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An estimation model of Construction

project
construction project segmentation segmentation

for optimum project pricing

Fang-Jye Shiue 2361
Graduate Institute of Architecture and Sustainable Planning,
National Ilan University, Yilan, Taiwan Received 2 August 2020
Revised 26 October 2020
Hsin-Yun Lee Accepted 19 November 2020

Taiwan Building Technology Center,

National Taiwan University of Science and Technology, Taipei, Taiwan
Meng-Cong Zheng
Department of Industrial Design, National Taipei University of Technology,
Taipei, Taiwan, and
Akhmad F.K. Khitam and Sintayehu Assefa
Taiwan Building Technology Center,
National Taiwan University of Science and Technology, Taipei, Taiwan

Abstract
Purpose – For large projects, project segmentation and planning the size of contract packages in construction
bids is a complex and critical issue. Due to the nature of construction projects, which frequently have large
budgets, long durations and many activities with complex procedures, project segmentation involves
complicated decision-making. To fill this gap, this study aims to develop an integrated model for planning
project segmentation.
Design/methodology/approach – The proposed model integrates a simulation and multiple attribute
decision-making method. The simulation is used to evaluate the bidding outcome of various project
segmentations. The owner can then determine the bid-price behavior of contractors in response to varying
work package sizes. The multiple attribute decision-making method is used to select the optimal segmentation
solution from the simulated scenarios.
Findings – The proposed model is applied to a large road preservation project in Indonesia and incorporates
bid participants and market conditions. The model provides seven scenarios for segmentation. The range of
scenarios captures increasing competitiveness in the construction with the average bid price becoming
gradually more beneficial for the owner. The model also utilizes a multiple attribute decision-making method to
select the optimum scenario for the owner.
Originality/value – This study presents an applicable model for project segmentation that is useful for both
project owners and contractors. By utilizing the proposed model, a project owner can segment a large project
into smaller contract packages to create improved project pricing.
Keywords Project management, Simulation, Multiple attribute decision-making
Paper type Research paper

1. Introduction
For large construction projects, the success of the project is, in part, contingent on the process
of contractor bidding. From the owner’s perspective, one of the main objectives in
construction bids is to obtain an optimum price under a competitive bidding ecosystem. To
achieve this, planning the size of a large project in construction bidding becomes a critical
Engineering, Construction and
issue with significant complexity due to requirements relating to cost efficiency and Architectural Management
competitiveness as well as uncertainty among bidders. Previous researchers have argued Vol. 28 No. 9, 2021
pp. 2361-2380
that the segmentation of a large project into smaller packages tends to increase © Emerald Publishing Limited
0969-9988
competitiveness in construction bids (Konno, 2014). This is a result of the project size DOI 10.1108/ECAM-08-2020-0596
ECAM exerting an influence on contractors’ cost and the opportunity for bidding (Cantarelli et al.,
28,9 2012). Splitting a large project into a series of work packages suitable for obtaining bids and
issuing purchase orders with subcontractors can be interpreted as transferring risk in the
deliverance of certain elements of the work to several parties (Haugen et al., 2017). Thus, the
owner must consider how to segment the project and how the segmentations will influence
the bidding outcomes.
There are considerable dimensions and complexities in the segmentation of a large project
2362 into package contracts (Shtub, 1997; Jørgensen et al., 2012). For example, similar to many
mass rapid transit (MRT) projects in large cities, the Malta MRT project is a large project
involving several transit lines: the red, blue, green, purple and orange lines (Cachia, 2017). For
increased construction contractor participation and reasonable competition for optimum
project pricing, the Maltese government chose to divide the project into smaller contracts.
With the increased complexity, it was necessary to evaluate several key dimensions,
including the state of the construction market, the capacities of the construction companies
and the limitations posed by the level of the bidding companies.
Several past studies have presented methods to analyze the influence of a project’s size on
the bid price and have provided fundamental support for planning project segmentation to
obtain optimum project pricing (Hosny and Elhakeem, 2012; Yuan, 2012). However, these
studies have not incorporated contractor behavior in determining bid prices. The optimum
project pricing is important to the contractor. Contractors must consider the limitations posed
by their capability, resource utilization and expected markup. In different circumstances,
contractors tend to select favorable contract packages that correlate with their capability,
affecting markup decisions and strategies to respond to the bid. Their determinations shape
the performance of a project segmentation. Thus, a more complete analysis of project
segmentation and bidding is needed.
In addition, for the owner, the decision-making process in project segmentation is more
complicated when the project has a large budget, long duration and many activities with
complex procedures. Practically, owners define work packages by considering their capacity
and resources. This process is typically executed by the project leadership team during the
front-end planning phase, relying on the experience and judgment of its members. This can
make it difficult to demonstrate that results are optimal or to explain the rationale afterwards
(Safa et al., 2016). Forming a segmentation strategy requires decisions on project size, risk, the
organization and boundaries. To date, there is no specific method for optimally dividing and
then packaging a large project into smaller work packages spread among contractors.
To fill the research gap in project segmentation, this study builds a simulation-based
model, considering different scenarios to achieve the research objective of optimum project
pricing. A framework is presented that integrates the simulated bidding competition and
multiple attribute decision-making for the segmentation. The project owners can obtain an
appropriate work package to determine the most desirable project segmentation strategy.
Subsequently, the rest of the paper is structured as follows. In the next section, a literature
review provides a comprehensive summary of previous research on the nature of projects and
market conditions. The architecture of the proposed model is then described in the fourth
section, introducing the bidding simulation and scenario selection modeling the nature of the
project, together with the workflow required to implement the model. Next, the fifth section
discusses case studies and analysis results. Finally, the sixth section provides conclusions
that summarize the work and identify other improvements for future research.

