Dutch auctions in the construction industry
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[edit] Introduction
A Dutch auction is also known as an open descending bid. It is a procurement method in which an inflated price is set at the start of the process and is then progressively lowered until a bidder is prepared to make an offer. This purchasing approach can be used to procure construction services.
[edit] History
This is a procurement method that has been throughout the history of commerce. In the 17th century, the method became associated with estate and painting sales in Holland. In the Netherlands, Dutch auctions are referred to as Chinese auctions.
Dutch auctions came to England in the 18th century, although at the time, they were referred to as ‘mineing auctions'. This was due to the fact the auction continued until the price dropped and a bidder shouted out the word, ‘Mine’.
[edit] Strategy
For bidders, it is essential to have an accurate sense of the value of the service that is being auctioned. This is sometimes referred to as rational bidding. A rational bid of this kind may factor in hidden costs known only to the bidder which will project that amount onto the value of the service.
Dutch auctions are generally considered to be an efficient procurement method, although they are not frequently used on construction projects. The method is primarily used when new companies make initial public stock offerings.
Dutch auctions are also referred to as multiple item auctions (since they allow services to be bundled together) or clock auctions. While Dutch auctions are similar to reverse auctions, there is a specific Reverse Dutch Auction where the price of the items starts low and then increases in set intervals.
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