Mitigating the Winner's Curse Dilemma in Multi-Stage Construction Bidding

The global and national spending on public infrastructure projects continues to increase tremendously. Accordingly, contractors need to adopt efficient bidding strategies to cope with the legal requirement of competitive bidding within the public infrastructure projects. Moreover, contractors usually acquire the services of subcontractors to handle large projects. However, despite the previous research efforts on developing bidding models, there is still a lack of research that tackles the multi-stage construction bidding, where subcontractors submit quotations/bids first and general contractors bid second for the whole project. As such, this paper aims to develop a game-theoretic bidding model for multi-stage construction bidding. To this end, the authors utilized an interrelated methodology comprised of: (1) investigating existing bidding models that are based on a game theory approach; (2) deriving of a bid function for the multi-stage construction bidding following the low bid method where the lowest bidder is the winner; (3) simulating multi-stage bidding environment; and (4) validating the derived bid function and simulation model utilizing data of 808 US public infrastructure projects. Results indicate that the derived bid function gives general contractors a competitive advantage by reducing the occurrence and magnitude of earning negative profits (known as the winner's curse) while winning a reasonable number of projects; and hence, resulting in a higher expected profit. Ultimately, this study adds to the body of knowledge by providing a bidding model for the multistage construction bidding that shall aid contractors in dealing with the uncertainties within the associated decision-making process.