Predicting bid prices in construction projects using non-parametric statistical models

Abstract

Bidding is a very competitive process in the construction industry; each competitor’s business is based on winning or losing these bids. Contractors would like to predict the bids that may be submitted by their competitors. This will help contractors to obtain contracts and increase their business. Unit prices that are estimated for each quantity differ from contractor to contractor. These unit costs are dependent on factors such as historical data used for estimating unit costs, vendor quotes, market surveys, amount of material estimated, number of projects the contractor is working on, equipment rental costs, the amount of equipment owned by the contractor, and the risk averseness of the estimator. These factors are nearly similar when estimators are estimating cost of similar projects. Thus, there is a relationship between the projects that a particular contractor has bid in previous years and the cost the contractor is likely to quote for future projects. This relationship could be used to predict bids that the contractor might quote for future projects. For example, a contractor may use historical data for a certain year for bidding on certain type of projects, the unit prices may be adjusted for size, time and location, but the basis for bidding on projects of similar types is the same. Statistical tools can be used to model the underlying relationship between the final cost of the project quoted by a contractor to the quantities of materials or amount of tasks performed in a project. There are a number of statistical modeling techniques, but a model used for predicting costs should be flexible enough that it could adjust to depict any underlying pattern. Data such as amount of work to be performed for a certain line item, material cost index, labor cost index and a unique identifier for each participating contractor is used to predict bids that a contractor might quote for a certain project. To perform the analysis, artificial neural networks and multivariate adaptive regression splines are used. The results obtained from both the techniques are compared, and it is found that multivariate adaptive regression splines are able to predict the cost better than artificial neural networks.