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MANAGING THE BIDDING PROCESS FOR THE CONSTRUCTION OWNER – DETECTION AND PREVENTION OF UNBALANCED BIDS AND COLLUSIVE BIDS
Title
MANAGING THE BIDDING PROCESS FOR THE CONSTRUCTION OWNER – DETECTION AND PREVENTION OF UNBALANCED BIDS AND COLLUSIVE BIDS
Creator
Chotibhongs, Ranon
Date
2011-09, 2011-12
Description
There are two major problems that affect bidding efficiency: unbalanced bidding and collusive bidding. Unbalanced bidding is a serious...
Show moreThere are two major problems that affect bidding efficiency: unbalanced bidding and collusive bidding. Unbalanced bidding is a serious unethical problem in the construction industry. The owner may end up paying more money if the bid is unbalanced by the contractor. A bid can be rejected by the owner if it is unbalanced. A bidder unbalances a bid by inflating the unit price of some line items and reducing the unit price of other line items. Frontloading is the most common practice where a bidder can mathematically unbalance a bid by overstating the unit price of line items scheduled to be performed early in the project and understating the unit price of line items performed later. A bidder can also overstate the unit price of a line item whose quantity was somehow underrated by the engineer. If the owner proves that a mathematically unbalanced bid costs more to perform, the bid is said to be materially unbalanced, in which case the owner can reject the bid. A model is presented that formalizes and automates the process of detecting mathematically and materially unbalanced bids by comparing line item prices with the engineer’s estimates or the average prices offered by the bidders. This model allows owners to detect and reject unbalanced bids, and deters bidders from unbalancing their bid. Another matter that inflates bids and reduces bidding efficiency is collusion. Collusion is an insidious issue in the construction industry. Even though, it is widely acknowledged as unethical and illegal, there are not many research studies conducted to detect collusive bidding. This study proposes a two-step method to detect collusive bidding by analyzing historical bidding data provided by a construction owner. The construction owner in this study was a public agency that commissioned 108 construction projects that was worth $1.3 billion during a 10-year study period (2001-2010). The first step involves indentifying the potential cartel bidders using the residual test and the cost structure stability test developed in earlier work. The second involves comparing the behavior of the potential cartel bidders and non-cartel bidders by analyzing bid distributions, their cost dispersion, and the differences in their cost structures. After conducting the tests, it was found that the suspected cartel bidders identified in Step 1 behaved in ways to confirm collusion. Also, in an unrelated search, it was found that two of the six potential cartel bidders who were identified in this study had been audited by the public agency for bid fraud, and that another potential cartel bidder had been found guilty by the courts and forbidden from doing business with the public agency.
Ph.D. in Civil Engineering, December 2011
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