Quantity choice in unit price contract procurements
2011 (English)Report (Other (popular science, discussion, etc.))
A 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 minimize 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 renegotiations. 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.
Older version: http://swopec.hhs.se/vtiwps/abs/vtiwps2011_004.htm
Place, publisher, year, edition, pages
Stockholm: Centre for Transport Studies Stockholm, Swedish National Road & Transport Research Institute (VTI), KTH Royal Institute of Technology, S-WoPEc, Scandinavian Working Papers in Economics , 2011. , 17 p.
CTS Working Paper, 2011:4
Price, Mathematical model, Transport infrastructure, Construction, Road construction
Priser, Matematiska modeller, Transportinfrastruktur, Byggande, Vägbyggnad
Research subject Road: General works, surveys, comprehensive works, Road: Economics
IdentifiersURN: urn:nbn:se:vti:diva-638OAI: oai:DiVA.org:vti-638DiVA: diva2:669333