Below-Average Bidding Method

The low-bid method, typically used for competitive bidding in the United States, may result in a contract with a firm that submits either accidentally or deliberately an unrealistically low-bid price. Such an occurrence hurts both the owner and the contractor by promoting disputes, increased costs, and schedule delays. To address this problem, other countries have adopted bidding methods based on the average of the bids submitted. One such approach is the below-average method where the winning bid is closest to but below the average of all bids. A competitive bidding model for the below-average-bid method is presented and its merits relative to the average-bid method and the low-bid method are explored. The below-average-bid process is investigated analytically and through Monte Carlo simulation. The results of bidding models for the below-average, the average, and the low-bid methods are presented in four easy-to-use nomograms which allow contractors to determine the optimal lump-sum bid price for each method without the need for complicated analysis. A comparison of the three methods provides information and insights to help owners with the difficult choice of a suitable bidding method for the project at hand.     

Analysis of Owner’s Design and Construction Quality Management Approaches in Design/Build Projects

This paper explores and classifies current approaches to evaluating quality in design/build (DB) proposals. It does so by a thorough content analysis of 78 requests for proposal (RFPs) for public DB projects with an aggregate contract value of over $3.0 billion advertised between 1997 and 2002. In most DB projects, the owner requires the DB contractor to establish a firm-fixed price on a project that has not yet been designed. Usually, the owner also fixes the project delivery period. In the traditional design/bid/build (DBB) system, quality is fixed through the plans and specifications. Thus, in DBB, with schedule and quality fixed, the cost of construction is the factor in which the owner seeks competition. Conversely, in DB, with cost and schedule fixed, the scope and hence the level of quality is the main element of competition. This paper identifies the six owner approaches to articulating DB quality requirements in their RFPs. The six approaches are quality by qualifications, evaluated program, specified program, performance criteria, specification, and warranty. These are important for DB contractors to understand so that they can craft their proposal in a manner that is both responsive to the owners’ requirements and consistent with the owner’s system to make the best value contract award decision.     

Contractor’s Opportunistic Bidding Behavior and Equilibrium Price Level in the Construction Market

The competitive bidding system has been to blame for abnormally low bids, which are considered as one of the main causes of poor project quality. Previous studies have regarded the pricing of bidders as an optimum decision based on contractor’s cost and market competition level. However, the sell to produce characteristic of construction projects may induce contractors to offer a low bid and then make up the amount initially sacrificed from beyond-contractual reward (BCR) gained through cutting corners and claims. System dynamics was adopted in this study to develop a contractor’s pricing model with consideration of the dimensions of cost, market competition, and BCR. The model was then examined by statistical analysis of data collected from 44 highway projects in Taiwan. It was found that the equilibrium market price is significantly associated with BCR, which is assumed to be determined by the strictness of the owner’s construction management, including both soundness of contract and tightness in construction supervision. Research results suggest that contractors divide the market into different segments according to the owner’s strictness of construction management and the equilibrium price level of each market segment varies. The price level for projects with a strict owner is remarkably higher than for those with relatively less strict owners. Improvement in the construction management system of projects is crucial to lower the possibility that contractors gain BCR and do opportunistic bidding, and to further enhance project quality.     

Method to Determine Minimum Contract Bid for A+B+I?/D Highway Projects

More and more state highway agencies (SHAs) have begun to consider the value of time in highway construction. The “A?(cost)+B?(time?cost)+I/D?(incentive/disincentive)” bidding concept is designed to shorten the total contract time by allowing each contractor to bid the number of days in which the work can be accomplished, in addition to the traditional cost bid. I/D are not only used to provide an incentive to the contractor for earlier completion, but also to provide a disincentive for late completion of a project. Contractors are then presented with the problem of determining the best strategy of bid estimation, including construction cost, time cost, and incentive/disincentive. SHAs are also faced with the problem of placing a maximum and/or minimum on the time bid. To provide users a useful tool to estimate project time more accurately using this advanced method, this study develops a quantified model of the price-time bidding contract. The functional relationship between the construction cost and time duration is developed based on data from the Florida Department of Transportation (FDOT). The contractor’s construction cost “A” is then combined with the road user cost and incentive/disincentive to determine the optimum low bid price and time. This optimum can then be used by the SHA to set limits on the range of acceptable time bids. Finally, several projects completed by the FDOT will be used to illustrate the validity of this model.     

