Correlating Bid Price with the Number of Bidders and Final Construction Cost of Public Street Projects

Abstract

The vast majority of highway and street projects in the United States are procured by state or local governments through a competitive bidding process. In a competitively bid public project, awarding the contract to the lowest bidder is a predominant practice. A few studies measured the effect of awarding the contract to the lowest bidder on construction cost growth. This paper analyzes a sample of 435 bids on 113 public street projects in Clark County, Nevada, to determine a correlation between a lowest bid price and construction cost growth. The sample included projects completed between 1991 and 2008 and more than $554 million in construction value. The study also determined a correlation between the number of bidders and the deviation of the bid cost from the engineers’ estimate. The study showed no correlation between the lowest bid price and the construction cost growth. It showed that public owners would have received the lowest construction bid price if more bidders had been involved in the bidding process. The study found a strong correlation between the lowest bid price and the final construction cost. Therefore, a regression model was developed to predict the final construction cost of a street project by using the lowest bid price. A validation of the model showed that on average the predicted cost of a project was within 3.51% of the actual construction cost. Other findings included recommendations for future study.

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