Bidding strategies for conventional and trenchless technologies considering social costs

Abstract

With recent rapid advances in trenchless technologies, acceptance of such methods for inspection, repair, upgrade, and installation of underground infrastructure systems has been increasing. Trenchless technology has greatly reduced the footprint of the construction site and the need for much of the trenching that is normally associated with underground construction. The reduction of the construction footprint and the amount of trenching has greatly impacted a class of costs called social costs. Social costs can be considered the costs of a construction project which are not carried in the construction bid such as traffic delays, reinstatement of public and private property, and public perception. Social costs are not clearly defined, nor is their estimation straightforward. What is the actual cost for replacing a lawn damaged through trenching or the political cost for closing a main thoroughfare close to an election? Inclusion of social costs with project costs can greatly impact the normal tendering process. Inclusion of social costs allows the municipality to estimate the true costs of the project and therefore identify the most economically efficient bid based on minimizing the total cost. From the taxpayers point of view the inclusion of at least a subset of the social costs in the selection process is desirable. However, from the point of view of a competitive bidder, inclusion of costs not under their control (social costs) in the selection process makes the determination of the optimal bid difficult for a contractor. This paper discusses traditional bidding strategies in which the bidder can optimize the bid based on a probabilistic approach using the expected-value approach to bidding under the assumption that the low-bid method is used. This paper also puts forward two methods for the estimation of social costs which can be used in conjunction with the bidding methodology discused. A worked example demonstrates the application of one of the estimation methods and the bidding methodology.(A)