Cash Flow Projections for Selected TxDoT Highway Projects

In planning for contractor payments, an owner with multiple projects needs to estimate the amount of money to be paid to contractors in coming months. For an owner as large as the Texas Department of Transportation (TxDoT), one is faced with the problem of organizing the budget to ensure that there are sufficient funds for all projects. This investigation was requested by TxDoT to provide a tool to forecast future project payments. Recent account summaries of TxDoT projects from 2001 to 2003 were analyzed for creating mathematical models representing monthly payments for various projects. The data were organized into categories of project types and subcategories of project contract amount. A fourth degree polynomial regression analysis was run on the data and the regression curve, when statistically significant, was taken to be the forecast payment curve. Finally, a computer program was developed to implement the results of the investigation for TxDoT’s needs. The methodology provided will help other highway agencies to create their own equations to better predict project cash flows and trends. This investigation might also benefit researchers in projecting cash flows and trends, while also allowing for improvements.     

SIM-UTILITY: Model for Project Ceiling Price Determination

Before considering bids submitted by competing contractors for a public procurement project, the owner should determine a project ceiling price or cost estimate to use as a reference point for evaluating the bids. A high ceiling price conflicts with the owner’s interests in minimizing costs. Meanwhile, a low ceiling price can jeopardize the project if all bids exceed the ceiling price. This paper proposes a model for determining a reasonable project ceiling price. The model, called SIM-UTILITY, is based on a utility theory and facilitated by a cost simulation approach. The utility theory is applied to reflect the owner’s preferences regarding the determination criteria, while the simulation approach is used to generate more objective project cost data to support execution of the utility theory. The advantages of SIM-UTILITY are proven by its successful application to three construction projects in Taiwan. A computerized SIM-UTILITY is expected to be broadly applicable to public construction projects in Taiwan.     

Optimal Bid Model for Price-Time Biparameter Construction Contracts

Construction clients are increasingly calling for bids that require competing contractors to submit both the bid price and contract time. In such situations contractors are faced with the problem of deciding which combination of bid price and contract time to submit. An important consideration is the cost of time to the client. This varies from contract to contract and is usually expressed in terms of a unit time value such as liquidated damages rate or, for highway contracts, a daily road user cost. The unit time value is normally set out in the contract appendix and often used by the client as a basis for determining the contractor's total combined bid. This kind of procurement method is commonly referred to as the A + B method. To illustrate the mechanism of price-time biparameter procurement, a total combined bid Iso-map is developed in this study. The contractor's price-time performance curve is then incorporated into the map to determine the contractor's optimal bid parameters: tender price and contract time. Also, based on this mechanism, a mathematical optimization bid model is developed for calculating the optimal bid parameters.     

Estimation of Minimum Working Capital for Construction Projects in Malaysia

Forecasting cash requirements is essential for all contractors during the tendering stage since cash flow at the beginning of the project is a major cause of construction companies’ failure. Unfortunately, estimating minimum working capital (MWC) is not the mainstream practice of the majority of contractors in Malaysia, who find that the present models for estimating MWC are cumbersome and seldom give an accurate estimate. Therefore estimates of MWC made during the tendering stage need to be simplified so they can be prepared quickly with minimum input. It is important for the developer or owner to select a qualified contractor with competent financial backing. This paper establishes the relationship among the factors that contribute to MWC requirements and presents a simple model that could be used as a guide to estimate MWC for housing construction projects in Malaysia. The estimation is based on percentages of variables of contract value based on the historical data that influence MWC; the MWC obtained is then expressed in terms of percentage of contract value.     

Sources of Changes in Design–Build Contracts for a Governmental Owner

In recent years, many U.S. federal, state, and local governments have been authorized to use the design–build method of project delivery instead of the traditional design–bid–build method. Recent studies have not been definitive on the cost advantage of design–build for governmental owners. There are fewer change orders in design–build due to design errors because the designer (architect/engineer) and contractor are one entity, but there are other causes of change orders. Some literature suggests that changes requested by the owner of the facility are greater with the design–build method. This research examines the causes for construction-phase changes in 14 design–build and 20 design–bid–build projects. Total changes, expressed as number per contract, cost per contract, or percentage of original contract, were significantly lower in design–build. Fewer design errors in design–build accounted for this advantage. The number of owner-requested changes was significantly greater in design–build. The cost of owner-requested changes, averaged over all the projects, was significantly less for design–bid–build. The differences in changes due to differing site conditions were not significant. The concept that there are more owner-requested changes in design–build projects is supported by this research.     

