Before contractors manage their projects to profitable conclusions, they must win them first. Winning takes a variety of forms, depending upon the market. It may be accomplished by simply having a superior advertisement causing the prospective customers to forsake the competition and become actual customers. It may involve a great deal of reviewing, staffing, producing and negotiating the bids and assuring meeting of the minds between the contractor and the buyer. However, most importantly winning involves securing market share by being able to set a correct price in relation to the market and competition.

This paper presents a simulation game that helps in presenting the concepts of market share and competitive bidding in the construction industry. The main theme of the game is the relative importance of gaining market share and bidding price for securing more jobs for the contractor. The game can be used as a part of courses that discuss bidding, marketing or business management to contractors. The game can also be used in conjunction with a professional training program. The pedagogical benefits of construction simulation gaming are now widely established (Frazer 1978, Alarcon and Ashley 1999, Bichot 2001, Nassar 2001). Simulation gaming provides an interesting medium for experimenting with concepts and ideas that would be otherwise impractical. Mimicking and simplifying the real worlds can help in presenting basic concepts to students while enriching the learning process with an interesting activity. Furthermore, simulation games enhance the standard formal teaching methods in a laboratory environment to test and reinforce the relevance of theories to practice.

A number of games that deal with competition in bidding have been introduced (Au et al 1969, Halpin, 1973, AbouRizk 1992). SuperBid is a computer simulation model that can be used to improve the bidding skills of construction managers (AbouRizk 1992). In the game, the computer creates a bidding situation automatically using stochastic techniques. The players try to increase the profitability of their companies by mainly optimizing their bidding decisions. The project management game (Au et al 1969) is a similar game in which participants have to bid and then manage the jobs they won after that. The simulation game described here emphasizes the importance of gaining market share for contractors as method to increase the amount of work contractor wins (sales). Unlike similar earlier games, the relative importance of firstly, market share and secondly, the bid price is emphasized. These two factors are described below.

Market share in construction can be defined as the amount of work the contractor has, relative to its competitors. The amount of work can be measured either by the number of jobs or monetary value (dollars of secured work). In certain situations, like subcontracting work, the market share can also be measured by the amount of unit of work (i.e. cu yd of concrete, sq ft of paving, etc…). Recently F. W. Dodge (a famous construction information broker) developed the "Market Share Measurement Product" for the building industry, which is a report used in assessing the market share of product manufacturers in the construction industry (F.W. Dodge 2001).

Analyzing the contractor’s market share can help in assessing the financial positions relative to other firms as well as help in making projections and decisions on required labor and equipment resources for the future. The importance of gaining market share for contractors lies not only in acquiring the existing work but also in the possibility of growing. Generally, the more market share secured, the higher the potential for business growth in the future. This is especially true for the construction industry in negotiated contracts situations, where the customer will have a tendency to contract again with the same contractor (provided good previous performance by the contractor, obviously). It is therefore, important for the contractor’s bidding approach to match the circumstances of the market and incorporate this in a winning strategy.

Several things affect the contractor’s price including, risk, the number of jobs the contractor already has (market share) and, the contractor’s bonding capacity. One of the most important aspects of the bidder’s price however, is the % markup it uses in its bid. The more competitors and the fiercer the competition (their willingness to charge low markups) the lower the markup charged. The decision on the markup however should be coordinated with the market share secured. A number of strategies have been introduced to optimize the decision on markup (Griffis 1992, Gates 1967). However no one strategy will work in all situations and the decision on the markup will depend on experience and skill acquired. The simulation presented in this game helps in making the relationships between the competition and the contractor’s bid markup more apparent.

The game presented here takes into account the interaction between the market share and bid price by considering both the competitors’ markup in the current bid and also their markups in the preceding quarters, which makes the game suggested here unique in respect to other games in the literature. In the next section we will present the game and model behind it.

The game described in this paper is a four-team game founded on a similar game in (Frazer 1978) which is used in business decisions simulation). Four teams representing 4 local contractors play the game. The contractors are competing for construction contracts of the local Department of Transportation (DOT) over a period of 12 quarters. Each quarter, the local DOT puts out a call for bids for a number of pay items (some DOTs use the term "pay items" to denote the category of work to be bid, i.e. cu. Yd. of excavation, sq. ft. of resurfacing, ln. ft. of crack filling etc…). Each of the contractors has to make a decision on the value of the markup it provides for each of these pay items in order to win more work and also to secure its market share. The game, as presented here, only considers one pay item, namely, cu. Yd. of excavation.

In the game, the amount of work each contractor (player) secures is determined by both the contractor’s markup and by the share of the market the contractor managed to get in the preceding quarter. The share of the market assumes that the owners have a tendency to contract again with the same contractors they did business with last time. The mechanics of the game are such that this tendency is just as important as the bid price when determining the amount of work each contractor secures. Also, the game is set up to provide for interaction between the markups provided by each contractor, as well as the history of the markups that were bid in previous quarters.

