Mechanism Design Analysis for EPC Project Tendering
Date Issued
2011
Date
2011
Author(s)
Alex Lou, Jih-Hway
Abstract
The emerging EPC project contracting has been widely adopted for its effective reduction of transaction cost among suppliers in the value chain of construction business. Through risk analysis, the research summarizes that the key successful factor to an EPC project is the ability of the contractor to carry out the contracts. A game model was established to analyze the mechanism design of contractor selection process. Two types of contractor selection model, the most advantageous tender and the lowest price tender, were studied. It is found that the evaluation items for the most advantageous tender should be effective to reveal private information of the tenders, so that the client can identify the type of tenders. A target function for the lowest price tender was formulated and solved for optimum solution in the study. It is found that, when the number of tender decreases, the payoff of the tender increases, while the number of tender increases, the utility of tender decreases, which implies that the client has more bargin power. The calculating results show that client’s reserved price acts like another competing tender in the pool. It is also proved that a proper reserved price setting can effectively save client’s budget. Three types of contract, fix-cost, cost-plus and hybrid, were reviewed in the study to verify its compatibility with EPC project.
Subjects
EPC
tender
game
principal-agent
mechanism design
contract
Type
thesis
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