When more discretionary power improves public procurement efficiency

Abstract

We study the impacts of several procurement awarding mechanisms on efficiency. Recent legislation changes have widened the range of tendering procedures available to award French public works contracts. In particular, open auctions with a supplementary negotiation phase and non-formalized procedures can now be used for higher-valued contracts. We argue that both of these procedures increase the discretionary power of the public buyer. In this study, we look at the relative impacts of the previously mentioned procedures on the received bids compared to standard open auctions, the most common awarding procedure in European and French public procurement. In order to do so, we have gathered comprehensive data on the 424 contracts tendered by Paris Habitat-OPH, the largest social housing constructor in Europe, between January 2004 and December 2009. After dealing with potential reverse causality issues, we show that both mechanisms increase the competitiveness of received offers. Our findings enable us to participate in the ongoing debates both on the determinants and on the impact of alternative procurement awarding procedures. Moreover, we investigate the channels through which these mechanisms impact the received bids.