Construction Engineering and Management
Volume 146 • Issue 12 • December 2020
Copyright
© 2020 American Society of Civil Engineers.
History
Received: Oct 15, 2019
Accepted: Jun 8, 2020
Published online: Sep 24, 2020
Published in print: Dec 1, 2020
Discussion open until: Feb 24, 2021
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