Risk of using bidding strategies for a contractor

Abstract

Construction contractors often procure projects through a competitive bidding process. Every contractor intends to bid competitively while dealing with the associated risks concurrently. Contractors have developed their own bidding strategies to retain their competitive edge. However, these strategies may carry an inherent risk component that is unforeseen leading to what is termed the ‘winner’s curse’. The aim of this study is to identify the risks entailed in the different bidding strategies and to explore solutions for the purpose of minimising risks. The research employs semi-structured interviews and a questionnaire survey which was administered to quantity surveying professionals with vast experience in the construction tendering process. Content analysis is used to analyse the qualitative data while statistical measures are used to analyse the quantitative data. The results of the survey reveal that contractors use bidding strategies mainly for survival purposes that ensure continuous and sufficient work. However, in each bidding activity, their primary objective is a target return on the investment. In addition, fifteen bidding strategies are identified with their allied risk factors. These bidding strategies are ranked according to the risk significance which yields ‘Bidding for repetitive jobs’ as the one carrying the lowest risk while ‘Intuitive manipulation’ ranks as the one carrying the highest risk. The study offers a conceptual model that lists methods to minimise the risks of each bidding strategy which provides guidance for contractors to select better-suited bidding strategy rather than random or haphazard selection. Moreover, since some contractors may opt for a risk favourable approach in order to get a high return, the study examines the different risk perspectives of contractors so that they may adopt such bidding strategies with full knowledge of the attendant risks and what strategies are available to minimise risk exposure.