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Competitive bidding is the main mechanism of allocating projects in the construction market. In the traditional single criterion bidding method, the markup decision has a significant impact on a contractor's business success. Contractors usually take into consideration several factors in the process of determining their markup. This study has reviewed the literature and identified a range of contractors' behaviors when making their markup decision within a competitive bidding environment. An additive markup function consisting of three components, namely competition, risk, and need for work, was developed in order to replicate markup behaviors of contractors. Then, agent-based modeling has been employed for simulating the bidding process within a market formed of a set of heterogeneous contractors with different risk attitudes and defined markup behaviors. This model was used to study the impact of considering need for work and risk allowance in markup determination on financial performance of contractors in various market scenarios. Results suggest that the optimal policy is moderation in both dimensions of risk attitude and need for work.

The competitive construction bidding process is a highly unstructured decision-making problem where contractors have to take several factors into consideration, weigh their relative importance, and consequently make bidding decisions within the constraints of bounded information, limited time, and uncertainty about the market constituents. The bidding models presented in the literature help identify the different bidding objectives a contractor would consider but fail to capture all the complexities of this mechanism and its dynamics. This paper presents an agent-based construction bidding model that allows modeling different bidding strategies of contractors, observing their interaction and learning over time, and detecting emergent market behavior and bidding patterns. This model is used to simulate a variety of bidders competing against each other under a low-bid tendering approach in order to study the effect of different bidding parameters on their optimal markup decision, long-term financial performance, and survival in the market. Specifically, this paper observes the effect of the market competition level, a contractor's risk attitude, his cost estimation and project management skills, and the project complexity on the contractor's bidding decisions and market equilibrium.

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