2. Project size and segmentation

2.1 Project size and performance
The success of the construction project execution depends on the correct decisions being
made during the construction bid process. However, this process is a complicated activity
with many considerations (Mohemad et al., 2010). The project owner needs to consider the Construction
project size when preparing construction bids, as most contractors tend to participate in the project
projects in acceptable sizes. Some problems in the bid stage frequently arise when the owner
associates project size with bid performance, including the rationality of price,
segmentation
competitiveness among bidders and bidder’s willingness to participate in the bid. When
managing large project bids, the owner expects that the contractor proposes the lowest
possible price while still delivering excellent service. Therefore, the owner has some choice in
determining whether a large project needs to be divided into smaller packages or remain as a 2363
single project.
Previous studies have investigated project size and performance. For instance, Flyvbjerg
et al. (2004) conducted a regression analysis of 258 infrastructure projects. Their study found
no significant relationship between decreased performance with increasing project size for
road and rail projects. Cantarelli et al. (2012) analyzed the influence of project size on the cost
of infrastructure projects. The statistical analysis showed that project size does not
significantly influence the cost. In average percentages, cost overruns are highest for small
projects, yet the impact of project size on cost overruns is minor. However, in terms of net total
overrun as a percentage, larger projects contribute largely to cost overruns.
Another study by Odeck (2004) investigated the performance in terms of the cost of road
construction. The study concluded that cost overruns appear to be more predominant among
smaller projects as compared to larger ones. Besides, Huo et al. (2018) found that an increase in
percentage cost overruns is directly proportional to decreasing project size for large-scale
transport infrastructure projects. Alternatively, Jørgensen et al. (2012) examined the
relationship between project size and percent cost overrun for different project types. Their
study revealed an increase in percent cost overrun with increasing project size.
These previous studies have some limitations due to secondary considerations that are
likely to affect project performance, such as the capacity of a contractor and project size
boundaries. Furthermore, these studies consistently focused on the use of statistical analysis,
such as regression, for assessing project performance. To fill the research gap, this study
considers the capacity of the contractors in the analysis to address the limitations of these
previous studies. The proposed model incorporates the capability and classification level of the
contractors. Thus, the contractors’ behavior in responding to the bid can be known. If the
owners can forecast the contractors’ behavior, they would be able to evaluate eligible
contractors based on appropriate planning and decision-making leading to a successful project.

2.2 Project size and contracted price

In practice, the contracted price consists of the estimated cost and markup, where the
estimated cost includes the total predicted cost for construction, and the markup is composed
of the contractor’s profit. Previous researchers have developed models that seek to help
contractors manage the financing cost for the project. For example, Alavipour and Arditi
(2018) present a model for the optimal financing cost by evaluating possible alternatives and
the project schedule. Their further study integrates the scheduling and profit optimization via
an automated system (Alavipour and Arditi, 2019). These studies highlight the importance of
financing cost in project bidding and provided a foundation for understanding the bid pricing
process.
In addition, numerous researchers have investigated markup estimation problems in
determining contracted prices. A study by Dikmen et al. (2007) developed a model as a
decision support tool for contractors to estimate appropriate bid markup. They applied case-
based reasoning to analyze the risk, opportunity and competition ratings for international
construction projects. The main concept of this model defines markup as the addition of
profit items.
ECAM Furthermore, a study by Hosny and Elhakeem (2012) presented an approach to estimate
28,9 the optimum markup according to the bid evaluation strategy. Additionally, the Bayesian
method was employed by Yuan (2012) to determine the markup size in the competitive
bidding model in which a Markov chain Monte Carlo simulation was employed to generate
random samples of parameters for three competitors and six competitors, respectively.
The studies mentioned above have developed a markup estimation from the perspective
of statistical applications. These models assist the contractors in determining the contracted
2364 price. However, these studies do not help the owner to obtain a beneficial price. First, the
proposed models in previous studies were specifically purposed to estimate the contractor’s
bid price to win the construction bid. In this sense, previous researchers have made a
simulation that involves several contractors as a competitor. However, the simulations have
no further analysis of the owner’s perspective. Second, previous studies have considered
factors of uncertainty that determine the estimation of bid prices, but these studies have not
yet determined the contracted price boundaries. Third, previous studies have not
incorporated contractor behavior in determining bid prices. Therefore, it is necessary to
develop a framework that considers contractor levels as the contractors at various levels have
different pricing behavior for their decisions.

