Bidding Strategy for Building Projects Based on Game Theory

Abstract

The owners of construction projects typically apply a competitive bid process to award a contract to the qualified bidder who submits the lowest price. For the contractors, it is very difficult to decide an optimal mark-up and bid value to win the contract and at the same time to secure sustaining profitability as high as possible. For that, from the various literatures related to the bidding problems, the factors are identified which may be highly influencing in the bidders’ de-cision-making during competitive situations in India. The factors are all converted into the question form, which was designed as single part. Then the questionnaire survey was conducted to the Class I and Class II type of Indian contractors to identify their opinions and strategies in the bidding. Then assessed the experts’ opinions consistency in order to neglect the general opinions from the experts. From the experts’ opinion, the least and high impact factors are identified. Then the collected data are converted into the probabilities and payoffs in order to apply in the game theory. From the payoff matrix applying of game theoretic approach, the best strategy was identified to follow the optimal bidding decisions. The founded strategies are plotted into the strategic model to guide the contractors by optimal mark-up size with respect to probability of winning and the competitive bid values. Finally, the project proposes a bidding decision model to assist contractors to select an optimal mark-up size and set appropriate bidding strategy under an extremely competition circumstances.