The Operation of the Price Mechanism for Construction Product in Free Market Economy...

Construction product represents a nation’s fixed assets. It is the government’s duty to ensure that the correct items are built at the correct time in relation to the country’s development strategies and policies. The demand arises as a need for investment. As the private sector is dominating the construction industry in the country, prices could be jacked up unreasonably which will lead to the down fall of the economy. To protect such incidents, the government made regulatory bodies to control and guide the industry to the required standards.

A price mechanism refers to a wide variety of ways to match up buyers and sellers through price rationing. It also describes the price of goods and services based on the demand and supply.

An example of a price mechanism uses announced bid and ask prices. Generally speaking, when two parties wish to engage in a trade, the purchaser will announce a price he is willing to pay (the bid price) and seller will announce a price he is willing to accept (the ask price).

The main advantage of such a method is that conditions are laid out in advance and transactions can proceed with no further permission or authorization from any participant. When any bid and ask pair are compatible, a transaction occurs, in most cases automatically.

The same method is applied in construction. Tenders are called for projects and bidders are asked to submit their bids. The type of tender varies according to the client and project. Once the bids are submitted, they are evaluated and the best priced bid is announced as the winner of the tender. If it is a government project then the lowest bid is taken but in other cases, quality is also a prime concern. Each contractor will price the items according to the current rates and in some cases prices may go down for materials which they have and in such instances the price difference between the bidders could change drastically. Unworkable prices and over prices are evaluated and bidders are called for explanations. This is the general process in the current situation.

As for the standard prices, the governing bodies decide on the prices and is regulated and updated according to the demand.