Proposal Evaluation and Contract Performance

Abstract

It is believed by many academics and practitioners that supplier and vendor selection decisions are often too focused on price, and that this excessive price focus can contribute to subpar performance in the subsequent engagement. Testing this belief is complicated by various challenges, including measuring post-award overall performance and finding variance in decision-making approaches on spend with similar characteristics. We use a novel approach, employing longitudinal U.S. federal government purchasing data, to deal with these issues. We match transactions on spend and stakeholder characteristics to focus our analysis only on comparable, non-trivial decisions. We use whether the chosen bidder was recontracted, given that the opportunity existed, as our measure of overall performance. We find that excessive price focus does lead to worse performance when there is no explicit incentive for or against focusing on price. Interestingly, we find no effect of price-based decision making on performance when selecting based primarily on price requires explicit written justification. Taken together, we infer that price-based bias occurs even when it is not incentivized, but can be muted by making it difficult to select primarily based on price.