浅谈如何在施工过程中控制工程造价

本文粗浅的论述了在施工过程中充分发挥概预算在控制工程造价中的作用,及审查施工组织设计要体现经济效益,引进竞争机制竞争工程招标承包。提出工程造价改革必须立足市场。     

Temporary Heating in Construction Contracts

It appears that in construction projects extending through winter with freezing temperatures, the cost of temporary heating is not always equitably resolved between the parties in a contract. Although existing guidelines have been initiated since 1964 by the construction industry, the bid allowances in calendar days and cost perdiem of heating, as suggested, have not been implemented. The three case studies described with varying structures and heating systems, show how heating costs are affected by changes beyond the General Contractor's control. These costs can be substantial; however, they can be minimized if owner, designer, contractor and mechanical subcontractor can cooperate.     

Time Series Analysis of ENR Construction Cost Index

Every month, Engineering News-Record (ENR) publishes the construction cost index (CCI), which is a weighted aggregate index of the 20-city average prices of construction activities. Although CCI increases over the long term, it is subject to considerable short-term variations, which make it problematic for cost estimators to prepare accurate bids for contractors or engineering estimates for owner organizations. The ability to predict construction cost trends can result in more-accurate bids and avoid under- or overestimation. This paper summarizes and compares the applicability and predictability of various univariate time series approach for in-sample and out-of-sample forecastings of CCI. It is shown that the seasonal autoregressive integrated moving-average model is the most-accurate time series approach for in-sample forecasting of CCI, while the Holt-Winters exponential smoothing model is the most-accurate time series approach for out-of-sample forecasting of CCI. It is also shown that several time series models provide more-accurate out-of-sample forecasts than the ENR’s subject matter experts’ CCI forecast. Cost estimators can benefit from CCI forecasting by incorporating predicted price variations in their estimates and preparing more-accurate bids for contractors and budgets for owners. Owners and contractors can use CCI forecasting in reducing construction costs by better-timed project execution.     

Finance-Based Scheduling of Construction Projects Using Integer Programming

Construction scheduling is the process of devising schemes for sequencing activities. A realistic schedule fulfills the real concerns of users, thus minimizing the chances of schedule failure. The minimization of total project duration has been the concept underlying critical-path method/program evaluation and review technique (CPM/PERT) schedules. Subsequently, techniques including resource management and time-cost trade-off analysis were developed to customize CPM/PERT schedules in order to fulfill users’ concerns regarding project resources, cost, and time. However, financing construction activities throughout the course of the project is another crucial concern that must be properly treated otherwise, nonrealistic schedules are to be anticipated. Unless contractors manage to procure adequate cash to keep construction work running according to schedule, the pace of work will definitely be relaxed. Therefore, always keeping scheduled activities in balance with available cash is a potential contribution to producing realistic schedules. This paper introduces an integer-programming finance-based scheduling method to produce financially feasible schedules that balance the financing requirements of activities at any period with the cash available during that same period. The proposed method offers twofold benefits of minimizing total project duration and fulfilling finance availability constraints.     

Mock Bid Letting for Learning Assessment

A mock bid letting process is described that provides an assessment of student learning in construction process design. A case study is presented where students submitted mock bids at an Iowa Department of Transportation bid letting according to the same rules and under the same conditions as industry professionals. Assessment was provided because the bids were read aloud and compared with professional bids. Student bids were in the range of professional bids or slightly higher. The reasons for success are discussed, and planned changes for future mock bid lettings are listed.     

