Speed and Efficiency in Government Procurement of Transportation-Related Construction Services

Thursday, November 12, 2009 - 4:15pm

About the Event

Speedier contract execution is increasingly important in the procurement of transportation construction services. The focus of this talk will be on mechanisms that use proposed cost (A component) and proposed time (B component) to score contractors' bids. These mechanisms, also called A+B bidding, have been adopted by several state transportation agencies.

This presentation will describe mathematical models showing that the A+B mechanism does not lead to truthful revelation of contractors' unit costs and completion times. Contractors' incentives are to bid a shorter completion time than expected. Payments based on adjustments in quantities after construction is completed and time-based incentives generate windfall profits for contractors. These are incorporated strategically into their bids, with the result that the lowest-cost bidder does not necessarily win. However, A+B mechanism does lead to optimal effort by the winning bidder to expedite project completion.

The talk will also present data from the Minnesota Department of Transportation, discuss the extent to which models explain the data, and describe future research directions.

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Diwakar Gupta is an industrial and systems engineering professor and a mechical engineering professor at the University of Minnesota. He is also a CTS faculty scholar, graduate faculty for the Health Services Research, Policy, and Administration program in the School of Public Health, and director of the Supply Chain and Operations Research Laboratory.