Evaluating the implementation of innovative technology in Japan’s bidding system: a dynamic Stackelberg game theoretical analysis

Innovation in construction is crucial for enhancing labour productivity. Effective procurement
strategies promote technological advancements. Japan’s Comprehensive Evaluation Method
(CEM) includes a multi-parameter bidding system incorporating a substantial lower bound (LB)
known as ‘Chosa Kijun Kakaku’ to prevent underbidding. However, this bound can limit innovative practices that reduce costs. Currently, there are no methods to evaluate the impact of this bound or identify optimal parameters to encourage innovation. This study aims to develop a framework for determining the optimal parameter values to maximize benefits for public owners and innovative firms while also deriving an optimal scenario for the current circumstances regarding innovative technology adoption. A Stackelberg game theoretical framework models the sequential decisions of public owners and bidders, framing it as an optimisation problem. Findings include: (i) the method effectively identifies optimal solutions that meet local optimality conditions; (ii) a CEM without substantial LB results in lower award prices, higher winning probabilities, and increased profits for an innovative company. This model fosters innovation and provides new insights into bidding design. Unlike most multi-parametric bidding research that centres on a single objective function, this study investigates two parties with differing objectives, offering a practical perspective on multi-parameter bidding design.