Incentives and award procedures: competitive tendering vs. negotiations in procurement (original) (raw)

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.

Tendering Design when Price and Quality Is Uncertain : Theory and Evidence from Public Procurement

RePEc: Research Papers in Economics, 2014

Departing from a simple normative theory for the choice between lowest price, highest quality (beauty contest) and more complex scoring rules, we empirically investigate the behavior of local and central authorities. We survey a gross sample of 40 contracting entities about perceived key characteristics of products bought in 651 public procurements and collect data on supplier selection methods for these procurements. We compare actual scoring rules with theoretical norms and analyze what product characteristics make deviation from the norm more or less likely. In addition, a control group of 275 authorities was surveyed about similar but hypothetical procurements. We find that more complex scoring rules are used more often when the authority is uncertain about costs and about delivered quality, in accordance with our hypotheses. However, authority effects are also found to directly and indirectly influence the choice of supplier-selection method, suggesting that tendering design is partially driven by local habits or institutional inertia.

The Aftermath Of Using Competetive Sealed Bids In The Public Procurement

2017

Relying on the transaction cost approach, this study examines some empirical evidence on public procurement in Croatia in order to clear some doubts on public procurement procedures. Public procurement procedures function as auctions: requiring bidders to compete against each other making auctions to be price and time efficient. The theoretical argumentation behind successful auctioning, when compared to bilateral negotiation, is that bidders tend to pay more attention towards potential actions of their competitors and are less focused on the bilateral arrangement with actual buyer or seller. For that reason, auctions are efficient in obtaining goods or services whenever the bidder believes that competition is fierce. This effect is likely in auctions with competitive sealed bids, where information about the presence and the identity of others bidders is hidden until the end of the bidding process. Another expected advantage of auctions with sealed bids is constricting corruption i....

Public Procurement: A Competition Perspective

Indian Journal of Public Administration, 2017

Public procurement of goods and services accounts for 25-30 percentage of GDP in developing countries. Since this involves public resources, it is important to optimise efficiency of procurement which in turn is positively correlated with the level of competition in the market. Paradoxically, various factors make public procurement especially vulnerable to a host of anti-competitive practices. The article examines various anti-competitive practices that may potentially affect the efficiency of public procurement as well as 'red flags' in various stages of the bidding process that could possibly point to bid rigging. However, by properly designing the procurement process, risks of bid rigging can be significantly reduced. Data from various countries show huge savings to public treasuries resulting from implementation of public procurement reforms. The article also attempts to discuss the evolution of competition law in India over the last seven years of operation of the Competition Act, 2002. Apart from the crucial role of the Competition Authorities, the article underlines the need for procurers to be proactive. Effective public procurement reforms in India would require close cooperation among various stakeholders, such as the Department of Expenditure, Central Vigilance Commission (CVC), Comptroller and Auditor General (CAG), Competition Commission of India (CCI) as well as procurers.

Public Procurement and Competition

Public procurement is a key sector of the EU economy accounting for about 16% of GDP. The Directives adopted in March 2004 provide a legal framework aimed at modernising and opening up procurement markets - including through the expansion of electronic procurement - that is crucial to Europe's competitiveness and for creating new opportunities for EU businesses. The correct and early implementation of the new provisions is essential to avoid legal, technical and electronic barriers to and distortion of competition. Barriers in the procurement may exist at different levels: restrictions economic operators access to the tendering procedure (e.g. the "in house" regime); lack of transparency and proportionality (content of advertising); anticompetitive collusion and restrictive agreements. Using information technology appropriately can contribute to making the procurement market more open, competitive and efficient.

Tender evaluation and supplier selection methods in public procurement

Journal of Purchasing and Supply Management, 2013

The EU procurement directives stipulate that public contracts be awarded to the lowest bidder or to the bidder with the economically most advantageous tender; the latter requiring that a scoring rule be specified. We provide a simple theoretical framework, based on standard microeconomic theory, for tender evaluation (scoring and weighing) and discuss the pros and cons of methods such as highest quality (beauty contest), lowest price and price-and-quality-based evaluations. We argue that the most common method, price-to-quality scoring, is inappropriate for several reasons. It is non-transparent, making accurate representation of the procurer's preferences difficult. It is often open to strategic manipulation, due to dependence on irrelevant alternatives, and it tends to impose particular and unjustified non-linearity in bid prices. The alternative quality-to-price scoring method, where money values are assigned to different quality levels, is a better alternative. However, when the cost of quality is relatively well-known and several providers can offer optimal quality, lowest price is the preferable supplier selection method, while beauty contests may be preferred when purchasing budgets are inflexible.

Procurement auctions and negotiations: An empirical comparison

Journal of Organizational Computing and Electronic Commerce, 2017

Real world procurement transactions often involve multiple attributes and multiple vendors. Successful procurement involves vendor selection through appropriate market mechanisms. The advancement of information technologies has enabled different mechanisms to be applied to similar procurement situations. Advantages and disadvantages of using such mechanisms remain unclear. The presented research compares two types of mechanisms: multi-attribute reverse auctions and multi-attribute multi-bilateral negotiations in e-procurement. Both laboratory and online experiments were carried out to examine their effects on the process, outcomes and suppliers' assessment. The results show that in procurement, reverse auctions were more efficient than negotiations in terms of the process. Auctions also led to greater gains for the buyers than negotiations but the suppliers' profit was lower in auctions. The buyer and the winning supplier jointly reached more efficient and balanced contracts in negotiations than in auctions. The results also show that the suppliers' assessment was affected by their outcomes: the winning suppliers had a more positive assessment towards the process, outcomes and the system. The findings are consistent in both the laboratory and online settings. The implications of this study for practitioners and researchers are discussed.

The Importance of Negotiation in the Public Procurement Process

2020

ABSTRACT: Negotiation has been and is one of the key elements when it comes to business success. The largest companies in the world were founded as a result of the abilities of their leaders to manage to find the optimal balance between personal goals and objectives, and at the same time, the respect and the knowledge to know when and how to relate to the negotiating partner. Negotiation is present in all areas of our lives, and trade negotiation is just an extended aspect of negotiation that already takes place at every moment, in different everyday situations. Negotiation is first and foremost a form of communication: negotiating means communicating in the hope of reaching an agreement. International trade negotiation is an organized process of communication between companies, which aim to gradually adapt their interests related to the object of negotiation in order to achieve a mutually acceptable business agreement, materialized in the international contract. In the process of a...