2.3 Project segmentation

Issues with project segmentation have been studied and proposed over the preceding
decades. A study by Shtub (1997) developed an evaluation model for project segmentation,
presenting the effects of correlation between project size and performance through
optimization. They applied the line of balance method to observe progress at the project
segment level based on a special adjustment of the work breakdown structure. The proposed
model involved two parameters: duration variance and cost variance of the activity. The
outcome of this study revealed that project performance improved when the owner divided
the project into segments.
From the owner’s point of view, a study by Konno (2014) argued that project segmentation
of a large project into smaller packages tends to increase competitiveness in construction
bids. The segmentation creates opportunities for small and medium contractors to win
construction contracts. While previous studies have suggested that smaller projects are
beneficial for the owner, a study by Thomas and Flynn (2011) described that managing a
small contractor for a small project could lead to some difficulties for the owner.
According to previous studies, there is a different viewpoint in determining the exact
project size and effectiveness of project segmentation. The present study intends to link
project segmentation with contractor capabilities and market share to enhance the results of
previous studies. As suggested by Shtub (1997), the project segmentation concept in the
present study has five important assumptions: (1) the project consists of repeated work
activities (e.g. road project); (2) the entire project can be divided into several segments; (3) the
project activities in each segment have comparable work items; (4) the total cost in each
segment can be estimated; and (5) the project completion schedule can be measured. By using
these assumptions, this study proposes a model to help project owners determine the size of a
project. Furthermore, the proposed model can be used as a strategic instrument to support the
selection of beneficial contracted prices for the owner.

3. Contractor’s bid and competition

Making the right bid is a crucial and complex strategic decision (Li et al., 2019) for the
operation and development of the contractor (Chen et al., 2015). In responding to the
construction bid, the contractors make two crucial decisions (Hou et al., 2011) that severely
impact business performance (Olatunji et al., 2017). The first decision is whether to bid or not Construction
for a project. The second decision is to decide the markup in the bid price. In this regard, project
numerous past studies have suggested improved decision-making methods in the bidding
process. For example, Cagno et al. (2001) developed bidding strategies for assessing the
segmentation
winning probabilities for competitive bidding based on the analytical hierarchy method
(AHP). Later, a study by Lin and Chen (2004) focused on bid/no-bid decision-making by using
fuzzy linguistics to help contractors in selecting desirable projects. Related to previous
studies, a study by Marzouk and Mohamed (2018) presented a fuzzy fault tree model to assist 2365
construction contractors in deciding whether to bid for future projects.
For the owner, the contractor’s decision to bid for a construction project has a significant
influence on the probability of obtaining the possible lowest price. Thus, the owner has to
develop a proper contractor competitiveness assessment for competitive bidding. Previous
researchers have identified several indicators for the evaluation of the competitiveness of
contractors and developed various evaluation methods. Shen et al. (2003) proposed a decision
support system for analyzing a contractor’s competitiveness based on a scoring model. For
developing the model, competitiveness parameters were set in a three-level hierarchical
system to identify contractor performance. Orozco et al. (2011) developed a systematic
assessment of the competitiveness of contractors. They identified factors for the bid
competitiveness allowing decision-makers to focus on their resources.
However, despite the studies mentioned above having different approaches, a common
theme is that an integrated assessment of the contractor’s competitiveness should involve
various parameters. To fill this research gap, this study proposes a model for estimating
project segmentation that integrates the key parameters for competitive bidding, such as
project size, level of the contractor and the number of participating bidders. The proposed
model illustrates two key decision-making stages in the construction bidding process (Hou
et al., 2011). The model is created as a practical bid condition, starting with a project bid
announced by the owner. In announcing the project bid, the owner segments the project to
offer several work packages with different contracts. When determining the segmentation or
the contract value, the owner has significant considerations, such as the resources needed to
manage the project and the schedule to complete the project. For supporting the owner, the
proposed model provides an estimation and analysis of the contractor’s pricing behavior.

