To receive a project contract through competitive bidding, contractors submit a bid price determined by putting a markup on the estimated project cost. Since a bid is inevitably affected by an inaccurate cost estimate, sufficient resources should be allocated to cost estimation. This paper develops a novel optimization model for determining the bid markup and the resource allocation for cost estimation simultaneously. We derive optimality conditions based on some assumptions, and we report computational results demonstrating the effectiveness of our model.
Takano, Y., Ishii, N., & Muraki, M. (2018). Determining bid markup and resources allocated to cost estimation in competitive bidding. Automation in Construction, 85(1), 358-368. https://doi.org/10.1016/j.autcon.2017.06.007