Quantity choice in unit price contract procurements
AbstractA common approach for procuring large construction projects is through Unit Price Contracts. By the means of a simple model, we study the optimal quantity to procure under uncertainty regarding the actual required quantity given that the procurer strives to minomize expected total costs. The model shows that the quantity to procure in optimum follows from a trade-off between the risk of having to pay for more units than actually necessary and of having to conduct costly renogotiations. The optimal quantity increases in costs associated with possible renegotiations, decreases in expected per unit price, and, if a renegotiation does not increase per unit price too much, decreases in the uncertainty surrounding the actual quantity required.
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Bibliographic InfoPaper provided by CTS - Centre for Transport Studies Stockholm (KTH and VTI) in its series Working papers in Transport Economics with number 2011:4.
Length: 17 pages
Date of creation: 02 Nov 2011
Date of revision:
Contact details of provider:
Postal: Centrum för Transportstudier (CTS), Teknikringen 10, 100 44 Stockholm, Sweden
Web page: http://www.kth.se/abe/om_skolan/organisation/centra/cts
Unit price contracts; procurement; construction;
Other versions of this item:
- Mandell, Svante & Brunes, Fredrik, 2011. "Quantity Choice in Unit Price Contract Procurements," Working Papers 2011:4, Swedish National Road & Transport Research Institute (VTI).
- Mandell, Svante & Brunes, Fredrik, 2013. "Quantity Choice in Unit Price Contract Procurements," Working Paper Series 13/2, Department of Real Estate and Construction Management & Centre for Banking and Finance (cefin), Royal Institute of Technology.
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
- H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-11-07 (All new papers)
- NEP-IND-2011-11-07 (Industrial Organization)
- NEP-PPM-2011-11-07 (Project, Program & Portfolio Management)
You can help add them by filling out this form.
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