A Bid Strategy for Earlier Payment: Evidence and Implications of Front-End Loading in Procurement,

• In Event: Fiscal Rules, Capital Finance, and Infrastructure Delivery

Abstract

Liquidity management is key in industries with variable cash flows. We study how businesses in the highway construction industry manage cash flow by strategically bidding more on work with an earlier payout—a practice known as front-end loading. We find that small contractors, infrequent bidders, and Disadvantaged Business Enterprises front-end load more intensely, indicating a stronger preference for earlier payment. An equilibrium bidding model highlights a novel pathway through which this preference can affect procurement and its managerial and policy implications.

Author

• Justin Marion, University of California, Santa Cruz