Risk assessment on contractors' pricing strategies

In a competitive tender, pricing strategies are often used by contractors to facilitate their cash flows. Usually, the decisions are based on contractors' experience, intuition, and personal bias. The existing mark-up or cash-flow forecasting models simulate the pricing strategies in a simplified manner which may depart from real situation and therefore could lead to inaccurate cash-flow forecasting. There is a lack of practical models that could quantify risks associated with pricing strategies. For construction projects, the quantity values of break-down cost items are random variables. A new approach to the risk assessment of contractors' pricing strategies is presented. By using the quantities as random variables, the approach developed in this paper enables the contractor to find the global optimal pricing through the stochastic programming model. The risks caused by contractors' pricing strategies are then assessed in a quantitative manner. A real case analysis using the approach is demonstrated.