Case Study as to the Effectiveness of Dispute Review Boards on the Central Artery/Tunnel Project

The most prevalent use of the dispute review board (DRB) process in the United States to date is the central artery/tunnel project located in Boston. A DRB is a three-member panel jointly chosen by the contractor and owner that is present throughout the course of the contract, and whose responsibility it is to hear disputes contemporaneously with their occurrence. This paper reviews the efficacy of the DRB on the central artery/tunnel project answering such questions as to whether or not (1) there was any discernable bid savings between DRB and non-DRB contracts; (2) the DRB was successful in resolving all disputes prior to contract completion; (3) were there any barriers to the DRB’s effectiveness, concerning bid savings; and (4) the DRB reduced the costs of resolving disputes. The questions are timely and important in an industry that looks for new ways to reduce construction costs and values timely prevention and resolution to disputes.     

Product Specification Practices and Problems

The technical product specifications of construction contracts and the associated submittal review processes are shown to be involved in a major portion of all serious project disputes. A large number of actual publicly‐funded water and wastewater treatment facility building projects were examined with subsequent analysis of those reviews indicating that these disputes are detrimental in terms of additional project cost, schedule delays, and overall project disruption and loss of goodwill. In particular, the proprietary “brand name or equal” product specification method is seen to be commonly at the heart of these product disputes. Several different solution strategies were expressed as statistical hypotheses and tested for effectiveness. Among other propositions, the managerial strategies of required bid listing of proposed products, timely dispute resolution, and clarifying the submittal review process proved to be realistic and effective tools for reducing both the incidence and severity of product‐related contract disputes. Exact details are put forward along with sensitivity ranges.     

Managing money flow to safeguard your practice

Whether payments for service come in the form of patient cash or checks, or insurer payments, it is paramount that a doctor implement a strong accounting system to disclose all daily financial transactions. It is also essential that a strong audit trail be part of this accounting system. By taking a few minutes at the end of each day to do the necessary review, dentists protect their income and provide one of the best protections an owner can have against embezzlement. Let the staff know you are on top of the books!     

Risk Allocation and Risk Handling of Highway Projects in Taiwan

Risks always exist in construction projects and often cause schedule delay or cost overrun. Risk management is a key issue in project management. The first step of risk management is risk identification. It includes the recognition of potential risk event conditions in the project and the clarification of risk responsibilities. We conducted multiple-case studies using a systematic analytical procedure to identify risks in highway projects in Taiwan, to recognize risk allocation by contract clauses, and to analyze the influence of risk allocation on the contractor’s risk handling strategies. The results show that the owner allocates risks by stipulating specific contract clauses into five kinds of risk allocation conditions. If a risk is more controllable by the contractor, the owner has a greater tendency to allocate the risk to the contractor. Risk allocation determines which kinds of risks the contractor would take and influences the contractor’s risk handling decisions. The analysis furthermore indicates that, if the probability of a certain risk event condition is uncontrollable, then with the increasing possibility of taking the risk, the contractor’s tendency of risk handling changes from actively transferring the risk to passively retaining the risk. In contrast, if a risk is controllable and certainly allocated to the contractor, the contractor tends to take the initiative to reduce the impact caused by the risk event rather than retain the risk.     

Optimizing Cash Flows for Linear Schedules Modeled with Singularity Functions by Simulated Annealing

The ability of construction contractors to plan and manage cash flow is critical for their economic success. The cumulative interaction of outflows (labor, materials, and equipment costs) and inflows (progress payments less retainage) creates a profile with a complex zigzag shape. This could only be modeled by simplification, e.g., as values tabulated at discrete times; averaged S-curves without peaks; or envelopes of all possible constellations. Neither is suited for a fully integrated model that dynamically links schedules with their cash flows for optimization. Therefore, singularity functions, whose components define ranges of behavior between cutoffs, are used to flexibly yet accurately model cash flow profiles and their various payment terms. The new approach augments construction project management toward an integrated planning model and is validated with an example from the literature. Optimization with a simulated annealing algorithm shifts activity positions in a randomized but directed search for maximizing profits.     

工程造价(成本)全过程各阶段核心环节控制

工程造价(成本)管理即对工程造价全过程各阶段核心环节的精细化控制,把工程造价控制在预算范围内。招标阶段,应对工程量清单编制、招标控制价编制、材料暂估价和专业工程暂估价进行控制;投标阶段,应控制好投标报价的编制、处理好中标之后清单项目遗漏问题;施工及结算阶段,应建立强有力的合同管理组织机构及合同跟踪机制。