Major factors impacting bidding competitions include: Excerpts from http://pmbook.ce.cmu.

edu/

Exogenous Economic Factors

Contractors generally tend to specialize in a submarket of construction and concentrate their work in particular geographic locations. The level of demand in a submarket at a particular time can influence the number of bidders and their bid prices. When work is scarce in the submarket, the average number of bidders for projects will be larger than at times of plenty. The net result of scarcity is likely to be the increase in the number of bidders per project and downward pressure on the bid price for each project in the submarket. At times of severe scarcity, some contractors may cross the line between segments to expand their activities, or move into new geographic locations to get a larger share of the existing submarket. Either action will increase the risks incurred by such contractors as they move into less familiar segments or territories. The trend of market demand in construction and of the economy at large may also influence the bidding decisions of a contractor in other ways. If a contractor perceives drastic increases in labor wages and material prices as a result of recent labor contract settlements, it may take into consideration possible increases in unit prices for determining the direct project cost. Furthermore, the perceptions of increase in inflation rates and interest rates may also cause the contractor to use a higher markup to hedge the uncertainty. Consequently, at times of economic expansion and/or higher inflation rate, contractors are reluctant to commit themselves to long-term fixed price contracts.

Characteristics of Bidding Competition

All other things being equal, the probability of winning a contract diminishes as more bidders participate in the competition. Consequently, a contractor tries to find out as much information as possible about the number and identities of potential bidders on a specific project. Such information is often available in the Dodge Bulletin<Dodge Bulletin (daily publication), F. W. Dodge Corp., New York, NY.> or similar publications which provide data of potential projects and names of contractors who have taken out plans and specifications. For certain segments, potential competitors may be identified through private contacts, and bidders often confront the same competitor's project after project since they have similar capabilities and interests in undertaking the same type of work, including size, complexity and geographical location of the projects. A general contractor may also obtain information of potential subcontractors from publications such as Credit Reports(Credit Reports, Building Construction Division, and Bradstreet, Inc., New York, N.Y.) published by Dun and Bradstreet, Inc. However, most contractors form an extensive network with a group of subcontractors with whom they have had previous business transactions. They usually rely on their own experience in soliciting subcontract bids before finalizing a bid price for the project.

Objectives of General Contractors in Bidding

The bidding strategy of some contractors are influenced by a policy of minimum percentage markup for general overhead and profit. However, the percentage markup may also reflect additional factors stipulated by the owner such as high retention and slow payments for completed work, or perceptions of uncontrollable factors in the economy. The intensity of a contractor's efforts in bidding a specific project is influenced by the contractor's desire to

obtain additional work. The winning of a particular project may be potentially important to the overall mix of work in progress or the cash flow implications for the contractor. The contractor's decision is also influenced by the availability of key personnel in the contractor organization. The company sometimes wants to reserve its resources for future projects, or commits itself to the current opportunity for different reasons.

Contractor's Comparative Advantages

A final important consideration in forming bid prices on the part of contractors are the possible special advantages enjoyed by a particular firm. As a result of lower costs, a particular contractor may be able to impose a higher profit markup yet still have a lower total bid than competitors. These lower costs may result from superior technology, greater experience, better management, better personnel or lower unit costs. A comparative cost advantage is the most desirable of all circumstances in entering a bid competition.