Assessing the cost of competitive tendering in Ghana using transaction cost theory

Abstract

PurposeThe purpose of this study was to determine the transaction cost (TC) contractors incur when tendering for a project as well as establish a correlation between the TC of tender and tender amount of projects procured through the national competitive bidding procurement method.Design/methodology/approachThe research draws extensively documentary analysis, observation and interviews to collect cost data on 14 different tenders submitted by a D1/K1 contractor. Using TC theory, the data are analyzed and the actual cost is determined. Further, Spearman rank correlation is employed to establish a relationship between tender price (TP) and the cost of tender by the aid of Statistical Package for Social Sciences.FindingsThe research developed a tender preparation conceptual framework highlighting the components of TC in competitive tendering in Ghana and also revealed that, apart from the emotional and psychological costs, contractors in Ghana incur approximately Gh₵ 4,625 (US$ 925)–Gh₵ 2,520 (US$ 504) to prepare and submit a competitive tender. In relation to the tender figure, the TC of tender in Ghana ranges from 0.05% to 0.65% and an average of 0.33%. Also, there is an inverse correlation between TP and the percentage cost of tender.Research limitations/implicationsThe research relied on 14 competitive tenders and also limited to public sector works. Findings from the study should therefore be applied with caution.Originality/valueThis study is the only known research that has focused on assessing the TC of public sector competitive tendering from a contractor's perspective and within a developing sub-Saharan African context.