5 Things You Wish You Knew About Public – Procurement
Globally, countries are anticipated to spend roughly 13% of GDP on public procurement (Bosio et al., 2020), implying that enhancing the efficiency, effectiveness, integrity, and sustainability of public procurement could free up budgetary headroom. But, in fact, how might these possibilities be realised? Is there a trade-off between increasing efficiency (and so freeing up fiscal space) and pursuing the other public procurement objectives? The rising body of economic literature on public procurement is reviewed in this blog.
Inclusiveness in public bidding processes
Public procurement can help a company develop. According to Ferraz et al. (2015), winning one government contract in Brazil boosts firm employee growth by 2.2 percentage points in the next quarter, and these effects last in the long run as winning firms engage in and win more future auctions and expand their operations into new markets.
While national and local governments are increasingly leveraging their public procurement systems to target specific market niches for growth, the evidence for these reservation regulations is mixed. For example, there is conflicting evidence on the impact of preferential treatment schemes, with two studies examining the same programme for small businesses in California coming to contradictory results. While Marion (2007) found that preferential treatment raises procurement costs by 3.8 percent, Krasnokutskaya and Seim (2011) observed that the distortionary impacts are minor in comparison to the benefits to business growth.
Access through e-procurement
Procurement process digitization has the potential to cause significant changes in public procurement. Lewis-Faupel et al. (2016) found that e-procurement encouraged the admission of higher quality contractors and led to quality improvements in India and Indonesia. In Bangladesh, an effective review of e-procurement adoption found that it reduced integrity risks, increased business participation, and reduced costs given by firms throughout the bidding process. E-procurement, on the other hand, is not a panacea for resolving inefficiencies in expenditure and lowering integrity concerns. Lewis-Faupel et al. (2016) found no indication that e-procurement in India and Indonesia resulted in lower ultimate prices paid by the government. E-procurement had little effect on the ultimate cost of capital investment projects, time overruns, or contract execution quality in Bangladesh, suggesting that inefficiencies and corruption concerns were simply shifted to other stages of the process.
Corruption and transparency
Misallocation of public funds is caused by corruption, collusion, and other anti-competitive actions. According to a growing body of economic study, political connections distort procurement decisions. In Italy, each additional term in office of the mayor reduces the number of bidders and the winning rebate while increasing the possibility of local winners or many contracts being awarded to the same firm [Coviello & Gagliarducci, 2010]. Corporate money buys preferential treatment in procurement auctions in Lithuania, according to Baltrunaite (2020), and this is decreased by rules prohibiting corporate donations to political parties and campaigns.
As demonstrated by Coviello & Mariniello (2008) in the context of Italy and Gonzalez-Lira et al. (2020) in the situation of the United States Department of Defense, calls for tenders can notify enterprises about bidding opportunities, thereby expanding the pool of participants and lowering prices. Ex-ante transparency (i.e., information in the call for tenders) improves the openness and integrity of competitive markets, according to Bauhr et al. (2020), whereas ex-post transparency does not (i.e. information on the award after it is published).