Modelling contractors' mark-up behaviour in different construction markets: Fid-Bau Portal

Modelling contractors' mark-up behaviour in different construction markets

Lan Oo, Bee / Drew, Derek / Lo, Hing-Po

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In order to compete successfully, international contractors need to have an understanding not only of the make-up of the different competitive environments within each country, but also of contractors' competitive behaviour within those environments. Contractors' mark-up decision making in public sector contracting is directly compared in two construction markets – Hong Kong and Singapore.

Design/methodology/approach –

Regression analysis is used to compare the lowest percentage mark-up in both markets against four mark-up decision factors that fall into two groups – market-environment factors (i.e. number of bidders, market conditions) and project-specific factors (i.e. type and size of project). Data were gathered using a designed bidding experiment.

Findings –

In line with de Neufville et al.'s “good year-bad year” study, the effect of market conditions was found to be independent of the number of bidders in both markets; contractors' mark-up decreases as the number of bidders increases, with lower mark-up in recession. In addition, this study provides evidence that contractors' mark-up behaviour varies in different markets: Hong Kong contractors' mark-up behaviour is more straightforward, in that only the market-environment factors are significant. However, Singapore contractors' mark-up behaviour is affected by project type in addition to the market-environment factors. Project size was not found to be significant in either market.

Originality/value –

The empirical findings provide a valuable insight into contractors' mark-up behaviour, especially those contractors intending to bid for jobs in these two internationally renowned construction markets.