An algorithm of selecting the pricing model for a construction contract

Authors

DOI:

https://doi.org/10.15587/1729-4061.2019.155779

Keywords:

contract theory, multi-criteria analysis, pricing mechanisms, strategic decision-making

Abstract

An algorithm has been developed for selecting a price model for a construction contract. This is important because price is one of the key parameters of a contract. It is this parameter that determines how much of the value created in the framework of the contract in a monetary form goes to the contractor and what remains to the client. The study has found that the contract drivers of pricing are the initial price, control, incentives (moral hazard), and the final price. This interpretation coincides with the fundamentals of contract theory and is a prerequisite for the fundamental credibility of the developed system. The basic input components of the decision-making algorithm on the most appropriate pricing strategy are the matrix of properties of contract price models and a metric of questions for evaluating the client’s respective priorities for the project.

The system helps choose one of five key pricing strategies: CRC, MC, TC, LS or GMP, which are used in international practice. Applying the system of choosing the pricing model of a contract in conjunction with the system of selecting the organizational profile of the project provides an opportunity to choose the most appropriate strategy from 130 paired alternatives. The proposed approach in a cumulative way contributes to the success of construction projects and has a unified character. The formalized toolkit for benchmarking alternatives is the digital content of the strategic COMP – Contract Organizational Mechanisms: Pricing. The algorithm is built on estimating the priority vectors of pricing factors for a project (based on certain sets of ranks and ratings) with a further grading of the feasibility of using each of the alternative price models in the project. Approbation of the COMP system in the construction project of the Ice Arena in Kyiv has shown that the created conceptual model (the proposed algorithm) makes it possible to take an expedient decision on the pricing strategy for a contract with mathematical, high theoretical and practical argumentation

Author Biographies

Olexander Bugrov, Kyiv National University of Construction and Architecture Povitroflotsky ave., 31, Kyiv, Ukraine, 03037

PhD, Associate Professor

Department of Project Management

Olena Bugrova, National University of Kyiv-Mohyla Academy Skovorody str., 2, Kyiv, Ukraine, 04070

PhD, Associate Professor

Department of Economic Theory

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Published

2019-02-04

How to Cite

Bugrov, O., & Bugrova, O. (2019). An algorithm of selecting the pricing model for a construction contract. Eastern-European Journal of Enterprise Technologies, 1(3 (97), 13–21. https://doi.org/10.15587/1729-4061.2019.155779

Issue

Vol. 1 No. 3 (97) (2019): Control processes

Section

Control processes

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Copyright (c) 2019 Olexander Bugrov, Olena Bugrova

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