Impact of considering need for work and risk on performance of construction contractors: An agent-based approach

Competitive bidding is the main mechanism of allocating projects in the construction market. In the traditional single criterion bidding method, the markup decision has a significant impact on a contractor's business success. Contractors usually take into consideration several factors in the process of determining their markup. This study has reviewed the literature and identified a range of contractors' behaviors when making their markup decision within a competitive bidding environment. An additive markup function consisting of three components, namely competition, risk, and need for work, was developed in order to replicate markup behaviors of contractors. Then, agent-based modeling has been employed for simulating the bidding process within a market formed of a set of heterogeneous contractors with different risk attitudes and defined markup behaviors. This model was used to study the impact of considering need for work and risk allowance in markup determination on financial performance of contractors in various market scenarios. Results suggest that the optimal policy is moderation in both dimensions of risk attitude and need for work

Evolutionary Simulation of Contractors’ Learning and Behavior under Two Bid-Tendering Approaches

Abstract: Bidding and determining the optimum markup are two major decisions that a contractor has to think about thoroughly when faced with a new project. Several bidding models have been presented in the literature to help contractors make these two decisions; however, they mostly considered the perspective of one contractor bidding on a single project, obscuring the interaction and learning components among contractors and the observation of emergent bidding patterns at both individual and aggregate levels. This research uses an evolutionary approach to model construction-bidding market dynamics and study the effect of contractors’ risk attitude on their markups, and on the longterm progression of bid prices under two bid-tendering approaches, namely the low and average bid methods. Simulation results showed that the most risk-tolerant contractors submit the lowest bid prices under the low-bid method and the highest prices under the average bid method. Moreover, the low-bid approach revealed long-term equilibrium in tendered prices whereas the average bid method reflected a gradual bidprice increase.PublishedN/

Neutral and Risk-Sensitive Models for Competitive Bidding Methods based on Average and Order Statistics.

The low bid method has been the most common competitive bid selection approach used for public projects in the U.S. construction industry. This method is usually coupled with a prequalification process to ensure that the lowest bidder has the financial capacity, the necessary experience, and enough bonding capacity to take charge of the project and to perform the work according to the project's requirements. However, driven by their bad financial status or by their urgent need for work, some contractors tend to abuse the free and price-directed competitive nature of the low bid method by deliberately submitting extremely low bid prices in order to enhance their chance of winning and to at least cover their general and administrative expenses. Thus it is possible for the project to be awarded to an accidental or deliberate unrealistic low bid. This often leads to cost overruns, schedule delays, claims and further disputes between parties during construction. This research investigates alternative competitive bidding methods that have the potential to remedy the aforementioned drawback of the low bid method. Monte Carlo simulation approach is used to study and model average-based bidding methods where the winning bid is defined in relation to the average of submitted bids. This research also studies two other competitive bidding methods: the second low bid method where the second lowest bid is awarded the project and the median bid method where the winner is defined to be the median bid. The merits and shortcomings of these methods are analyzed and compared relative to each other and to the low bid method through produced nomograms that depict the winning probability, the optimum markup and the optimum expected profit under each. After studying the aforementioned bidding methods from the perspective of a risk-neutral contractor, this research uses established principles of decision analysis and utility theory to develop a risk-sensitive bidding model that can be applied to each of the studied bidding methods. This model helps a contractor determine his optimal markup for a project given his risk attitude and his uncertainty about the project's estimated and final costs.Ph.D.Civil EngineeringUniversity of Michigan, Horace H. Rackham School of Graduate Studie

