Road construction contracts in the state of Florida
Are awarded on the basis of competitive, sealed bids; the contractor who submits the lowest bid price wins the contract. During the 1980s, the Office of the Florida Attorney General (FLAG) suspected numerous contractors of practicing bid collusion (i.e., setting the winning bid price above the fair, or competitive, price in order to increase profit margin). By comparing the bid prices (and other important bid variables) of the fixed (or rigged) contracts to the competitively bid contracts, FLAG was able to establish invaluable benchmarks for detecting future bid-rigging. FLAG collected data for 279 road construction contracts. For each contract, the following variables shown in the table below were measured. (The data are saved in the file named FLAG2.)
(a) Consider building a model for the low-bid price (y). Apply stepwise regression to the data to find the independent variables most suitable for modeling y.
(b) Interpret the /3 estimates in the resulting stepwise regression model.
(c) What are the dangers associated with drawing inferences from the stepwise model?
FLAG2
1. Price of contract ($) bid by lowest bidder
2. Department of Transportation (DOT) engineer's estimate of fair contract price ($)
3. Ratio of low (winning) bid price to DOT engineer's estimate of fair price
4. Status of contract (1 if fixed, 0 if competitive)
5. District (1, 2, 3, 4, or 5) in which construction project is located
6. Number of bidders on contract
7. Estimated number of days to complete work
8. Length of road project (miles)
9. Percentage of costs allocated to liquid asphalt
10. Percentage of costs allocated to base material
11. Percentage of costs allocated to excavation
12. Percentage of costs allocated to mobilization
13. Percentage of costs allocated to structures
14. Percentage of costs allocated to traffic control
15. Subcontractor utilization (1 if yes. 0 if no)