Data Envelopment Analysis (DEA) Approach for Making the Bid/No Bid Decision: A Case Study in a Turkish Construction Contracting Company

Abstract

Construction contracting companies face two critical decisions in competitive bidding environment, which include: the bid/no bid decision and the mark-up selection decision. Making the right bid/no bid decision is critical to the survival, sustainability, and success of the contractors in the industry. There are many factors that affect this decision. This makes the bidding decisions complex and complicated. Therefore, it is not an easy task for managers to consider all these factors’ combined impact on the bid/no bid decision within a limited time frame with limited capacity of information they have for every single bidding opportunity. This study proposes a data envelopment analysis (DEA) approach for making the bid/no bid decision. DEA is a robust non-parametric linear programming approach, which is mostly used for benchmarking, performance measurement, and decision making problems. The applicability of the proposed approach was demonstrated in a real case study conducted in a Turkish construction contracting company. In the case study, 49 bidding opportunities formerly faced by the studied company were evaluated via the developed DEA model. The accuracy rate of the proposed approach was 92%. Company management found the proposed approach satisfactory and implementable in future bid/no bid decision problems.