3.1 Evaluating resources and the capacity for execution

In a bidding strategy, the required resources are one of the key factors in a contractor’s
success in winning the contract in a construction bid (Takano et al., 2018). This is because the
contractor determines the bid price by evaluating resources for estimating the project cost.
However, the project cost is particularly difficult to estimate accurately, especially for
construction projects. Previous studies have attempted to overcome difficulties in estimating
costs resulting from the uncertain nature of the required resources. Ishii et al. (2015) developed
a heuristic model for determining the bidding price. The model consists of three various types
of factors of influence, i.e. the decision-making processes, resource constraints and the
competitive environment. In the model, the heuristic price algorithm helps contractors make
efficient price decisions. Later, Takano et al. (2018) introduced a new optimization model for
the determination of the bid markup and the resources allocated to the cost estimate. Their
study performed computational experiments to analyze bidding behavior in the contractor’s
resource allocation to maximize profits.
In contrast to previous studies, which focused on optimizing resources, this study defines
the evaluation of resources as a key factor in whether or not to bid. The proposed model
involves three key resource requirements as stated by the literature (Schwindt, 2005):
financial capacity, the number of engineers and the number of equipment. In the present
ECAM study, resource capability is formed as a dynamic model with uncertainty in the competitive
28,9 bidding process. Furthermore, the proposed model assumes that the resource capability
follows a normal distribution, as has been considered in previous studies (Lotfi et al., 2012).
The model broadly identifies the resource according to the level of the contractors, since
different contractors have different levels of resources as measured by different attributes.
Thus, the bidding decisions of contractors would differ from each other.
2366
3.2 Estimating project cost and benefits for the bid price
Previous studies have attempted to solve issues in the estimation of the bid price by applying
artificial intelligence with the consideration of various determining factors. For instance,
Chua et al. (2001) proposed a case-based bidding method with two determining factors to
markup the bid price: competition and risk. Liu and Ling (2003) developed a fuzzy neural
network approach to estimate the markup percentage. Their study involved three factors of
influence (i.e. market condition, project complexity and project size) in the model for markup
estimation. Christodoulou (2004) developed neuro-fuzzy systems and multidimensional risk
analysis algorithms for bid markup calculation in competitive bidding environments.
From the above literature review, the present study also incorporates three important
considerations: project size, contractor’s level of capability and the number of bidders. Our
model is developed herein for simulating the estimation of the bid price among bidding
participants in a construction bid. The present study attempts to expand the probabilistic
cost model (Wang et al., 2012) to dynamic simulations that can analyze each contractor’s price
preferences. The simulation model assumes that the variation in bid price estimations is
triangularly distributed in certain intervals, as suggested by Takano et al. (2018).
Furthermore, the bid price resulting from the contractor’s markup behavior in
construction markets will be evaluated (Oo et al., 2007).

3.3 Evaluating the market for bidding competition

Market conditions and construction demand have been generally accepted to be one of the
major factors affecting the decisions of contractors when bidding (Soo and Oo, 2014). The
structure of the construction market for each level of contractor in each country may differ. In
Taiwan, statistics show that the proportion of large contractors in the construction market is
26% (Construction and Planning Agency Ministry of Interior, 2019). Meanwhile, the
proportion of large contractors in the construction market in Singapore is approximately 2%
(Singapore government’s open data portal, 2019). A similar situation also exists in Indonesia,
where the portion of the number of large contractors is around 1% (Statistics Indonesia,
2019). A study by Oo et al. (2007) argued that market differences in each country affect
contractors’ markup behavior. Some researchers have examined the construction market
from various perspectives. Ngai et al. (2002) demonstrated the relationship between the
number of participants in a bid and market conditions, using the bid price index to measure
market conditions. Another study by Skitmore et al. (2006) examined market pricing in the
construction industry by combining the effects of changes in demand and supply. Later,
Ballesteros-P
erez et al. (2016) developed a method to assess the bidder’s population size in
construction bids, predicting the number of bidders who will take part in future bids.
The proposed model is designed based on a theoretical framework by Ngai et al. (2002) for
determining the number of bidders in the construction bid. There is a suggested linkage
between market conditions and the level of a contractor. It should be noted that the owners
have to determine the minimum number of bidders because an excessive number of bidders
will lead to a critical increase in the bid cost and waste resources. Additionally, our model is
designed as a competitive market model that involves many contractors participating in the
bid. The design is based on a study by Skitmore et al. (2006), which concluded that neo-
classical microeconomic theory is an appropriate analytical tool for construction price Construction
determination through the demand and supply mechanism in a competitive market. project
segmentation
3.4 Simulation for bidding
Discrete event simulation (DES) is an effective method for bid-price behavior analysis based
on its ability to tackle the complexity and uncertainty inherent in construction bid processes.
Each event takes place at a particular point in time and marks a change in the system’s 2367
condition for predicting behavior. DES can incorporate actor-level characteristics and actor
histories, competing resources and interactions between different actors, such as contractors
and owners. Some studies have been conducted to address the complexity of large projects
using simulation approaches from different perspectives (Lee et al., 2012; Lee, 2014). For
instance, Song et al. (2018) proposed an agent-based simulation system to address challenges
in a resource-constrained multi-project with consideration of uncertainty. Salimi et al. (2018)
applied a simulation approach based on optimization to support decision-makers in
managing the complexity and uncertain nature of projects. Hu et al. (2018) proposed DES in
managing resource allocation corresponding to work packages for large-scale industrial
construction projects. Additionally, Hromada, 2017 used dynamic simulation for the project
competition process.
Given that the problem in this study involves competitive bidding and market share
(Nassar, 2003), using a simulation is a feasible approach to provide the solutions in a
construction bid. Based on the previous studies, this study develops a simulation-based
model to assist the project owner in determining the scale of large projects from a bidding
competitiveness perspective. The model provides support to the owner in determining
contract packages that will further allow the bidders to offer the lowest price. SIMUL8, a
simulation software (Lee et al., 2020), is used as the simulation engine to simulate behavior
among actors and resources.

