Modeling the Impact of Low-Carbon Procurement on Bidding Dynamics

Abstract

Low-carbon procurement policies are growing rapidly at the local, state, and federal levels within the US and globally. Despite the prevailing recognition of the importance of low-carbon procurement, the research effort to investigate the impact of public procurement on different project delivery aspects is notably limited. To this end, this study investigates the impact of low-carbon procurement policies on the bidding dynamics within the construction industry. First, parametric distributions were fitted to competitors’ historic markup records. Second, two low-carbon public procurement policies were considered, the lowest eligible bid and the performance discount rate. Third, the environmental considerations of different procurement approaches were integrated into Friedman’s and Gates’s bidding models to estimate future bidding outcomes such as optimum markup value, probability of winning against all competitors, and expected profit. Finally, to showcase the practicality and reliability of the proposed framework, it was applied to a case study from the literature. Moreover, a scenario analysis was conducted to investigate the impact of environmental considerations, such as varying the global warming potential (GWP) threshold limit, on the bidding outcomes. The findings provided valuable insights into how the integration of environmental considerations, coupled with the traditional cost factor in bid evaluations, serves as a powerful incentive for contractors to prioritize the use of low-carbon construction materials. Also, the findings highlighted an asymmetrical impact of varying the GWP threshold limit on low-carbon procurement approaches, revealing substantial shifts in the outcomes of the lowest eligible bid approach compared to marginal variations in the performance discount rate approach. Moreover, results showed that Gates’s model consistently tends to predict superior bidding outcomes compared to Friedman’s model. This study contributes to the field of low-carbon procurement by providing insights into the bidding dynamics influenced by low-carbon procurement policies and the potential effectiveness of these policies in improving the profitability of contractors. Overall, this research offers practical insights and actionable strategies that contractors and industry professionals can implement to navigate the complexities of various procurement and bidding scenarios.