DISPUTED RISKS IN CONSTRUCTION

The construction industry is perceived as one of the most crucial fields in risk management studies due to its inherent risks and complexity. Despite the large amount of research presented in this area, experts still prefer relying on their own knowledge and experience to manage project risks. This approach leads to various disputes among construction stakeholders over the ownership of these risks and their mitigation. Such disputes normally affect the project’s goals in terms of budget and schedule. Many researchers have addressed risk factors in the construction field; however, none has tackled the disputed risks among construction parties. This research aims at identifying the different disputed risk factors among project stakeholders along with their respective mitigation strategy. It is based on an empirical questionnaire sent to construction practitioners with various expertise. An analysis of the results is conducted using descriptive statistics and one-on-one interviews. This research provides experts with a list of the most disputed risks in construction, along with their mitigation approach. In the end, construction parties will be able to meet the project’s goals and steer clear of any delay or cost overrun resulting from the occurrence of disputed risks.</jats:p

INFLUENCE OF COLLABORATIVE BEHAVIOR ON CLAIM NEGOTIATION

The high cost incurred by the resolution of conflicts is largely affected by the existing adversarial nature of the construction industry along with the use of non-efficient dispute resolution methods in construction projects. This paper studies opinion dynamics in the negotiation of construction disputes while trying to understand the behavior and extremism of each contractual party. The developed model uses an agent-based approach to show how each agent’s attitude can influence the negotiation process when solving a dispute. It can also be used to highlight the importance of alternative dispute resolution (ADR) methods and the use of a mediator in helping parties initiate negotiation and decrease the number of negotiation cycles needed to converge. The results showed that negotiation is not only affected by the attitude and character of the agents involved but it is also influenced by the delivery method of the project and the level of intensity of each agent. It was found that when the project is delivered through an Integrated Project Delivery (IPD) method, parties are more flexible and cooperative and will reach agreement within few negotiation cycles.</jats:p

EFFECT OF IMPLEMENTING SUSTAINABLE MANAGEMENT PRACTICES ON CLAIMS MITIGATION IN CONSTRUCTION PROJECTS

The fragmented management of traditional construction projects, which mainly lacks the integration of project processes, results in schedule delays and cost overruns which often lead to client dissatisfaction, quality defects, and a raise in safety-related accidents. As a result, claims and disputes are most likely to arise between the contracting parties that can be extremely expensive and may severely impact the project performance. Numerous studies have investigated the impact of integrating sustainable management practices (SMPs) in construction projects on specific project performance objectives, such as cost, time, and quality; however, there is a need to investigate the effect of implementing SMPs on claims and dispute resolution. This research aims to fill the existing literature gap by identifying correlations between implementing SMPs and the frequency and severity of claims and disputes that may arise in construction projects. To achieve this goal, 25 SMP and 13 common construction claims were extracted based on an extensive literature review. A 5 point Likert-scale questionnaire was developed and administered to construction professionals to explore the aforementioned correlations. A total of 93 responses were received through online data collection. The research results demonstrate that empowering communication and collaboration among project stakeholders at early stages of the construction phase can significantly mitigate the occurrence of claims. This paper contributes in providing construction professionals with recommendations to improve construction sites’ performance and reduce claims.</jats:p

Understanding Dispute Resolution in the Middle East Region from Perspectives of Different Stakeholders

The construction industry in the Middle East (ME) is witnessing continuous growth that attracts international contractors and investors to its large-scale projects. However, this growth is accompanied by an inevitable increase in claims and disputes, which consequently leads to significant delays and additional costs to the project. Alternative dispute resolution (ADR) methods are often used to address these conflicts, but different issues and backgrounds of stakeholders in the ME affect which ADR is used if any. In light of this, the main aim of this study is to explore dispute causes and resolution practices in the ME as perceived by the different stakeholders involved. Based on extensive literature review, a comprehensive questionnaire survey was conducted involving 177 professionals from different sectors of the ME construction industry. The responses were analyzed from three distinct perspectives, namely contractors, owners, and claim advisors. Findings revealed that contractual causes are the most common disputes in the ME region, and traditional resolution methods are continually practiced despite the recognized need for new alternatives. This research provides professionals in Middle Eastern and foreign countries with invaluable insights into construction claims’ types and dispute resolution (DR) systems in the region. Moreover, it allows the various construction stakeholders to understand and take into consideration the perceptions of others when applying risk and dispute prevention techniques.PublishedN/