Public Procurement in the European Union : How Contracting Authorities Can Improve Their Procurement Performance in Tenders

Alexander Rhode investigates performance-oriented measures of Contracting Authorities in public tenders conducted within the EU. He finds that Contracting Authorities can improve their performance and attract more suppliers by publishing (as precise as possible) starting prices in the beginning of a tender. First, he reports that compared with private-sector negotiations, starting prices do not create entry barriers in public procurement. Second, he finds that increased numerical precision of starting prices is linearly correlated with better performance and a higher number of bids. In public procurement, suppliers tend to attribute increased credibility to precise starting prices which reduces their (perceived) entry risks. Contents Definition of performance management in tenders Identification of Contracting Authorities' scope of action Discussion of performance-oriented measures Investigation of starting price publication Analysis of starting price precision Derivation of managerial and regulative implications Target Groups Researchers and students focusing on behavioral economics Experts in public procurement and private-sector purchasing The Author Alexander Rhode studied business administration at the University of Mannheim and the HHL Leipzig Graduate School of Management. He completed his doctoral thesis under the supervision of Prof. Dr. Uta Herbst at the University of Potsdam. He works for a leading global consultancy firm focusing on the healthcare sector.-- Provided by publisher Table of contents 6 Table of figures 8 Table of tables 10 1. Introduction 11 1.1 Scope of the present work 11 1.2 Research questions 15 1.3 Scientific approach and empirical methods 20 1.4 Structure of the present work 23 2. Tenders in the EU 26 2.1 Definitions 26 2.1.1 Public procurement 26 2.1.2 Tenders 27 2.1.3 Procurement auction 28 2.1.4 Private purchasing 29 2.1.5 Procurement performance 30 2.1.6 Procurement regulation 30 2.1.7 EU Directives 30 2.1.8 Contracting Authorities 31 2.1.9 Contracts 32 2.2 Particularities of public procurement 33 2.2.1 Commonalities between public procurement and private-sector purchasing 34 2.2.2 Differences between public procurement and private purchasing 35 2.3 Procurement law 36 2.3.1 Procurement regulation in the EU 37 2.3.1.1 Historical development 37 2.3.1.2 Legal Set-Up 40 2.3.1.3 Threshold values 40 2.3.1.4 Scope 42 2.3.2 General principles of public procurement 42 2.3.2.1 Equal treatment 43 2.3.2.2 Non-discrimination 44 2.3.2.3 Transparency 45 2.3.2.4 Proportionality 45 2.4 Demands for Contracting Authorities 46 2.4.1 External demands 47 2.4.1.1 Transparency 47 2.4.1.2 Integrity 48 2.4.1.3 Accountability 48 2.4.1.4 Internal demands 49 2.4.1.5 Budgetary demands 50 2.4.2 Processual demands 50 2.4.2.1 Regulation requirements for procedures 50 2.4.2.2 Buyer-supplier relationships 51 2.4.2.3 Cooperation with other Contracting Authorities 52 2.4.3 Organizational demands 52 3. Performance management in tenders 54 3.1 Goals of Contracting Authorities 55 3.1.1 Development in stages 55 3.2 Procurement performance in tenders 58 3.2.1 Definition problems 58 3.2.2 New Public Management 59 3.2.3 Implications for public procurement 61 3.2.4 Defining procurement performance 62 4. Contracting Authorities’ scope of action in tenders 67 4.1 Determination of specifications 70 4.1.1 General description 70 4.1.2 Regulatory stipulations 71 4.1.2.1 Publication of a Contract Notice (CN) 72 4.1.2.2 Prohibition of supplier involvement 72 4.2 Scope of Action of Contracting Authorities 73 4.2.1 Publication of a Prior Notice (PN) 73 4.2.2 Formulation of contract specifications 73 4.2.3 Division of a contract into lots 74 4.2.4 Publication and formulation of a price estimate 75 4.3 Choice of the award procedure 76 4.3.1 General description 76 4.3.2 Regulative stipulations 76 4.3.3 Scope of action for Contracting Authorities 77 4.3.3.1 Open procedure 79 4.3.3.2 Restricted procedure 80 4.3.3.3 Negotiated procedures 81 4.3.3.4 Competitive dialogue 84 4.4 Analysis of submitted offers 85 4.4.1 General description 85 4.4.2 Regulative stipulations 86 4.4.2.1 Reasons for exclusion 86 4.4.2.2 Eligibility criteria 87 4.5 Selection of suppliers 89 4.5.1 General description 89 4.5.2 Regulative stipulations 90 4.5.3 Scope of action for Contracting Authorities 91 4.5.3.1 Design of the supplier selection rule 92 5. Performance-oriented measures in tenders 95 5.1 Determination of specifications 96 5.1.1 Publication of a Prior Notice (PN) 97 5.1.1.1 Theoretical background and hypothesis development 97 5.1.1.2 Existing empirical evidence 100 5.1.1.3 Assessment of the working hypothesis 104 5.1.2 Contract specifications 106 5.1.2.1 Theoretical background and hypothesis development 106 5.1.2.2 Existing empirical evidence 108 5.1.2.3 Assessment of the working hypothesis 109 5.1.3 Lots 109 5.1.3.1 Theoretical background and hypothesis development 109 5.1.3.2 Empirical evidence 111 5.1.3.3 Assessment of the working hypothesis 112 5.1.4 Release of a starting price 