The impact of contractors’ risk tolerance on its financial growth under a unit-price contract

Abstract

The effect of different contractors’ behavior on their markup selection and long-term success under unit price contracts needs to be evaluated. This research involves the evaluation of the risk behavior of a contractor on its markup selection and long-term success in unit price contracts and the comparison between the evolution of bid prices for under lumpsum and unit price contracts on the long run. This study can assist the owners in choosing which contract type (lumpsum or unit price contract) to use for different market and project characteristics by showing the advantages and disadvantages of each contract type. It aims at simulating the dynamic bidding environment and reflecting the interactions that occur between different contractors competing on unit price projects, showing how the risk behavior of a contractor affects its bid price and long-term performance in the market, and highlighting the advantages and drawbacks of the lumpsum versus unit price contracts for different owners, contractors, projects, and market characteristics.