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Competitive bidding in construction involves high degrees of risk. The nature of the work involved is not certain: the contractor cannot accurately predict all of the factors that are involved such as the weather, soil conditions, labour rates, reliability of plant, the extent of wastage, and productivity. Whilst cost estimates are usually done deterministically, these uncertainties will give effect to some degree of unavoidable error in these estimates. Despite these risks, the mark-ups in this industry are typically relatively small. Given this environment, the lowest bids in any tender may be the cause of comparatively low costs (for reason of some competitive advantage), erroneously low estimates of these costs, low mark-ups, or a combination of these factors. As a result, contractors suffer the risk of the “winner‟s curse” which is otherwise known as a Pyrrhic victory. A contractor's bid may be the lowest because they made an error under- estimating their costs, causing them to win the tender but make a loss. An online Bidding Game is in development that will facilitate that students will be able to compete against each other in a safe, simulated environment. They will be able to test their skills at deciding strategies as regards selecting projects on which to compete and then decide bid prices that are sufficiently low for them to “win” and yet sufficiently high as to produce profits, given conditions that resemble the real world.
This document has been peer reviewed.