113 5.1.4.1 Theoretical background and hypothesis development 113 5.1.4.2 Existing Empirical Evidence 116 5.1.4.3 Assessment of the working hypothesis 121 5.1.5 Formulation of a starting price 127 5.1.5.1 Theoretical background and hypothesis development 127 5.1.5.2 Existing empirical evidence 129 5.1.5.3 Assessment of the working hypothesis 132 5.2 Choice of the award procedure 135 5.2.1 Choosing between an auctioned procedure and a negotiated procedure 136 5.2.1.1 Theoretical background and hypothesis development 136 5.2.1.2 Empirical findings 138 5.2.1.3 Assessment of the working hypothesis 140 5.2.2 Open vs. restricted auctioned procedures 142 5.2.2.1 Theoretical background and hypothesis development 142 5.2.2.2 Existing empirical evidence 145 5.2.2.3 Assessment of the working hypothesis 147 5.3 Selection of suppliers 148 5.3.1 Design of the supplier selection rule 148 5.3.1.1 Theoretical background and hypothesis development 148 5.3.1.2 Empirical findings 152 5.3.1.3 Assessment of the working hypothesis 154 6. Research hypotheses and empirical approach 156 6.1 Conceptual model and hypotheses 157 6.1.1 Publication of a starting price 157 6.1.1.1 How tender characteristics affect the release of a starting price 158 6.1.1.2 How the release of a starting price impacts procurement performance 160 6.1.1.3 How the release of a starting price impacts the number of bidders 162 6.1.2 Formulation of a published starting price 163 6.1.2.1 How starting price precision affects procurement performance 164 6.1.2.2 How starting price precision affects the number of bidders 165 6.1.2.3 How starting price ranges affect procurement performance 166 6.2 Steps in the empirical investigation 167 6.2.1 Data collection 167 6.2.2 Data cleaning 168 6.3 Data analysis 170 6.3.1 Variable definitions 171 6.3.2 Descriptive statistics for tenders above threshold values 174 6.3.3 Descriptive statistics for tenders with published starting prices 177 6.4 Empirical results 181 6.4.1 Publication of a starting price 181 6.4.1.1 How tender characteristics affect the release of a starting price 181 6.4.1.2 How the release of a starting price impacts procurement performance 184 6.4.1.3 How the release of a starting price impacts the number of bidders 188 6.4.2 Formulation of published price estimates 189 6.4.2.1 How starting price precision affects procurement performance 189 6.4.2.2 How starting price precision affects the number of bids submitted 193 6.4.2.3 How starting price ranges affect procurement performance 195 7. Discussion of empirical results 199 7.1 Publication of a starting price 199 7.1.1 How tender characteristics affect the release of a starting price 199 7.1.2 How the release of a starting price impacts procurement performance 200 7.1.3 How the release of a starting price impacts the number of bidders 202 7.2 Formulation of a published starting price 205 7.2.1 How starting price precision affects procurement performance 205 7.2.2 How starting price precision affects the number of bids submitted 206 7.2.3 How starting price ranges affect procurement performance 208 7.2.3.1 Comparing starting price ranges with other kinds of starting prices 208 7.2.3.2 Comparing different types of starting price ranges 209 8. Managerial implications and practical recommendations 211 8.1 Managerial implications for public tenders 211 8.1.1 Determination of specifications 219 8.1.1.1 Publishing a Prior Notice 219 8.1.1.2 Formulation of contract specifications 220 8.1.1.3 Division into lots 222 8.1.1.4 Publication of a starting price 224 8.1.1.5 Formulation of a published starting price 226 8.1.2 Choice of the award procedure 227 8.1.2.1 Auctioned vs. negotiated procedures 228 8.1.2.2 Open vs. restricted procedures 232 8.1.3 Selection of suppliers 235 8.1.3.1 Designing a scoring rule 235 8.2 Managerial pathways in practice 236 8.3 Regulatory implications for public tenders 241 8.3.1 Conditional measures 241 8.3.2 Unconditional measures 242 8.3.2.1 Publication of a starting price 243 8.3.2.2 Formulation of a starting price 245 8.4 Managerial implications for the private sector 246 8.4.1 Publication of a starting price 248 8.4.2 Formulation of a starting price 249 9. Conclusion 251 9.1 Summary 251 9.2 Contribution to the literature and research outlook 257 9.2.1 A practical framework for procurement officials 257 9.2.2 An empirical investigation of performance determinants in tenders 258 9.2.3 An extension of the behavioral perspective 261 References 263 Front Matter ....Pages I-IX Introduction (Alexander Rhode)....Pages 1-15 Tenders in the EU (Alexander Rhode)....Pages 17-44 Performance management in tenders (Alexander Rhode)....Pages 45-57 Contracting Authorities’ scope of action in tenders (Alexander Rhode)....Pages 59-86 Performance-oriented measures in tenders (Alexander Rhode)....Pages 87-147 Research hypotheses and empirical approach (Alexander Rhode)....Pages 149-191 Discussion of empirical results (Alexander Rhode)....Pages 193-204 Managerial implications and practical recommendations (Alexander Rhode)....Pages 205-244 Conclusion (Alexander Rhode)....Pages 245-256 Back Matter ....Pages 257-279