The fragmented nature of the UK construction industry has been highlighted in Chapter 1. The construction industry consists of different types of skills, in firms ranging from architects, consultants, contractors, plant and tool hire. For the construction client, all these firms need to combine in an efficient manner within a project to produce a building that meets the client’s requirements. On site, even within each contractor, a large number of different construction trades and skills from different specialists or subcontractors need to be organized to come together for each distinct piece of work within the project. It would not be practical for the client, who is merely interested in the end product, to organize, monitor and manage all these organizations. It is essential, therefore, to procure the construction process in an efficient manner so as to overcome the problems of fragmentation and the number of different skills needed. This is achieved by putting the work out to tender to main contractors. As a result, to win the right to undertake a project, main contractors are involved in an auction.

Auctions may take various forms. The majority of auctions sell directly to consumers, whether they be for art, second-hand cars or any goods on eBay. When auctioning property, the auctioneer tends to start with a low base price to incentivize a person to make a first bid. Other bidders then enter the auction by bidding a higher amount and increasing the price based upon their willingness to pay. Eventually the highest bid wins, when no one else is prepared to offer an even higher bid. This form of auction is called an open- ascending bid auction, or, more commonly, an English auction, in which the bidding is based on increasing bids. However, the most common form of auction in the construction industry is called a first-price sealed-bid auction. In this type of auction, contractors submit their bids to the client in sealed envelopes by a certain deadline. The sealed bids are then opened, and, in general, the lowest bid by a reputable contractor is generally selected, assuming that all bids represent approximately equivalent solutions that meet the client’s proposal.