Competition In Procurement Research Articles

Modeling the competition-restrictive actions in public works procurement

PurposeWith the surge in public procurement, especially in developing countries, ensuring fair competition in procurement has assumed paramount importance. Academic endeavors in the domain of competition issues have often lacked the views of field-level functionaries. This study aims to involve a large number of expert practitioners in India to identify the significant contemporary competition risks in public procurement from the procurer and supplier sides and develop a model depicting the hierarchy of competition-restrictive actions (CRAs) in procurement based on their mutual interactions.Design/methodology/approachThe significant CRAs along the procurement cycle are identified through literature survey, interactive workshops and expert interviews. A questionnaire survey covering 143 respondents from 12 public organizations is used to evaluate their impact. Considering the complex causal interactions involved, interpretive structural modeling followed by MICMAC (Iimpact matrix cross-reference multiplication applied to a classification analysis is used to develop a hierarchical model of competition risks in procurement.FindingsTailor-made contracts, splitting of a project below competition thresholds, restrictive selection criteria and awarding the contract on nomination emerge as CRAs with the highest driving power. Horizontal collusion among vendors strongly depends on practices followed in the procuring organization.Research limitations/implicationsThe survey data and the experts’ opinions emanate from practitioners in India, which is a limitation. However, with necessary contextual calibrations, the study is of high functional utility to policymakers and practitioners.Social implicationsThe research facilitates a comprehensive understanding to procurement managers/policymakers of the CRAs along the procurement cycle and their interdependencies. It offers valuable insights for improving competition, which is foundational for optimal procurement outcomes.Originality/valueThe study enriches the public procurement domain knowledge by identifying and assessing the significant contemporary CRAs, examining their mutual interactions and developing an interpretive structural model. Although contributing to the body of knowledge, the study is unique in being grounded in field realities.

Effectiveness audit in the state procurement management system

The article discusses the possibilities of efficiency audit in the field of state procurement of Georgia. Taking into account the competitive environment in the modern tender market, in order to ensure the fair and efficient use of budget funds, a special place in the management of public finances is occupied by the efficiency audit. The purpose of the study is to analyze the state of competitiveness in the state procurement process in Georgia based on the efficiency audit and to evaluate its relationship with the decrease in the tender price. In order to achieve the set goal, in the process of the research, the author has processed the factors that affect such a dependent variable as - "decrease in price". A regression analysis has also been conducted to check the influence of independent factors. Based on the necessity of competition in state procurement, the article also discusses the issues related to the challenges still existing in Georgia in this direction. At the same time, approaches are proposed that ensure the improvement of competition in the procurement process. The article highlights the importance of efficiency audit in the state procurement system, which is primarily a prerequisite for optimal use of state funds and effective management of the public management process. Keywords: public procurement, efficiency audit, competitiveness price, SPA tender with reverse auction

Lobbying for government appropriations

AbstractThis article investigates the effect of lobbying on government contract allocation. I consider how lobbying affects both total contract spending and the distribution of contracts between firms. I solve a novel contest model which incorporates these two effects, and then I structurally estimate it using a panel of federal contractors. The results suggest that lobbying increases contract spending by $8.837 billion (3.22%) per year. However, its effects on the observed contract distribution and firm revenues are relatively small. Lastly, I find that increasing competition in procurement generally results in less lobbying.

МИТИГАЦИЯ РИСКОВ ПРИ ПРОВЕДЕНИИ ЗАКУПОК В РАМКАХ ЗАКОНА № 223-ФЗ

The article is devoted to non-standard forms of procurement within the framework of Law No. 223-FZ. The general procurement structure and its advantages for the customer are described in detail. A number of non-trading procedures used by customers under this law (request for proposals, competitive negotiations, procedures for sellers of products, competitive selection, rebidding) with a description of possible risks that arise due to the framework of Law No. 223-FZ and the unsettled forms of procurement are considered. A number of measures have been proposed to significantly reduce the labor costs of all parties during procurement procedures, increase transparency and competitiveness of procurement, reduce their corruption, increase the number of participants and, as a result, increase the overall efficiency of procurement.

