Subcontracting in Public Procurement: An Empirical Investigation (original) (raw)
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Vol. 31(3), pp. 568-598., 2015
Using a newly assembled dataset, we empirically investigate the effects of subcontracting on procurement auction prices in Italy. In this setting, the pre-qualifications required for firms aiming to bid on public contracts determine the firms' different subcontracting formats. We find that fully qualified firms in a position to choose whether to subcontract generally offer lower prices than partially qualified firms, which must proceed with mandatory subcontracts. This result indicates that the firms' voluntary arrangements tend to improve market performance, while imposed arrangements tend to worsen market performance, in the public procurement supply-chain. (JEL Code H57, L23, L24, D44.) We are particularly indebted to Stephen Martin for his helpful suggestions. We are grateful to the Editor and two anonymous referees for their valuable comments on the previous version of the paper. We also wish to thank
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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.
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The survival of a construction company depends on its ability to minimize the total cost of production in the long run. The long run cost curves reflect the production technology and the organizational structure of a company. These elements are the result of choices made by the entrepreneur and they are certainly influenced by the economic environment where the company is working. This study analyses the discount of the winning bids in the contracts for public works in the construction industry recorded over a sufficiently large and homogeneous period with respect to general external conditions. Based on known microeconomic models and on some specific assumptions, the winning discounts have been used to draw the long run cost curves. In turn, these cost curves have allowed to detect and classify different business strategies in the organization of companies operating in different Italian regions. The work must be attributed equally to the three authors. Key-Words: public sector proc...
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Temporary Partnership and Subcontracting: Pre-vs post-award outsourcing in public procurement
European Journal of Political Economy, 2020
We empirically compare bids (i.e. prices) from temporary partnerships (TPs) that outsource part of the contract before the auction and firms that outsource afterwards. Using a comprehensive dataset on procurement auctions for public works in Valle d'Aosta (Italy), we find that the timing of outsourcing affects the bids and the probability of winning the auction. Specifically, TPs bid closer to the payoff maximizing offer and are more likely to win. Hence, the price paid by the public buyer is lower. These results are supported by a simple theoretical setting showing that, by pre-committing to a TP, suppliers have a lower risk of being "held up" by subcontractors than firms that outsource part of the work after the bidding phase. Our results show the advantage for TPs of freely choosing partners, size and boundaries before the auction, highlighting their potential in fostering the effective participation in public procurement procedures of Small and Medium-sized Enterprises (SMEs).
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This paper studies the impact of qualification rules for entry into public procurement auctions on firm bids and contract execution (time and cost overruns). Using comprehensive and detailed microdata on all public work contracts awarded by the regional government of Valle d’Aosta from 2000 to 2008, we investigate the differences between bids by temporary partnerships (TPs) that outsource before the auction and firm that subcontract, optionally or mandatorily, after the auction (in case they win). We find that the timing of outsourcing, contract complexity and firm size affect bids and the probability of time and cost overruns. TPs bid lower prices than mandatory and large optional firms and are less likely to exceed execution costs. However, TPs appear slower than optional and mandatory firms to deliver on time, revealing a problem in coordination among partners. Our results highlight the TPs’ advantage of freedom in choosing economic size and technical boundaries before entering t...
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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.
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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.
Social Science Research Network, 2011
Combinatorial procurement auctions enable suppliers to pass their potential cost synergies on to the procuring entity and may therefore lead to lower costs and enhance efficiency. However, bidders might find it profitable to inflate their stand-alone bids in order to favour their package bids. Using data from standard and combinatorial procurement auctions, we find that bids on individual contracts in simultaneous standard auctions without the option to submit package bids are significantly lower than the corresponding stand-alone bids in combinatorial auctions. Further, no significant difference in procurer's cost as explained by auction format is found.