3.5 Multiple attribute decision-making for scenario selection

Although the simulation mechanism can help the owner predict the outcomes of the project
segmentation solutions, selecting the appropriate segmentation scenario is challenging for
owners, as a single segmentation must be selected from numerous possible scenarios. Thus, a
mechanism to compare the performance of each scenario and select the optimal scenario for
project segmentation is valuable.
Multiple attribute decision-making (MADM) can be applied to solve this problem. MADM
has been applied in various industries to solve selection problems, such as research and
development project selection problems (Liu et al., 2019) and the interdependent and
uncertain analysis of the contractor selection procedure (El-Abbasy et al., 2013). MADM can
be used by decision-makers to evaluate a limited, countable and small set of known viable
alternatives under multiple qualitative or quantitative evaluation criteria to determine the
merits or advantages of each alternative (Jato-Espino et al., 2014). As the selection of the
segmentation is characterized by known alternatives and multiple selection criteria, MADM
can form the mechanism in the proposed model.

4. The proposed model

The proposed model integrates the bidding simulation and the MADM method, as illustrated
by the flowchart in Figure 1. The simulation is used to evaluate the bidding outcome of the
various project segmentations. The owner can observe the contractor bid-price behavior in
response to various work package sizes. The MADM method is then used to select the optimal
segmentation solution from the simulated scenarios.
ECAM
28,9

2368

Figure 1.
Flowchart of the
proposed model

(1) Identify the project nature

For the successful application of the decision support model proposed in a construction
bid, it is first necessary to identify how the nature of the project influences the bidding
process. The proposed model begins by defining the four main factors in the model: project
size, bid decision, resources and the contract price. Several projects with different sizes are
provided in detail in the bidding model. In addition, the resources required to complete the
project and the resources owned by the contractors are set. Given these differences in
project size and resources, the owner will observe how bidder participants respond in
making decisions.
 (2) Estimate the potential contractors in the market Construction
Given that many contractors will be involved in the bid process, this study attempts to project
develop a model that considers market segmentation, the number of bidders and competition segmentation
on the market. The estimation of potential contractors provides needed support for the
determination of the contract package by considering two major limitations of the owner:
project completion time and resource availability for project management.
(3) Plan project segmentation scenarios 2369
In the proposed model, several scenarios will be introduced as project segmentation
alternatives, then a simulation of the bid process will be executed; thus, the behavior of the
contractor can be examined and evaluated. Furthermore, the next section will discuss details
of the simulation.
From the perspective of modeling, the construction bid line system involves two entities
(i.e. the owner and the contractors) within its process. The bidding mechanism in the model
is the same as in the actual bid, starting with the owner announcing the bid. Then, some
contractors will respond by considering the resources. After creating the bid line system, a
further mechanism is added such that the contractors make two decisions: to bid or not to bid
and the markup percentage. First, when the contractor can participate in the bid, then the bid
price formulation will be performed by the modeling system, as shown in Eqn (1).
BP ¼ COSTðRM; RE; RW Þ*ð1 þ M %Þ; (1)
with
RM ≤ CM ; RE ≤ CE; RW ≤ CW
CM ≥ 0; CE ≥ 0; CW ≥ 0
RM ≥ 0; RE ≥ 0; RW ≥ 0
where BP is the bid price submitted by the contractor, COST is the total cost of the required
material, number of equipment and workers. RM is the number of required materials for the
new project RE is the number of required pieces of equipment for the new project, RW is the
number of required workers for the new project, and M% is the percentage of the markup of
the new project. The above proportionality conditions ensure that the resources required
must be less than or equal to the contractor’s capacity for that resource. CM is the contractor’s
capacity of materials, CE is the contractor’s capacity of equipment and CW is the contractor’s
capacity of workers. Second, in case the contractor’s resource capacity fails to satisfy the
owner’s requirements, the system will proceed to the option of not participating in the bid. To
model the resource availability, a normal distribution for the probability function was
constructed to represent how these values are distributed.
(4) Simulate the scenarios
Through modeling the bid factors, the DES method can build a relationship between the size
of the project and the level of the contractor’s capacity to determine a strategy for determining
the contract package effectively. The proposed model will simulate several scenarios to track
each contractor’s bidding behavior and to measure the bid participation ratio (Ballesteros-
P
erez et al., 2016). The simulation mechanism in the proposed model is based on the literature
(Zhang, 2010), where the proposed model represents the state variables and their logical
relationships when an event occurs, including the following elements. (1) Events are a state of
the process or model when a system change occurs. For instance, the owners announce the
bid, or the contractor makes the decision to participate in the bid. (2) Entities are any actor in
the model system that has an attribute that interacts together over time in responding to the
events. The simulation uses entities to represent the owner or the contractors. (3) The
ECAM simulation clock is a time-simulation variable in any unit of measurement. (4) Control
28,9 components are used in the simulation to execute logic for each event type to initialize the
model by event time. (5) Using random-number generators, the simulation generates random
variables according to the system model. Furthermore, to integrate the uncertainty that
occurs in the system, the proposed model uses a statistical distribution such as the normal
distribution or the triangular distribution for repetitive activities as based on previous
studies. In addition, the random simulation input modeling through some statistical
2370 distributions is the primary process to describe the dynamic relationships and interactions
between the entities.
The process of the DES is determined by an activity’s start and finish. The elements that
are part of the simulation activities are decided upon by using a flow chart or “workflow” to
demonstrate the sequence of operations (as shown in the previous section). Then the input
analysis is performed by gathering data to support the DES modeling. The distribution
approximations for each activity, including resource utilization and estimated bid price, are
determined from the literature and assumptions.
(5) Analyze the scenarios
After the simulations finish, a statistical analysis was conducted for each scenario for
providing sufficient evidence to make a recommendation to the owners. The simulation
network forms the bid process, beginning with the owner, with several contractors then
responding to the bid. Each contractor will submit a bid price, and the owner will select the
lowest bid price so that this network represents the actual conditions.
The first mechanism to evaluate each scenario is to examine the bidding participation
index. In the proposed model, the bidder participants will make the decision to bid or not to
bid during the simulation process. Afterward, the model calculates the bidding participation
ratio according to the proportion of decisions to bid and the total number of simulations. In
this evaluation, it will be shown how many contractors participated in the bidding process
and the percentage of the contractor’s willingness to submit a bid. The second mechanism is
to analyze the bid price behavior and select the bid with the lowest bid price. Through the
simulation process, there will be several contractors participating in the bidding. The lowest
bid will be chosen as the winner, and then the model calculates the average bid price for all
bidders.
(6) Multiple attribute decision-making for scenario selection
The final step in the proposed model is to apply MADM for selecting the optimum
segmentation. For using MADM, the key decision-making attributes must be identified. The
selection needs to consider the performance of the winning price in the bid. The performance
can be evaluated from the average winning bid price and the standard deviation of winning
prices. Furthermore, the segmentation influences the total project duration. Additionally, for
the owner, proper competition in the bidding process is also beneficial, which can be
evaluated by the bidding participation ratio. The segmentation performance index (SPI) that
combines these attributes can then be established by weighting each attribute as
SPI ¼ w1 $AWP þ w2 $SDWP þ w3 $TPD þ w4 $BPR (2)

