Contracting strategy based on Markov process modeling

A strategy to solve the problems of contractors in determining the optimal payment of a contract is presented. It is a four-step contracting strategy for computing probability of success, failure and payoffs of accomplishing a contract. First step is modeling future contracting process stochastically as a Markov process (MP). After the contract has been modelled, transition probabilities between MP states are then computed. The probability of success and failure, and the payoff of a contract can now be computed based on MP theory. Finally, the contractor uses a simple generate-and-test to find the optimal payment for the contract.