Best bid identification in design-build contracting using game theory
The traditional design-bid-build methods for designing, constructing, inspecting, and financing highway projects are rapidly changing. The traditional methods are being consolidated into a relatively new contracting method called design-bid (D-B) that offers more opportunities for innovation, value engineering, risk-sharing, efficient coordination, as well as economization of time and money. A review of eight D-B projects from Texas, Minnesota, Washington State, and Utah (conducted under this research) revealed that bid evaluation methods are subjective and rely on simplistic averaging of cost and proposal quality (or technical) ratings. These practices are more prone to face legal challenges since they tend to be ambiguous and subjective. Additionally, these practices evaluate cost and proposal quality independently (i.e., cost is evaluated regardless of the proposed quality and visa versa). This might lead to reduced prices, but at the same time lower quality. A model for best bid identification was developed based on Game theory. The selection of best bid is modeled as a two-person cooperative game between quality and cost. In other words, the objective is to find the arbitration values of cost and quality. Apart from selecting the best bid, this model helps to identify best value for cost and quality, which are not necessary the values provided by any bidder. These best values for cost and quality might help for finalizing final contract with selected bidder.
Jalvi, Prashant, "Best bid identification in design-build contracting using game theory" (2006). ETD Collection for University of Texas, El Paso. AAI1434296.