where AWP is the average winning price, SDWP is the standard deviation of winning prices,
TPD is total project duration and BPR is bidding participation ratio. w1, w2, w3 and w4 are the
attribute weights.
The SPI can be used to compare the performance of the candidate scenarios that are
simulated in the previous step. The owner can select the scenario with the greatest SPI as the
segmentation plan.
5. An example project Construction
The study applied the proposed model on an example project to facilitate the process of project
determining the size of the contract package through the decision support system. The road
engineering project for Tuban – Gresik, located in East Java, Indonesia, was selected to
segmentation
evaluate the performance of the proposed model. This project has several characteristics that
make it suitable for a case study. First, with the same repetitive work items, the project can be
divided into several segments. Second, it covers over sixty-six kilometers, and the project
value is sufficiently high for the provincial class so that assessing the size of the work 2371
package relative to the scope of work becomes the key factor for the implementation of this
project. Third, there may be overlapping activities between the contractor and road users on
the project site, so appropriate management is needed.

5.1 Project nature and planning

The budget for this project is estimated at 82.32 billion IDR, with the project duration being
two years of construction. To complete this project, the project planner has estimated the
resource costs, as shown in Table 1. When the owner plans to segment the project into several
contract packages, then the number of resource requirements decreases following the
proportion of the contract package. The bidding is targeted at non-small contractors based on
the planned construction bid. The road engineering project for Tuban-Gresik involves the
maintenance of road pavement, drainage, slope protection and miscellaneous facilities to
produce a safe road system. This project is quite difficult as the utilization of the work area is
shared by both the contractor and road users. For this reason, traffic jams may occur during
project execution. A special challenge for executing this project is the presence of an area that
is vulnerable to flooding, which can cause delays and costs overruns. Another problem that

Description Quantity Unit price (IDR) Duration (days) Total cost (IDR)

Material
Tack coat (liter) 20,206 17,000 – 343,509,204
Prime coat (liter) 46,186 21,000 – 969,908,341
Hot mix asphalt AC – WC (ton) 9,959 1,300,000 – 12,946,544,376
Base coarse (m3) 17,320 250,000 – 4,329,947,952
Subbase coarse (m3) 34,640 220,000 – 7,620,708,396
Equipment
Excavator (unit) 1 1,600,000 648 1,036,800,000
Asphalt paver (unit) 3 1,450,000 627 2,727,450,000
Asphalt sprayer (unit) 3 600,000 627 1,128,600,000
Tandem roller (unit) 6 1,200,000 627 4,514,400,000
Pneumatic tire roller (unit) 6 1,200,000 627 4,514,400,000
Vibratory roller (unit) 6 1,400,000 635 5,334,000,000
Motor grader (unit) 4 2,000,000 635 5,080,000,000
Dump truck (unit) 18 450,000 648 5,248,800,000
Worker
Project engineer (person) 3 550,000 655 1,080,750,000
Materials engineer (person) 3 450,000 655 884,250,000
Geodetic engineer (person) 3 450,000 655 884,250,000
Surveyor (person) 6 400,000 655 1,572,000,000 Table 1.
Supervisor (person) 6 400,000 648 1,555,200,000 Estimated resource
Skilled operator (person) 47 300,000 648 9,136,800,000 costs for the new
Labor (person) 25 100,000 648 1,620,000,000 project
ECAM needs to be considered is inadequate supervision, as the number of project owner staff
28,9 members to manage the project is limited.

