The Impact of Timing on Bidding Behavior in Procurement Auctions of Contracts with Private Costs (original) (raw)

Contractors' Bidding Behavior in First-Price Sealed Auctions for Construction Projects

International Journal of Innovation, Management and Technology, 2017

Procurement of public construction projects generally adopts first-price sealed auctions to promote competition between bidders and reduce owner's cost. This paper presents an analysis for bidding behavior of contractors in public construction markets. The analysis utilizes real data representing the bid results of 1396 projects submitted for public construction projects in Jordan. Bidding data were classified depending on the type of project into: building construction, transportation, infrastructure, water, and electro-mechanical projects. The data includes also engineering design and/or engineering supervision projects. The analyzed behavior attributes are: 1) competition between bidders measured by number of bidders and the bid spread between the lowest two bidders; and 2) bidding variability measured by the coefficient of variation. The analysis revealed that number of bidders and bid spread depend on type of project advertised and market conditions. The variability of bidding results also is correlated with type of project. The performed analysis provide owners with an assessment of the efficiency of the competitive bidding process and can be used to identify weaknesses that need to be addressed in bidding regulations. Contractors can utilize the results to develop their bidding strategies to win profitable jobs.

Bidding behavior in a repeated procurement auction: A summary

European Economic Review, 2000

This paper considers bidding behavior in a repeated procurement auction setting. We study highway procurement data for the state of California between December 1994 and October 1998. We consider a dynamic bidding model that takes into account the presence of intertemporal constraints such as capacity constraints. We estimate the model non-parametrically and assess the presence of dynamic constraints in bidding.

Awarding Price, Contract Performance, and Bids Screening: Evidence from Procurement Auctions

American Economic Journal: Applied Economics, Vol. 6, Iss. 1, pp. 108-132. , 2014

This paper presents evidence on the perverse trade-off that first price auctions induce between low prices at the awarding stage and poor ex post performance when bids are not binding commitments. By exploiting the different timing with which first price auctions were introduced in Italy to procure public works, this study finds that at least half of the cost savings from lower winning prices are lost because of ex post renegotiation. Screening the lowest price bid for its responsiveness prevents performance worsening but also reduces the initial cost savings by a third and induces delays in awarding the contract.

The impact of public information on bidding in highway procurement auctions

European Economic Review, 2008

A number of papers in the theoretical auction literature show that the release of information regarding the seller's valuation of an item can cause bidders to bid more aggressively. This widely accepted result in auction theory remains largely untested in the empirical literature. Recent theoretical work has also shown that this effect can be more pronounced in auctions with larger common cost uncertainty. We examine the impact of a policy change by the Oklahoma Department of Transportation that led to the release of the state's internal estimate of the costs to complete highway construction projects. We perform a differences-in-differences analysis comparing bidding in Texas, a state that had a uniform policy of revealing the same information all throughout the period of analysis, to bidding in Oklahoma. Our results show that, in comparison to Texas auctions, the average bid in Oklahoma fell after the change in engineers' cost estimate (ECE) policy. This decline in bids was even larger for projects where the common uncertainty in costs is greater. Moreover, the within-auction standard deviation of bids fell after the change in ECE policy with the most significant decline observed again in projects with greater common cost uncertainty. JEL classifications: D44 (Auctions); H57 (Procurement)

Comparing public procurement auctions

International Economic Review, 59(2), 391-419, 2018

This article contrasts two auction formats often used in public procurement: first price auctions with ex post screening of bid responsiveness and average bid auctions (ABAs), in which the bidder closest to the average bid wins. The equilibrium analysis reveals that their ranking is ambiguous in terms of revenues, but the ABA is typically less efficient. Using a data set of Italian public procurement auctions run alternately under the two formats, a structural model of bidding is estimated for the subsample of first price auctions and used to quantify the efficiency loss under counterfactual ABAs.

Auctions Versus Negotiations in Procurement: An Empirical Analysis

Journal of Law, Economics, and Organization, 2009

Should the buyer of a customized good use competitive bidding or negotiation to select a contractor? To shed light on this question, we consider several possible determinants that may influence the choice of auctions versus negotiations. We then examine a comprehensive data set of private sector building contracts awarded in Northern California during the years 1995-2000. The analysis suggests a number of possible limitations to the use of auctions. Auctions may perform poorly when projects are complex, contractual design is incomplete and there are few available bidders. Furthermore, auctions may stifle communication between buyers and sellers, preventing the buyer from utilizing the contractor's expertise when designing the project. Some implications of these results for procurement in the public sector are discussed.

Entry and Subcontracting in Public Procurement Auctions

Management Science, Vol. 61, Iss. 12, pp. 2945–2962, 2015

We empirically study how the interplay between entry and subcontracting choices is affected by the use of different auction formats in public procurement. The difference-in-differences strategy used exploits a data set of auctions for public works run alternately under first price and average bid auctions. We find that the use of first-price auctions causes a marked decline in both entry and sub-contracting. We also find that the type of firms entering first price auctions changes with firms becoming more likely to bid jointly with other firms in ad hoc joint ventures.

Empirical evidence on competitive bidding

Economics Letters, 1986

This paper compares the assumptions and predictions of common values auction theory with OCS leasing data. We find that the general assumption of continuous bid density functions is not supported by the empirical evidence. This leads us to suggest several lines for future theoretical, experimental and empirical research.