Unbalanced Highway Contract Tendering

Abstract

This paper deals with a central and recurrent concern of managers responsible for highway tendering: formulating unit bids for Unit Price Proposals. Unit Price Proposals are prepared by the client and indicate contract items and (estimated) quantities deemed necessary to accomplish the proposal objective. The bidder is required to indicate unit prices or bids. These unit bids are multiplied by the indicated quantities and summed to arrive at the bid total. Virtually every tender (bid) is unbalanced in order to improve cash flow. Often the unbalancing is neither competent nor conscious. A linear programming model was devised to determine unit bids that maximize the present worth of future profit. The model characterizes the managerial environment with uncommon competence. Examples illustrate features of implementation. The model is especially useful for large and complicated contracts of long duration. These linear models have the remarkable feature that, for given project information, no other means of unbalancing will yield a greater present worth.