Human-centered artificial intelligence for the public sector: The gate keeping role of the public procurement professional

The increasing deployment of artificial intelligence (AI) powered solutions for the public sector is hoped to change how developing countries deliver services in key sectors such as agriculture, healthcare, education, and social sectors. And yet AI has a high potential for abuse and creates risks, which if not managed and monitored will jeopardize respect and dignity of the most vulnerable in society. In this study, we argue for delineating public procurements’ role in the human-centred AI (HCAI) discourses, focusing on the developing countries. The study is based on an exploratory inquiry and gathered data among procurement practitioners in Uganda and Kenya, which have similar country procurement regimes: where traditional forms of competition in procurement apply compared to more recent pre-commercial procurement mechanisms that suit AI procurement. We found limited customization in AI technologies, a lack of developed governance frameworks, and little knowledge and distinction between AI procurement and other typical technology procurement processes. We proposed a framework, which in absence of good legal frameworks can allow procurement professionals to embed HCAI principles in AI procurement processes.

Procurement competition in the presence of IoT-enabled B2B E-commerce

• We explore whether manufacturers give up traditional channel under B2B spot market. • Two risk-averse manufacturers engage a Cournot competition. • Manufacturers choose the optimal procurement strategy based on spot price variance. • The FN strategy may benefit the whole downstream manufacturers. • The FF subgame always benefits the whole supply chain. The Internet of things (IoT) has accelerated the development of e-commerce and enabled business-to-business (B2B) spot markets to emerge. This study considers a supply chain composed of one supplier and two manufacturers. Two manufacturers can procure raw materials from dual sources, that is, from a supplier with a forward contract or from a B2B spot market. Two manufacturers use raw materials to produce the final product and take part in Cournot competition in the final customer market. On the basis of the procurement strategies of two manufacturers, three competition structures exist between the manufacturers: (NN) both manufacturers procure raw materials only from a B2B spot market; (FN) one manufacturer procures raw materials from dual sources, namely, a forward contract and a B2B spot market, while the other manufacturer only obtains them from a B2B spot market; and (FF) both manufacturers procure raw materials from dual sources. We investigate which procurement strategy is better for manufacturers. Our study finds that the optimal setting is for manufacturers to procure raw materials from dual sources if and only if the spot price uncertainty exceeds a threshold value. Furthermore, the optimal wholesale price in the FN subgame is less than the price in the FF subgame. The optimal order quantity in the FF subgame is less than the quantity in the FN subgame. Whole downstream manufacturers can benefit from the FN strategy if the supplier’s risk aversion exceeds a threshold value. Meanwhile, the FF subgame always benefits the whole supply chain.

Economic competition and its determinants in medical equipment public procurement

Organisational competitive procurement environment positively impacts prices while supply side factors also determine participation in bidding. With strong competition costs come down. Instances of low competition in equipment purchase in the apex tertiary care hospital led to this study aimed at determining procurement practices, competition in procurement and its determinants. Review of tender records for three financial years (2011–2014) was conducted to ascertain procurement practices and resulting competition. Sellers’ perspective on factors determining participation was captured through a questionnaire. Although four bids per tender were received only two qualified technically emphasising need for broad based specifications. Both sellers and peer staff also feel that specifications are not broad based. Regression analysis showed that one unit increase in bid led to six per cent price reduction. Increase in number of equipment led to an increase in the number of bids received but no price decrease. Pre-bid meetings have no effect on the price offered. Quality of tender document and feasible demonstration are modifiable bidding factors. Procuring agencies need to be transparent to reflect an organisationally supported competitive environment. The future research directions are interventional studies on specifications, pre-bid meetings and increasing transparency.

Flexibility in contract design - is that possible?

Public procurement is widely used in order to incorporate competition into public services. Competition in procurement often leads to efficiency but the process can also raise some problems. While providing the procurement documents you do not know who will be your upcoming partner. Another aspect is how flexibility can be managed in contract design while maintaining a high service quality. The aim of this study is twofold. Firstly, the aim is to investigate how flexibility has been expressed and historically described in bus tendering documents. Secondly, to explore how the actors define or describe flexibility and its importance in tendering. Data was collected from ten years of tendering documents in the bus sector in Sweden and from interviews and a workshop. The results showed that flexibility in tendering documents has been and still is low for the operators. However, the actors wish for more flexibility and new forms of contracts can make it easier to include higher degrees of flexibility in future contracts. The paper contributes to the ongoing discussion about how to design contracts and to manage flexibility. The study has potential to create knowledge and contribute to better decision making for future procurement of bus transport.

