Modelling bid price for concession schemes under uncertainty: an optimization approach

Abstract

Bid price is one of the decisive factors in evaluation and awarding of concession schemes through competitive tendering. In conjunction with concession length and equity level, bid price defines promoters' profitability and competitiveness. Promoters, therefore, need to balance their own investment interest with that of the sponsors considering the abovementioned elements, which is even more challenging, since uncertainties are inherent in investment to concession schemes.

This paper presents a novel optimization model to reveal a competitive bid price along with concession length and equity level, for maximization of promoters' bid-winning potential within uncertain concession investment opportunity, at the tendering stage. Fuzzy set theory and genetic algorithm are combined, and utilized as the building blocks for model development. Within the process of genetic algorithm-based optimization, uncertainties leading to imprecise estimation of investment parameters are accounted through fuzzy set theory. The model results enable promoter to offer a profitable, yet competitive financial proposal to sponsor. A real world concession scheme is used to demonstrate application of the proposed model.