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Empirical Study of Effects of Price Adjustment Clauses (PACs) on Highway Construction Bid
Volatility in price of critical materials used in transportation projects, such as asphalt cement, leads to considerable uncertainty about project cost. This uncertainty can lead to price speculation and inflated bid prices submitted by highway contractors to protect against possible price increases. One of the most common risk sharing strategies widely used by transportation agencies is price adjustment clauses (PAC) that divide potential upside and downside risk of material prices between contractors and owners. However, it is not clear whether offering PAC reduces risk premium of bids submitted by highway contractors. The research objective of this paper is to assess the effect of offering PAC for asphalt cement on submitted bids of one of the most common asphalt mixture line items. Data on 1520 highway projects consisting of the asphalt line item bidded out in the state of Georgia from 1998 to 2013 were collected to analyze the effects of PAC on bid prices. Multivariate regression analysis was conducted to evaluate the effect of several factors, such as project size, number of bidders, asphalt cement price, and availability of PAC on unit price bids material prices submitted by highway contractors. It was found that eligibility for PAC is not a statistically significant explanatory variable to explain the variation of submitted bid prices for the asphalt mixture items.
Empirical Study of Effects of Price Adjustment Clauses (PACs) on Highway Construction Bid
Volatility in price of critical materials used in transportation projects, such as asphalt cement, leads to considerable uncertainty about project cost. This uncertainty can lead to price speculation and inflated bid prices submitted by highway contractors to protect against possible price increases. One of the most common risk sharing strategies widely used by transportation agencies is price adjustment clauses (PAC) that divide potential upside and downside risk of material prices between contractors and owners. However, it is not clear whether offering PAC reduces risk premium of bids submitted by highway contractors. The research objective of this paper is to assess the effect of offering PAC for asphalt cement on submitted bids of one of the most common asphalt mixture line items. Data on 1520 highway projects consisting of the asphalt line item bidded out in the state of Georgia from 1998 to 2013 were collected to analyze the effects of PAC on bid prices. Multivariate regression analysis was conducted to evaluate the effect of several factors, such as project size, number of bidders, asphalt cement price, and availability of PAC on unit price bids material prices submitted by highway contractors. It was found that eligibility for PAC is not a statistically significant explanatory variable to explain the variation of submitted bid prices for the asphalt mixture items.
Empirical Study of Effects of Price Adjustment Clauses (PACs) on Highway Construction Bid
Ilbeigi, Mohammad (author) / Ashuri, Baabak (author) / Shayegh, Soheil (author)
Construction Research Congress 2014 ; 2014 ; Atlanta, Georgia
Construction Research Congress 2014 ; 1093-1102
2014-05-13
Conference paper
Electronic Resource
English
Price Adjustment Clauses and Submitted Bid Prices for Major Asphalt Line Items in Highway Projects
| Online Contents | 2016
Price trends in highway construction
Engineering Index Backfile | 1946