New payment provision for win-win negotiations between contractors and subcontractors

Contractors frequently outsource their work to subcontractors. Because of the intense competition in the construction industry, contractors are constantly looking for ways to reduce bid prices. This paper outlines a negotiation strategy whereby the contractor requests lower prices from subcontractors in exchange for shorter payment lags. Even before receiving payment from the owner, the contractor agrees to pay subcontractors. While prompt payments lessen the financing costs for subcontractors, lower subcontractor prices lower the contractor's bid price. In contrast to the industry standard of "pay-when-paid," this new payment offer of "pay-before-paid" signifies a paradigm change. In order to assign project work packages to prospective subcontractors based on their provided prices for specific payment-lag alternatives, a Genetic Algorithm (GA) optimization model is developed. The GA model's objective is to decrease the contractor's bid price. The scalability of the GA model was established through solving large-size problems.