In the game, the only decision required from the players is the bid price for a cu. Yd. of excavation, which is used to calculate the two factors that affect the amount of work (and in turn profit) the contractor wins; the Price Factor and the market share. The Price Factor reflects the amount work won by the contractor as a function of the contractor’s bid price in relation to its competitors. The lower the bid price in relation to the competition the higher the Price Factor and the more work won. The market share, on the other hand reflects the relative amount of work won by the contractor in the preceding quarter in relation to the competition. Again the higher the market share in the previous quarter, the more work won by the contractor. So in effect, the higher the contractor’s Price Factor and the market share, the more work secured.

The amount of work secured by the players in each quarter is equal to the contractor’s Price Factor, multiplied by the contractor’s market share from the previous quarter, multiplied by a certain constant, which reflects the relative cost of the pay item. In this case there is only one pay item, excavation, with a constant of 40,000. At the end of each of the 12 quarters the market share and the price factor (and in turn the amount of work secured by each player) is calculated, as described below. The game is divided into the following four steps, which are repeated for the 12 quarters:

The game starts at quarter number zero (t=0) with each of the four players having equal market share. The game proceeds to the first quarter and each of the contractors then provides a bid price for the cu. Yd. of excavation. The total cost of a cu Yd. of excavation including material, labor and equipment, to the all four contractors is assumed to be $5. Each of the contractors has to provide a bid price, which is equal to the markup multiplied by the cost of $5. The bid price is the only input required from the contractors.

Given the bid price the, Price Factor for each contractor is then calculated. The Price Factor determines how much work is won in relation to the bid price of other contractors. The Price Factor for a contractor is calculated as the average of all the competitors’ bid prices divided by the bid price for the contractor, squared. Therefore, the lower the bid price of the contractor in relation to the average bid of all the competitors, the higher the Price Factor and the more work is won by that particular contractor.

Next, the share of the market is determined. The market share is a function of the amount of work acquired by the contractor in the previous quarter. In the first quarter, all the contractors have equal market share and since there are four teams the market share for each is 0.25. In succeeding quarters, the market share of a contractor is calculates as the amount of work won by the contractor in the preceding quarter, divided by the total work won by all the contractors. Therefore, the higher the amount of work won by the contractor in the preceding quarter, the more work it is likely to win in the succeeding quarter.

The profit of each contractor is calculated each quarter as the difference between the bid price and the cost to the contractor ($5) multiplied by the amount of work won by the contractor. Therefore the higher the bid price and the more work secured by the contractor the higher the profit made. These steps are repeated for the 12 periods, each time calculating the Price Factor and the market share. Finally the total profit for the contractor is determined by summing up all the profits for all the quarters.

The player with the most profit is declared the winner. This game can be easily implemented on any commercial spreadsheet to automate these calculations and to facilitate its use in a classroom setting. Figure 1, shows the spreadsheet implementation of the game. In the spreadsheet, the decisions from each team are input in the un-shaded columns labeled Bid Price. All the teams provide their bid price on a sheet of paper simultaneously. The moderator of the game (usually the instructor) then enters these prices into the spreadsheet and in turn the market share, price factor and the amount of work secured (sales) are calculated by the spreadsheet formulae. The formulae shown in figure 1 are copied and pasted downwards for the 12 quarters and are similar for all the four teams.

The simulation game was tried in an actual classroom setting in an advanced cost analysis course. It was found that 12 quarters (versus the 10 suggested in the original Frazer game (Frazer 1978)) are the most suitable number of quarters, as they provide sufficient time for each of the teams to develop a strategy and understand those of the competitors. Figure 2, shows the results from the sample run. The bid price and the amount of work secured by the teams during the twelve quarters are shown in Figure 2. To demonstrate the effects of decisions taken by one team on its performance, consider the decisions of team one. Plots of team one’s price factor, market share and, amount of work secured are shown in figure 3. At the beginning (first 3 quarters) team one started with low bid prices with very little markup ($5-$6), which meant that it managed to acquire work and increase its market share (figure 3). However at that point, although team one was starting to secure more and more work, its profits were not increasing at the same rate due to the low markup. At this point, during the fourth quarter, team one decided to raise its markup and charge a higher price ($12). This initially increased its profit because of the market share that was secured in the previous quarter. However, with the constant price of $12 it charged, the team saw decreased market share throughout the end of the game and similarly the sales declined. However, the prices used by the other teams were not consistent and had a high variability. As seen from figure 2, the bid prices for the other teams were, on average higher than that of team one, which gave team one the advantage at the end.

This paper presented a simulation game geared specifically at introducing the concepts of market share and bidding in a competitive construction market using a game format. The simulation game provides interaction between the bid prices of the competitors over the simulated quarters. The various steps of the game were introduced along with the model behind the game. A sample run in an actual classroom was presented.

Future extensions of the game include implementing the game on-line. This would allow the multiple users to enter their inputs remotely and get back the results promptly, which facilitates the administration of the game. Also time bounds can be programmed in order to limit the time each competitor has to submit its bid price. Another interesting addition is to consider more pay items with different prices. However, the balance between the complexity of the game and its usefulness must be considered.

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