Bid amount decision making for large integrated infrastructure projects by EPC contractors in the Netherlands
Year: 2021
Type: dissertation
Abstract: In the Netherlands, from time to time, remarkable bids can be observed among the results of tenders for large infrastructure projects with design and construction integrated in a single contract. This observation sparked interest in the decision-making processes that Dutch contractors apply. Contractors determine their bid amount with the mark-up approach; the construction costs are marked-up, to account for; risk, general overhead and profit. Decision makers balance the profit with the probability of winning the tender, by adjusting the mark-up. This is challenging, because they are faced with little information, limited time and large uncertainties. The mark-up decision is made based on a mixture of experience, individual beliefs and gut feelings. This makes the decision-making susceptible to biases and emotional responses to external pressures. Hence, the research question is; how can the bidding price determination process for large infrastructure projects by Dutch EPC contractors be improved? The general viewpoint in literature is that the decision-making would greatly improve if it would be more rational. Over the years, several methods have been proposed to assist decision makers in their mark-up decision, however, they are not used by Dutch contractors. A literature study of the proposed mark-up models and decision-making literature was used to compile a theoretic framework. Semi-structured interviews are conducted with six of the largest Dutch infrastructure contractors to obtain a notion of contractors’ bid determination processes. The obtained notion is compared with the theoretic framework, which resulted in the finding that multi-criteria mark-up models are most congruent with current practice. In addition, a barrier to rationalizing a contractor’s bid determination is identified. There is a misalignment between the phase in which the contractor conceptualizes the tender and the final phase in which the bid amount is determined. The misalignment is present at different levels; 1) between a structured tender process and a unstructured mark-up decision process, 2) between a focus on data during the tender which disappears when other, more intangible items are considered in the bid amount decision as well and 3) between bounded rational decision-making during the tendering phase and a more entrepreneurial type of decision making at the mark-up decision. Implementing a multi-criteria mark-up model is recommended to reduce the misalignment and subsequently improve the decision-making. This model is most congruent to contractor’s current processes. In addition, it promotes a more complete, well-considered decision-making, which reduces the sensitivity to biases.
Author: Sjoerd Stoll
Language: English
Field: Decision Sciences
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W3215948010