Quantity Choice in Unit Price Contract Procurements
2014 (English)In: Journal of Transport Economics and Policy, ISSN 0022-5258, Vol. 48, no 3, 483-497 p.Article in journal (Refereed) Published
A procurement approach commonly used for construction projects involves paying a fixed price per unit conducted — that is, unit price contracts. We develop an analytical model to study the optimal procurement quantity and monitoring intensity when the required quantities are uncertain. The optimum involves a trade-off between a risk of paying for more units than necessary, conducting costly renegotiations, and/or investing in monitoring. The paper adds to the understanding of both optimal behaviour in procurements and the presence of cost overruns. In particular, deliberately procuring low quantities, and thereby facing a high risk of cost overruns, is sometimes optimal, as it minimises the expected total cost.
Place, publisher, year, edition, pages
2014. Vol. 48, no 3, 483-497 p.
Cost Overruns, Projects, Competition, Auctions
Economics Transport Systems and Logistics
IdentifiersURN: urn:nbn:se:kth:diva-143351ISI: 000340698000008OAI: oai:DiVA.org:kth-143351DiVA: diva2:706358
QC 201403252014-03-202014-03-202014-09-18Bibliographically approved