DIRECTIONS OF MINIMIZATION OF FINANCIAL SCAMS IN THE FIELD OF PUBLIC PROCUREMENT

Introduction. Ukraine is undergoing an extremely important and complex process of forming a modern and effective public procurement system aimed at creating a competitive environment and further developing fair competition in public procurement, as well as ensuring compliance with international obligations by consistently adapting Ukrainian legislation to EU standards. The task of public procurement reform is to significantly reduce financial fraud in this area and achieve savings in public funds. The purpose of the article is to analyze the process of reforming the public procurement in Ukraine, focusing on the latest changes, substantiation of proposals for ways to minimize financial fraud in the field of public procurement. Results. The main milestones of formation and improvement of the public procurement system in Ukraine are considered. Emphasis is placed on the features of the current stage, which are to create better conditions for bidders and prevent financial fraud in public procurement, expanding the list of violations and strengthening penalties. Data on the most common types of violations among procurement customers are given. Conclusions. The existing risks of unfair competition in procurement are indicated and the ways of minimizing financial fraud in this area are substantiated. Emphasis is placed on the importance of preventive measures that can be used to detect violations before the conclusion of the contract. In the context of strengthening the effectiveness of control measures, it is proposed to introduce a direct rule of criminal liability for violations in the field of public procurement. The implementation of the proposed measures will help increase the effectiveness of public policy in the field of public procurement, which will ultimately allow for more economical and efficient use of public funds.

Resident Bid Preference, Affiliation, and Procurement Competition: Evidence from New Mexico

In public procurement auctions, governments routinely offer preferences to qualified firms in the form of bid discounts. Previous studies on bid discounting do not account for affiliation – a form of cost dependence between bidders that is likely to occur in a public procurement environment. Utilizing data from the New Mexico Department of Transportation’s Resident Preference Program, I develop and estimate an empirical model of firm bidding and entry that allows for affiliation in firms’ project costs. I find evidence of affiliation and show how it changes preference auction outcomes.

Is competition able to counteract the inefficiency of corruption? The case of Italian public works

The aim of this paper is to provide an empirical test of the impact of competition in procurement to reduce the effects of ‘environmental’ corruption. For this purpose, the paper examines whether competition is able to constrain the waste effects of corruption in the area where the public work is localised. We develop the results provided by Finocchiaro Castro et al., (2014) on the effects of corruption on infrastructure provision assessing whether more competition matters in constraining ’environmental’ corruption. For this purpose, a two-stage analysis is carried out. In the first stage, a non-parametric approach (Data Envelopment Analysis - DEA) investigates the relative efficiency of each public work execution; in the second stage, the determinant factors of the variability of efficiency scores are investigated. Our results, in line with Finocchiaro Castro et al., (2014) show that greater corruption, in the area where the infrastructure is localised, is associated with lower efficiency in public contracts execution; moreover, we also show that increasing competition does not mitigate the negative effects of ‘environmental’ corruption on public works executions.

Competitive contracts with productive information gathering

In this paper, we study competition for procurement contracts with information gathering when there are two potential agents. The agents can acquire information about their private production costs after the contracts are announced and before production begins. We prove that, generically the separation property (Riordan and Sappington in Am Econ Rev 77(3):375–387, 1987), which states that production distortions are independent of the number of agents, does not hold. Compared to the case with one agent, the effect of competition on agents’ incentive for information gathering can be positive or negative. On one hand, there is the competition effect, which alleviates the incentive to shirk on information gathering. On the other hand, the competition effect reduces the expected rent for each agent, thus discouraging the agents from gathering information. When the cost of information gathering is small, the first (positive) effect dominates, and competition leads to a greater distortion in the output schedule. In contrast, when the cost of information gathering is large, the second (negative) effect dominates, and competition leads to a smaller distortion in the output schedule.

