The effect of experience in construction contract bidding

Abstract

This thesis measures the effect of contractors' bidding experience on competitiveness in recurrent bidding. The focus of research is on the relationship between bidding competitiveness, organisational learning and experience. The key premise rooted here is that contractors learn to refine their bids towards the optimal price level over a series of contracts with continuous adaptation of recurrent rational decision making. Recurrent bidding creates a stable environment, which facilitates organisational learning. Organisational learning produces experience. Experienced contractors would show greater bidding competitiveness in contract bidding. The loop that captures these sequential interactions is in recurrent bidding. Organisational learning in a general contracting context is modelled with high coherence to these theoretical considerations. The empirical work is an analysis of bid data for 266 public building contracts in Hong Kong awarded from 1990 through 1996. Bidding performance of contractors at different levels of bidding experience is analysed on a pairwise basis. Empirical analysis shows not only that bidding competitiveness of experienced contractors who bid frequently is greater, but also that experienced contractors' bidding attempts fall within a relatively small competitiveness range when compared with that of contractors who only bid occasionally. A key finding of research is the existence of some experienced contractors. They may be perceived as 'experienced market players', having the attribute of a more competitive and consistent bidding performance. Another key finding is that those experienced market players tend to regularise the use of a bidding strategy, which is deemed optimal in response to recurring and similar bidding situations. This research should be useful to regular construction clients looking to prequalify contractors on the basis of experience and to contractors in analysing their bidding performance and/or their competitors' bidding performance as well as in prequalifying subcontractors.