5.2 Evaluation of contractors in the market

In developing a construction bid simulation, the conditions of the construction industry in
Indonesia are considered. The number of contractors in Indonesia is used to measure the
2372 proportion of contractors in the bid model. In Indonesia, construction services companies are
classified into four levels: private, small, medium and large contractors (Ministry of Public
Works, 2011). This classification is based on the net worth of all assets held minus the value of
all liabilities. Furthermore, each level of contractor is divided into several sub-levels, as shown
in Table 2. The purpose of this level classification is to ensure that all levels of contractors,
from small to large resources, obtain equally workable projects. Based on the contractor
levels, each contractor has bid qualification limits for each contract package.

5.3 Candidate scenario selection

Following the steps of the proposed model, the owner divided the road works into several
smaller sections according to the locations of the cities being crossed (e.g. from Tuban to
Babat). The sections can be combined for seven project segmentation scenarios. As shown in
Figure 2, each scenario comprises the contract packages containing the road sections. Since
the contract packages are quite diverse, varying levels of contractors (as shown in Table 2)
may participate in certain bids.
The contractors can take part in the bid according to their capacity. To observe the
bidding competitiveness of the contractors, the seven scenarios depend on the number of
segmentations and the divided budget of the project for each contract package, as shown in
Figure 2. Due to the limited number of available supervisors from the owner for managing
this project, the maximum number of contract packages in each scenario is three.

5.4 Bidding scenario simulation

In the model, the bidding competitions of all the contract packages, from the largest one (82.32
billion IDR) to the smallest one (7.98 billion IDR), were simulated. For each contract package,
42 bidders across three contractor levels (B1, M2 and M1) were involved in the simulation
model. The diversity of the capacities of bidders is captured in the normal distributions,
including their materials, equipment and workers.
For considering more bidding competition possibilities, each bidding scenario is simulated
for two hundred times. In the simulation process, the contractor, as a bidding participant, has

Bid qualification limit for each

Contractor level Net worth (million IDR) contract package (million IDR)

Private (P) <50 <300

Small (K1) 50 < Net worth < 200 <1,000
(K2) 200 < Net worth < 350 <1,750
(K3) 350 < Net worth < 500 <2,500
Medium (M1) 500 < Net worth < 2,000 <10,000
Table 2. (M2) 2,000 < Net worth < 10,000 <50,000
Level classifications of Large (B1) 10,000 < Net worth < 50,000 <250,000
construction (B2) >50,000 (unlimited) Unlimited
contractors in Source(s): Regulation of the Minister of Public Works of Indonesia, Number: 08 / PRT / M / 2011 (Ministry of
Indonesia Public Works, 2011)
 Construction
project
segmentation

2373

Figure 2.
The seven project
segmentations
scenarios based on the
road sections

to decide whether to participate in the bid. When the contractor fails to comply with the
specified requirements, the contractor decides not to bid certain contract packages. A queue is
set in the simulation to accommodate the number of contractors that decide not to participate
in the bidding. If the contractor complies with the requirements, it will participate in the bid.
Additionally, the functions considering the contractor’s capacities are used to estimate their
bid prices. When all bid prices for a contract package are submitted by the contractors, the
lowest bid price wins, thus acquiring the contract.

5.5 Analyze the scenarios

After running simulations for ten alternative contract packages, the next step is to analyze
the seven combined contract packages. There are three key components to analyze for these
seven scenarios, including the winning prices, the project duration and the contractor’s
willingness or ability to participate.
First, for analyzing the winning price, the simulation results are evaluated by assessing
the average winning price and the standard deviation of the winning prices for each
simulated scenario. For the example project, the bid price distribution for each scenario is
shown in Figure 3, where bidders have a certain price range as a strategy to win the bid. If the
owner only issues one contract as Scenario 1, the highest bid price range is obtained, which
differs significantly from other scenarios. The outcomes from the proposed model show that
proper segmentation can lower the bid price. As per the boxplot diagram shown in Figure 4,
the bid prices for successful bidders in Scenario 4, 5 and 6 are considerably lower when the
owner divides the project into three segments.
Second, whether the project duration is acceptable must also be analyzed. The owner’s
expectations for the total project duration must be identified. Generally, the greater
the number of project segmentations, the shorter the total project duration. This results
ECAM
28,9

2374

Figure 3.
Bid-price distributions
of the modeled
scenarios

Figure 4.
Boxplot of the lowest
bid price

from multiple contract packages leading to simultaneous construction by different

contractors.
Third, the contractor’s willingness or ability to participate can be analyzed by assessing
the bidding participation ratio. The dynamics of the numbers of bidders responding to the bid
is demonstrated by considering the bidding participation ratio for all scenarios. It is very
relevant to determine the contractor’s willingness or ability to participate. Figure 5 shows
that when the owner determines a contract package over 50 billion IDR as in Sections 1, 2, 4
and 10, only large contractors (B1) participated in the bid. Afterward, the owner announced a
contract package with a value between 10–50 billion IDR as in Sections 3, 5, 6 and 8, where
medium level (M2) contractors could participate in the bid. In other words, the competition in
the bid model has increased. In Sections 7 and 9, when the contract packages were under 10
billion IDR, medium level (M1) contractors could participate in the bid. As a result, all
 Construction
project
segmentation

