Modelling contractors' mark‐up behaviour in different construction markets

In order to compete successfully, international contractors need to have an understanding not only of the make‐up of the different competitive environments within each country, but also of contractors' competitive behaviour within those environments. Contractors' mark‐up decision making in public sector contracting is directly compared in two construction markets – Hong Kong and Singapore.

Regression analysis is used to compare the lowest percentage mark‐up in both markets against four mark‐up decision factors that fall into two groups – market‐environment factors (i.e. number of bidders, market conditions) and project‐specific factors (i.e. type and size of project). Data were gathered using a designed bidding experiment.

In line with de Neufville et al.'s “good year‐bad year” study, the effect of market conditions was found to be independent of the number of bidders in both markets; contractors' mark‐up decreases as the number of bidders increases, with lower mark‐up in recession. In addition, this study provides evidence that contractors' mark‐up behaviour varies in different markets: Hong Kong contractors' mark‐up behaviour is more straightforward, in that only the market‐environment factors are significant. However, Singapore contractors' mark‐up behaviour is affected by project type in addition to the market‐environment factors. Project size was not found to be significant in either market.

The empirical findings provide a valuable insight into contractors' mark‐up behaviour, especially those contractors intending to bid for jobs in these two internationally renowned construction markets.