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Andi and Minato, T (2004) Representing causal mechanism of defective designs: exploration through case studies. Construction Management and Economics, 22(02), 183-92.

Arditi, D and Lee, D-E (2004) Note - Service quality performance of design/build contractors using quality function deployment. Construction Management and Economics, 22(02), 123-7.

Briscoe, G H, Dainty, A R J, Millett, S J and Neale, R H (2004) Client-led strategies for construction supply chain improvement. Construction Management and Economics, 22(02), 193-201.

Haynes, N S and Love, P E D (2004) Psychological adjustment and coping among construction project managers. Construction Management and Economics, 22(02), 129-40.

Heesom, D and Mahdjoubi, L (2004) Trends of 4D CAD applications for construction planning. Construction Management and Economics, 22(02), 171-82.

Ng, F P, Björnsson, H C and Chiu, S S (2004) Valuing a price cap contract for material procurement as a real option. Construction Management and Economics, 22(02), 141-50.

  • Type: Journal Article
  • Keywords: Material procurement; real option; pricing; ordering policy; supply chain
  • ISBN/ISSN: 0144-6193
  • URL: https://doi.org/10.1080/0144619042000201349
  • Abstract:

    This paper uses real option methodology to compare the cost of a long-term contract with a price cap to that of spot purchases in construction material procurement. In construction, material procurements are usually short-term, project-based and subject to high price volatility. These characteristics and the competitive nature of the industry lower the profit margin of contractors. We have observed that contractors purchase a stable amount of commodity materials such as concrete, structural steel and lumber year after year. For contractors, the price cap reduces the price volatility of materials without their being obliged to purchase a certain quantity; for suppliers, the price-cap contracts give them steady demand and a bigger market share. We evaluate this price-cap contract as a real option and find the contractor’s optimal ordering policy. When materials are not frequently traded, we model price processes by using related market information and then evaluate the idiosyncratic uncertainties in a risk-neutral setting. Our methodology does not require market completeness and incorporates some of the results of the latest research in finance such as correlation pricing, option pricing and zero level pricing, as well as Monte Carlo simulation.

Perera, A A D A J and Imriyas, K (2004) An integrated construction project cost information system using MS Access� and MS Project�. Construction Management and Economics, 22(02), 203-11.

Saurin, T A, Formoso, C T and Guimarães, L B M (2004) Safety and production: an integrated planning and control model. Construction Management and Economics, 22(02), 159-69.

Shen, Q, Li, H, Chung, J and Hui, P-Y (2004) A framework for identification and representation of client requirements in the briefing process. Construction Management and Economics, 22(02), 213-21.

Steele, A and Sodhi, D (2004) Black and minority ethnic contractors and consultants and UK housing associations' contracting power. Construction Management and Economics, 22(02), 151-7.