Study of Less Than Average Bid Method

The low bid method is the most frequently used competitive bidding method in the construction industry. However, its main disadvantage is awarding projects to irresponsive extremely low bids which leads to disputes and claims between the owner and the contractor. To remedy this issue, some countries use the average bid method which awards the job to the contractor who submits the closest bid to the average of all submitted bids. A comparison between Friedman's low bid method and the average bid method was conducted by Ioannou and Leu (1993), and showed mat although the average bid method protects the owner against extremely low bids, it does not promote fierce competition as is the case in a low bid awarding system. Thus, they suggested another variation of the average bid method which is awarding the job to the contractor whose price is closest to but lower than the average of all submitted bids. This paper uses Monte Carlo simulation to model the less than average bidding method. It explores its merits relative to the other two bidding methods, and proves it to be a compromising middle ground between the low bid method and the regular average bid method.