Price and quality: relationship between bid rate and construction performance rating ranking
Authors: Arai Koki 
Published: February 2021

Purpose

The purpose of this paper is to try to understand the relationship between price and quality in public procurement by using data on the quality of civil engineering works and prices in tenders. By doing so, it tries to conduct a comprehensive examination of the quality of construction works, which has been difficult to recognize and evaluate.

Design/methodology/approach

The methodology of this analysis is to collect data on the quality of construction works from the rankings of construction performance evaluations revealed by public procurement authorities. In addition, the prices of bids of the providers in public procurement are also collected from the available data and analyzed. The relationship between the two was statistically analyzed in an objective and verifiable way.

Findings

What the study found was that the price of the work measured by the bid rate had a positive and significant relationship with the quality of the work measured by the construction performance rating. Furthermore, the panel data were analyzed using panel data for 51 firms that all appeared in the construction performance evaluation for 12 years and participated in at least three bids in each year, and the first-order term of the bid rate was negative and the second-order term was positive and was 10% significant, which is a U-shaped relationship.

Research limitations/implications

This study is one of the investigations focused on public procurement construction work. One of the limitations of this study is that it is a study of one industry in the Asian region. However, this study focuses on the incentives of business operators. As such, the analysis is applicable to all situations faced by those running businesses.

Practical implications

The managerial implications of this study include the following: although, improving the quality of construction results is costly, competitive firms are also steadily improving their quality as it is a factor of competition. However, there will come a point where their efforts come to a halt at a certain level. It is necessary to operate the business with this situation in mind. In addition to the company's efforts, it is necessary to lobby the government.

Social implications

As a policy implication for this analysis, it was possible to evaluate that steady improvement in construction results was confirmed, but the correlation between the relaxation of the competition and the increase in the bid rate was correlated with the decrease in the total amount of public works. This highlights the problem of having to think about measures for the efficient use of the. In addition to this, the fact that the competition situation has been eased can be considered as a problem that it will adversely affect the innovation stimulation of operators, and that it will become necessary to pay more attention to competition limiting acts.

Originality/value

The uniqueness of this paper is firstly that unique data representing the quality of public procurement, which had been difficult to analyze, were collected, organized and used in the study. In addition, not only did we find a positive relationship between quality and price but we also found a U-shaped relationship between them using panel data.