Evaluating Qualification-Based Selection System: A Simulation Approach

Abstract

Abnormally low bids and contractors’ opportunistic bidding behavior are frequently observed in the competitive bidding system. Many research findings have pointed out that price competition itself is not sufficient to guarantee the use of economical and good quality products. The qualification-based selection (QBS) system has been proposed as a potential solution to this problem. However, due to lack of supporting data, most previous studies could only assess its effectiveness based on a single case experience and subjective opinions from questionnaire surveys. Few studies have analyzed contractors’ pricing behavior under the QBS system and the effects of the QBS system on market competition. This paper develops a simulation model to analyze contractors’ pricing behavior and dynamic competition process under the QBS system. The research results suggest that although the QBS system has potential to encourage contractors to place more emphasis on project quality, once the price is included as one of the selection criteria, abnormally low bids could still be problematic. The success of the QBS system is highly dependent on the linkage between contractors’ past performance and the evaluation of contractors’ qualifications. Only when contractors’ past performance is carefully and constantly examined and closely reflected in the bid evaluation can the contractors’ opportunistic bidding behavior be reduced and quality products be ensured.