Answered: Which statement about allocation of…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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Which statement about allocation of risk regarding differing site conditions and bidding is not correct?

A contractor bids higher for a project on which he assumes more risk regarding differing site conditions.

Unit prices in a bid help to mitigate the risk of differing site conditions to an owner and a contractor.

A contractor’s bid will be affected by the allocation of risk.

Differing site conditions are typically less of a source of contention for cost-plus contracts than for lump-sum contracts.

An owner should expect higher bids if he accepts more of the risk for himself regarding differing site conditions

Expert Solution

Step 1

Option A:

A contractor bids higher for a project on which he assumes more risk regarding differing site conditions.

Explanation:

A “differing site condition” is an unexplained, hidden, concealed, or latent physical condition found at a site that varies from the fairly expected conditions. You can actually touch physical conditions, including rock and earth, and not touch intangible conditions, such as labor, price, and materials. There are only two realistic ways for a contractor to deal with DSCs risk – either carry out elaborate pre-bid checks, which will be embodied in bids; or have a contingency in bids, which may lead to bankruptcy.

Hence this statement is correct and hence this is not the correct answer according to the question.

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