Optimizing Bidding Strategy of the Roadway Projects – An Application of Utility Function Theory

Abstract

Abstract The "A+B" bid method is determined by the lowest combined bid. Contractors must greatly shorten construction time to be able to win bidding competitions. However, the risk under the shortened duration of construction increased rapidly. For this reason, it is important to propose a bidding strategy to acquire the best composition of construction cost and time. This research targeted contractors with a questionnaire regarding A+B bidding in Taiwan by applied “Utility Function Theory” to construct a decision model of the best construction cost and time. It was found that the optimal profit regressed from the modified utility function differs from contractors’ preliminary bids. In the situation that the difference in basic profits is not large, contractors can set up a decision maker’s utility function based on their ability to take a risk and simulate the major competitors based on experience to judge the potential success and risk from shortening the construction time.