Bid Compensation Decision Model for Projects with Costly Bid Preparation
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VIEW THE REPLYPublication: Journal of Construction Engineering and Management
Volume 131, Issue 2
Abstract
For projects with high bid preparation cost, it is often suggested that the owner should consider paying bid compensation to the most highly ranked unsuccessful bidders to stimulate extra effort or inputs in bid preparation. Whereas the underlying idea of using bid compensation is intuitively sound, there is no theoretical basis or empirical evidence for such suggestion. Because costly bid preparation often implies a larger project scale, the issue of bid compensation strategy is important to practitioners and an interest of study. This paper aims to study the impacts of bid compensation and to develop appropriate bid compensation strategies. Game theory is applied to analyze the behavioral dynamics between competing bidders and project owners. A bid compensation model based on game theoretic analysis is developed in this study. The model provides equilibrium solutions under bid compensation, quantitative formula, and qualitative implications for the formation of bid compensation strategies.
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Acknowledgment
The work presented in this paper was suported by the Taiwan National Science Council (Grant No. NSC91-2211-E-002-091).
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Information & Authors
Information
Published In
Journal of Construction Engineering and Management
Volume 131 • Issue 2 • February 2005
Pages: 151 - 159
Copyright
© 2005 ASCE.
History
Received: Mar 5, 2003
Accepted: Mar 1, 2004
Published online: Feb 1, 2005
Published in print: Feb 2005
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