A systems approach to tendering for contracts in the construction industry

Abstract

The main objective of this thesis is to approach the problems of tendering in the construction industry through the studied application of operational research/system analysis techniques. The early part of the thesis describe the construction industry and the problems which face competing construction firms. A critical study of the published works on tendering/bidding strategy reveals its complexity; the Friedman versus Gates controversy is discussed in some detail, but no firm conclusions are made. Analytical and computerised simulation techniques are explained and compared with the aid of worked examples of the Friedman model(BIDMOD2) and the estimating error model (BIDMOD3). Assumptions regarding the independence of model variables are clarified by the statistical analysis of three sets of tender data. Also, attempts to fit certain mathematical distribution to this data were made with a view to simplifying the random sampling process in the subsequent computer models. However, this analysis of data sets was generally inconclusive because the sizes of the samples are considered inadequate. A computerised version of a modified Friedman model (BID20), which incorporates an allowance for estimating error is presented but then discarded because under certain conditions it is shown to be invalid.Finally, two bidding models BIDMOD9 and BIDMOD11 are presented, which incorporate both estimating error and “true-cost” ratio. A study of the effect of the “true-cost" ratio on the distribution of simulated bid/cost ratios was conducted in order to demonstrate the importance of this variable. These models are shown to give success ratios which fall between those suggested by the Friedman and Gates models. A comparison between the success ratios obtained by these models and one set of data indicates a fairly good approximation to the real world situation. A study of the possible effects of various strategies on annual cash-flow and turnover is also conducted.