Manipulation of Procurement Contracts: Evidence from the Introduction of Discretionary Thresholds

We present evidence of how policies that create opportunities to avoid open competition in procurement lead to the manipulation of procurement values. We exploit a policy reform in which public bodies were given the autonomy to preselect potential contractors below newly defined discretionary thresholds. Manipulation is revealed through bunching of procurements just below the thresholds in construction works and services, and to a lesser degree, in goods. Among manipulated contracts, we document a threefold increase in the probability that procurements are allocated to anonymous firms, which can hide their owners. This sorting violates assumptions behind regression-discontinuity designs. (JEL D73, D86, H57, K23, L74)

Is Competition Able to Mitigate the Waste Effects Of Corruption? Empirical Findings on Italian Public Work Contracts

The aim of this paper is to provide an empirical test of the impact of competition in procurement to reduce the effects of ‘environmental’ corruption. For this purpose, the paper examines whether competition is able to constrain the waste effects of corruption in the area where the public work is localised. We develop the results provided by Finocchiaro Castro et al., (2014) on the effects of corruption on infrastructure provision assessing whether more competition matters in constraining ’environmental’ corruption. For this purpose, a two-stage analysis is carried out. In the first stage, a non-parametric approach (Data Envelopment Analysis - DEA) investigates the relative efficiency of each public work execution; in the second stage, the determinant factors of the variability of efficiency scores are investigated. Our results, in line with Finocchiaro Castro et al., (2014) show that greater corruption, in the area where the infrastructure is localised, is associated with lower efficiency in public contracts execution; moreover, we also show that increasing competition does not mitigate the negative effects of ‘environmental’ corruption on public works executions.

The procurement dilemma: short-term savings or long-term shareholder value?

Purpose Research has shown the potential contribution of properly managed suppliers to the competitive position of firms. Major strategy schools of thought such as the industry view and the resource-based view have evolved in their perspective about supplier’s contributions, replacing a transactional perspective of supplier management with a more comprehensive view of their role in corporate strategy. This study aims to understand if procurement professionals have evolved in the same direction. Design/methodology/approach During a corporate wide assessment for a large consumer product corporation, the author had the opportunity to incorporate a four-statement question aimed at identifying the perception of value creation by different levels of procurement staff. The answers were compared with responses of a reference group that comprised business school students who had never been exposed to professional procurement as a function or skill. Findings The results show that buyers, even at senior levels, more clearly identify value as the result of price negotiation, a functional perspective, than as the construction of sustainable competitive advantages, the shareholder perspective. They do not discriminate sufficiently between short-term transactional value transfer and long-term shareholder value capture. Research limitations/implications The study was conducted on a sample of 500 people from four continents but limited to a single corporate environment. This study focused on innovation as a source of value and competitive advantages. Originality/value The paper shows to corporate deciders the impact of overly cost-focused procurement departments. This study reinforces their need to better balance the objectives assigned to their procurement team. This study outlines the steps necessary to align the cultural competitiveness of procurement to the objectives of the firm, with an extended enterprise scope.