2375

Figure 5.
Bidding participation
in the modeled
scenarios
ECAM contractors competed to win the bid. From Figure 5, it can be seen that Scenario 6 has the
28,9 highest bidding participation ratio.
Although it is more practical to analyze the results of the simulated scenarios, the
proposed model utilizes the MADM method to implement a quantitative analysis and
selection method for the project owner. A demonstration of MADM for the example project is
presented in the next subsection.
2376 5.6 MADM for scenario selection
According to the simulation results of the seven candidate scenarios, the AWP, SDWP, TPD
and BPR can be calculated as shown in Table 3. Using the MADM mechanism in the proposed
model with these attributes, the owner can select the scenario with the greatest SPI as the
segmentation plan with which to proceed.
For calculating the SPI, the values of the four attributes are normalized. Additionally, each
attribute is given an appropriate weighting. From an interview with the owner, the attribute
weights are given as w1 5 0.3, w2 5 0.3, w3 5 0.1, w4 5 0.3. The normalized attributes and the
associated SPIs are shown in Table 4.
Among the seven candidate scenarios, Scenario 6 has the highest SPI. As indicated by
Scenario 6, the owner can divide the project into three segments to obtain the lowest bid price.
The project segmentation is comprised of two work packages with a contract value between
10 and 50 billion IDR and one contract package with a value under 10 billion IDR.

6. Conclusions
It is challenging task for an owner to segment a large project and improve the contract
package size. In this study, the relevant literature on the nature of the project size, bid price
determination and bidding competition is reviewed. From this review, the importance of

Average of winner Standard deviation of Total project Bidding participation

Scenario price (AWP) winner prices (SDWP) duration (TPD) ratio (BPR) (%)

Scenario 1 82,347,122,360 109,540,036 655 76.93

Scenario 2 81,938,220,966 108,722,403 582 83.19
Scenario 3 81,927,298,151 108,796,671 518 82.42
Scenario 4 81,586,934,007 133,029,885 518 85.17
Table 3. Scenario 5 81,511,974,456 132,682,474 268 85.29
The analysis of the Scenario 6 81,496,312,340 100,973,638 331 85.49
scenarios Scenario 7 81,881,694,661 97,773,211 405 83.80

Standard
Average deviation of Total project Bidding Segmentation
winning price winning prices duration participation performance index
Scenario (AWP) (SDWP) (TPD) ratio (BPR) (SPI)

Scenario 1 0.00 0.67 0.00 0.00 0.20

Scenario 2 0.48 0.69 0.19 0.73 0.59
Scenario 3 0.49 0.69 0.35 0.64 0.58
Table 4. Scenario 4 0.89 0.00 0.35 0.96 0.59
MADM to select the Scenario 5 0.98 0.01 1.00 0.98 0.69
scenario with the Scenario 6 1.00 0.91 0.84 1.00 0.96
maximum SPI Scenario 7 0.55 1.00 0.65 0.80 0.77
contractor behavior is emphasized and key insights into the segmentation of large projects Construction
are highlighted, including the correlation between project size and performance, contracted project
price and previous project segmentation analysis methods. Based on these previous studies,
this study also clarifies the key elements underlying a contractor’s bid and competition,
segmentation
including their resources and capacity for execution, the project cost, the markup and the
competition they face on the market.
To address the research gap in project segmentation, a simulation that combines market
conditions and the bidding competition is used to observe contractor bidding behavior in 2377
response to different project segmentation scenarios. According to the results, an integrated
model is proposed for optimum project pricing, in which the bidding competition is simulated
and MADM is applied for selecting the optimum segmentation scenario. The model is
developed considering the involvement of bidders choosing different contract packages to
bid. The proposed model does not require complicated equations and is ready to be used in
practical projects.
Through discrete event simulation, the project owner can determine the appropriate work
packages for the most desirable project segmentation strategy. A strategy may be adopted to
define the size of the work package at a beneficial price under several project segmentation
scenarios. The model also utilizes MADM to combine the four key dimensions to assess the
performance of the project segmentations, including the average winning price, standard
deviation of winning prices, total project duration and bidding participation ratio. The four
dimensions are integrated as the segmentation performance index (SPI) for evaluation and
selection. The two mechanisms cooperate successfully to provide a recommended project
segmentation.
The proposed model is applied to a large road preservation project in Indonesia, including
bid participants and market conditions. The identified outcomes and interpretations provide
a theoretical framework and managerial implications. The segmentation solution proposed
by the model can increase bidding competitiveness, leading to improved management of
contract packages and a reduced cost of 500 million IDR.
The importance of project segmentation for the owner and contractor is presented. The
proposed model provides an applicable flowchart for planning and decision-making by the
owner. In the future, other considerations, such as risk factors, may be worthwhile for
future study.

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Corresponding author
Hsin-Yun Lee can be contacted at: hsinyun0520@gmail.com

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