Determining the Optimal Fee-Technical Proposal Combination in Two Envelope Fee Bidding

Derek Drew; Connie Kwong; Patrick Zou; L.Y Shen

doi:10.5130/AJCEB.v2i2.2895

PDF

Published: Nov 17, 2012

DOI: https://doi.org/10.5130/AJCEB.v2i2.2895

Derek Drew

University of New South Wales

Connie Kwong

University of New South Wales

Patrick Zou

University of New South Wales

L.Y Shen

The Hong Kong Polytechnic University

Abstract

Two envelope fee bidding is a mechanism used by construction clients to allocate commissionsto willing consultants such as architects, engineers and surveyors. In two envelopefee bidding the client scores the competing consultants’ fees and technical proposals.The fee and technical proposal scores are weighted and aggregated and the consultantobtaining the highest aggregated score normally wins the commission. The consultant’sobjective in bidding, therefore, is to obtain the highest aggregated score possible since thismaximizes the chance of winning the commission. Given that fee and technical proposalscores are to some extent correlated, consultants can submit any one from a number ofdifferent fee—technical proposal combinations, ranging from a low fee—low scored technicalproposal combination to a high fee—high scored technical proposal combination.Only one possible combination will result in the highest aggregated score. Drew et al(2002b) offered consultants a model to determine this optimum fee-technical proposalcombination for any given commission. This paper tests the proposed model using datacollected from a leading Hong Kong consultant. The analysis, based on 51 bidding attempts,indicates that had the consultant adopted the proposed optimization model, theoverall average improvement on the consultant’s original total scores was 7.07%. The optimumstrategy was to aim for an absolute low fee—low scored technical proposal on 20occasions, absolute high scored technical proposal—high fee on 21 occasions and somewherebetween these two extremes on the remaining 10 occasions. The extent to whichfees scores and technical scores vary relative to each other has an important influence onthe optimum fee—technical proposal combination. However, the client’s change from a70/30 to a 50/50 predetermined weighting appears to have little effect on the consultant’soptimum bidding strategy.

How to Cite

Drew, D., Kwong, C., Zou, P., & Shen, L. (2012). Determining the Optimal Fee-Technical Proposal Combination in Two Envelope Fee Bidding. Construction Economics and Building, 2(2), 1-9. https://doi.org/10.5130/AJCEB.v2i2.2895

Issue

Vol. 2 No. 2 (2002): AJCEB

Section

Articles (Peer reviewed)

This work is licensed under a Creative Commons Attribution 4.0 International License.

Copyright Notice

Authors who publish with this journal agree to the following terms:

a) Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution License that allows others to share and adapt the work with an acknowledgement of the work's authorship and initial publication in this journal.

b) Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgement of its initial publication in this journal.

c) Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See The Open Access Citation Advantage Service). Where authors include such a work in an institutional repository or on their website (ie. a copy of a work which has been published in a UTS ePRESS journal, or a pre-print or post-print version of that work), we request that they include a statement that acknowledges the UTS ePRESS publication including the name of the journal, the volume number and a web-link to the journal item.

d) Authors should be aware that the Creative Commons Attribution (CC-BY) License permits readers to share (copy and redistribute the work in any medium or format) and adapt (remix, transform, and build upon the work) for any purpose, even commercially, provided they also give appropriate credit to the work, provide a link to the license, and indicate if changes were made. They may do these things in any reasonable manner, but not in any way that suggests you or your publisher endorses their use.

Article Sidebar

Main Article Content

Abstract

Article Details