사업관리 관점의 FEED 업무 프로세스 구조 및 항목 평가 - 화력발전소를 중심으로 -

해외 플랜트 사업에서의 고부가가치를 창출하기 위해서는 기획 타당성조사, 프로젝트종합관리, FEED 및 기본설계 등 분야의 기술경쟁력 강화가 시급하다. 특히, FEED 업무는 프로젝트 전체에 대한 영향력이 절대적이고, 또한 기자재 및 패키지 산업의 경쟁력 강화에도 결정적 역할을 한다. 그럼에도 불구하고, FEED 관련 선행연구들은 설계업무 중심의 프로세스 및 성과물을 위한 연구가 대부분이며, 프로젝트 전체에 영향을 미치는 관리적 관점의 FEED 업무에 대한 연구는 미흡한 실정이다. 따라서 본 연구에서는 발전플랜트 중 화력발전소를 대상으로 사업관리 관점의 FEED 업무 프로세스 구조 및 항목을 제안하였다. 도출된 FEED 관리 업무는 3개의 레벨로 나누어진 계층적 구조를 가지고 있으며, 업무 항목에 대한 전문가 검증을 실시하였다. 또한 FEED 관리 업무에 대한 평가지표별 평가를 통해 결과를 분석한 결과 설계 중심의 업무들은 역량이 높지만 중요도가 높은 관리적 관점의 FEED 업무들의 역량은 부족한 것으로 나타났다. 그러므로 본 연구에서 제안한 FEED 관리업무 프로세스 구조는 FEED 역량 강화를 위한 가이드라인이 될 것이라 기대한다. FEED (Front End Engineering and Design) is the key area that determines the competitiveness of procurement and construction in the EPC contracts especially in terms of the added value. Nevertheless, previous researches in FEED have been limited to the process and deliverable of design work or the particular management business function (e.g. System Engineering, collaboration, information etc.). In this context, the purpose of this study is to propose a comprehensive FEED structure and its functions from the project management perspective throughout the whole project life-cycle for thermal power plants. Proposed FEED business procedures are classified into three levels; First level is the classification of FEED business phases, the second level defines major FEED management functions, and the third level is detailed FEED functions. A survey using proposed FEED functions and assessment variable was conducted in order to analyze the current status and the areas for future improvement. It is expected that the proposed structure, functions, and evaluation methodology for FEED management will contribute to effective practice of FEED as well as to improvement of competitive capability for engineering, procurement, and construction (EPC) companies.

Factor substitution and procurement competition for forest resources in Sweden

The utilisation of forest resources in the energy sector has been increasing, partly caused by economic policies introduced to reduce the emission of greenhouse gases. This in turn has led to an increase in the procurement competition between the forest industries and the energy sector. A translog cost function approach is used to analyse the factor substitution in the sawmill industry, the pulp and paper industry and the heating industry in Sweden over the period 1970–2008. The estimated parameters are used to calculate the Allen and Morishima elasticities of substitution as well as the price elasticities of input demand. The results indicate that it is easier for the heating industry to substitutes between by-products and logging residues than it is for the pulp and paper industry to substitute between by-products and roundwood. This suggests that the pulp and paper industry could suffer from an increase in the procurement competition. However, overall the substitutions elasticities estimated in our study are relatively low. This indicates that substitution possibilities could be rather limited due to rigidities in input prices. This result suggests that competition of forest resources also might be relatively limited.

How the Nature of Product Differentiation Affects Procurement Competition

This article uses computational methods that reveal substantive differences among the equilibrium outcomes from three models of procurement competition: a recently developed model requiring numerical solution and two analytically tractable models that might naturally be considered suitable proxies. The models differ in what sellers know about the buyer's preferences for their products, and they yield substantially different prices and payoffs, different implications for institutional choice, surprising intensities of competition, and qualitatively different comparative statics. These findings caution against using the analytically convenient models when the newer model is empirically appropriate. Reinterpreting the models and results also provides new insights regarding price discrimination in oligopoly.

Modelling the Competition for Forest Resources: The Case of Sweden

Past decades increasing shares of forest resources have been diverted from the forest sector to the energy sector. The increasing utilization of forest fuel is, to a large extent, caused by economic policies introduced to reduce the emission of greenhouse gases. Since the energy sector is believed to continue to increase its use of forest fuel in the energy production in Sweden, it is of interest to investigate the effects of this. The purpose of this study is to analyses the extent and degree of forest resources competition in the presence of climate policy by accounting for the inter-linkages of forest resources utilization between the energy sector and the forest industries. A partial equilibrium model was thus constructed and applied to the Swedish forest sector and energy sector. A baseline scenario is calibrated using the GAMS software. Four scenarios with alternative development paths are then simulated and compared to the baseline scenario. The results indicate that the impacts on the procurement competition between the forest sector and the energy sector are relatively moderate also in situations of expanding production in the forest industries. An increase in the competition between industries in the energy sector can however be observed.

Competition for procurement shares

We propose a new procurement procedure that allocates shares of the total amount to be procured depending on the bids of suppliers. Among the properties of the mechanism are the following: (i) Bidders have an incentive to participate in the procurement procedure, as equilibrium payoffs are strictly positive. (ii) The mechanism allows variations in the extent to which affirmative action objectives, like promoting local industries, are pursued. (iii) Surprisingly, even while accomplishing affirmative action goals, procurement expenditures might be lower than under a standard auction format.