Bidding Strategy and Cash Flow Forecasting in Private Construction Companies in Iraq
Engineering and Technology Journal,
2017, Volume 35, Issue 3, Pages 254-260
AbstractThe sector of Private Construction Companies is one of the most important sectors in construction market in IRAQ. This sector played an important role in the last ten years in the Iraqi construction field. The idea of this research came from the hardly competitive bidding among these many private companies, and because of the lack of knowledge by many of these companies about the bidding strategy theories. This research is a trial to create a balanced condition of the bidding price for the contractor. The average bidding strategy method depends on historical data for the bidders and it is a relationship between the added percentage of profit and the winning probability. An important factor is inserted in this research, which is the maximum fiscal deficit that is facing the contractor during construction period of any project; this deficit is the difference between the received discounted payments and the cost of finished works for any period during construction. The contractor apply the bidding strategy method to lower his profit margin to the lowest certain extent to rise the opportunity to win the contract. Nevertheless, he forget that the lowest profit margin leads to highest cash deficit during construction. A survey was done for a contract construction company in the private sector in Iraq, where the competition is more clearly than the governmental sector, by collecting data for (5) competitive companies in (16) projects. By using the average bid method, to determine the added (12%) of profit the winning probability was (9%), and from the analysis of the cash flow forecasting curve the maximum fiscal deficit will be IQD (8,972,000) at the second month of the project execution duration. By applying the resultant equation and to lower the deficit through rising profit by (0.1%) the winning opportunity will be decrease by (0.6%). In this research, a relationship is drawn between the profit margin and the maximum deficit for project, and finally a relationship is drawn between the deficit and the winning opportunity of the contract. Both of these two relationships are linear, and the important results are that any contract should apply both average bid method and cash deficit method at the same time, according to the economic condition to its firm.
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