Evolutionary Simulation of Contractors’ Learning and Behavior under Two Bid-Tendering Approaches

Abstract

Bidding and determining the optimum markup are two major decisions that a contractor has to think about thoroughly when faced with a new project. Several bidding models have been presented in the literature to help contractors make these two decisions; however, they mostly considered the perspective of one contractor bidding on a single project, obscuring the interaction and learning components among contractors and the observation of emergent bidding patterns at both individual and aggregate levels. This research uses an evolutionary approach to model construction-bidding market dynamics and study the effect of contractors’ risk attitude on their markups, and on the long-term progression of bid prices under two bid-tendering approaches, namely the low and average bid methods. Simulation results showed that the most risk-tolerant contractors submit the lowest bid prices under the low-bid method and the highest prices under the average bid method. Moreover, the low-bid approach revealed long-term equilibrium in tendered prices whereas the average bid method reflected a gradual bid-price increase.