Investigation of Bid Price Competition Measured through Prebid Project Estimates, Actual Bid Prices, and Number of Bidders

Abstract

Many practitioners today are faced with the task of advising clients on matters that may affect the number of project bidders. An appropriate question may be, does a restriction of bidder participation negatively impact project costs through limiting competition, and to what degree? Intuition and anecdotal evidence suggest that with an increase in the number of bidders vying for a project, the more competitive the low bid offer will be. There is little published evidence and analysis on bid competition impacting cost-effectiveness, although there are numerous reports replete with arguments, assumptions, anecdotal evidence, and bias. This paper critically evaluates public projects, bid under a condition of free, open, and unfettered competition. This paper presents a quantitative analysis of the impact of reduced competition on project bid prices. By selecting a single building type, designed by a single firm, with prebid estimates prepared from the same estimating database, over a limited time period, the investigation attempts to control model variance. The study found that reducing the number of bidders will result in increased project bid prices.