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Improving the Efficiency of Public Procurement: Empirical evidence using micro-level contract data
KTH, School of Industrial Engineering and Management (ITM), Industrial Economics and Management (Dept.), Accounting, finance, economics and organization (AFEO). VTI Swedish National Road and Transport Research Institute.ORCID iD: 0000-0002-2876-6505
2023 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

Among OECD countries, close to one-third of government expenditure is allocated using public procurement. This implies that the skill of public authorities in handling the procurement format has a significant impact on how much the public sector accomplish in relation to their goals and responsibilities. The aim of this thesis is to provide new insights into how public procurers can achieve more for the money by improving the design of their auctions and contracts. Specifically, the thesis examines how the efficiency can be influenced by the following three aspects: the method of bid evaluation (the award mechanism), whether items are procured separately or grouped into larger contracts, and variations among procurers in the activities and quantities they specify in a given case.

The thesis includes four essays that analyze detailed contract information from Swedish procurements of road reinvestments and public bus services. For a comprehensive sample of the examined contracts, information has been collected from procurement documents and compiled into rich microdata sets. The use of microdata has enabled detailed reviews of how the procurements have been designed as well as statistical analysis of associations between the procurer’s choices and the outcome. While the essays primarily focus on results and implications regarding their respective research questions, the kappa provides a more general discussion about quantitative microanalysis in the field of procurement. This reflects a complementary aim of the thesis, which is to contribute to well-informed decisions regarding whether and how contracting authorities should facilitate analyses of this kind.

Two of the essays investigate to what extent and how the Swedish national infrastructure manager Trafikverket can improve its efficiency in procurements of highway pavement replacement. Trafikverket spends approximately EUR 200 million on these works annually. Hence, if better procurement methods could lower the cost by 5% without reducing the quality, about EUR 10 million would be freed up annually for additional road maintenance or other uses. Both essays indicate that even greater efficiency gains can be achieved through improved dissemination of best practices. The results support Trafikverket's policy to bundle similar and adjacent road work but imply that the contracts are generally not large enough to fully benefit from the economies of scale. A conclusion is that it is motivated for Trafikverket to consider the scope for efficient bundling when deciding on the timing of these pavement replacement measures.

The other two essays examine how the Swedish regional Public Transport Authorities (PTAs) have implemented the scoring rule award mechanism and its efficiency. This alternative to the lowest price and quality-only mechanisms is promoted within the EU procurement directive and is dominant in many countries. However, the literature on how well public agencies implement this policy is scarce and fragmented. One of the essays shows that scoring rules are common in Swedish procurements of public bus services, but also that there are significant differences between the PTAs in whether and how they have applied this award mechanism. Several implementations have unsound and likely unintended properties, in the light of economic theory. The findings suggest that best practices are not spread effectively between the organizations. The second essay on this theme exploits the property that one PTA alternated between lowest price and a performance focused variant of scoring rules and, equally important, could provide data on a relevant and reliable outcome measure. Based on 30 months of observations on monitored punctuality, performance is not found to be better in contracts awarded using scoring rules. The results suggest that the promotion of scoring rules is not accompanied with adequate guidance on when and how to implement it efficiently.

The kappa highlights how microdata at the contract level enable research that considers both the ‘uniqueness’ of each procurement and random variation. In the analyses of road reinvestments, the detailed data allows us to consider several important characteristics of the contracts and the treated road segments. Similarly, the analysis of bus punctuality considers several aspects of the traffic assignment. In this way, quantitative microanalysis can provide reliable quantifications of how costs and quality are affected by both the procurer's actions, while considering the external conditions. Many of these associations are too complex to be reliably assessed by an individual civil servant, even if it is highly knowledgeable and experienced. However, the thesis emphasizes that even quantitative analysis can yield misleading results if the data material is not good enough, for example, if the sample is too small or relevant aspects are not captured.

A central argument in the thesis is that the standardized and rigid procurement process creates particularly excellent conditions for collecting useful procurement data. However, the potential for this has largely remained untapped by the public agencies themselves. Instead, these data have primarily been compiled within individual research projects, where even the collection of tendering documents has been a notorious obstacle. In Sweden, Trafikverket's information management and cost control have repeatedly been criticized. However, Trafikverket is far from the ‘worst in class’ in these matters, and the criticism mainly reflects the agency's position as one of Sweden's largest procurers. An overall conclusion of the thesis is that public agencies in general should take a more active role in improving how procurement data are collected and managed. Of particular importance is the establishment of well-structured archiving processes for procurement documents, along with systems to track changes in both costs and content after a contract is awarded. For smaller authorities, it is reasonable that this development is coordinated or driven by a centralized function, whereas Trafikverket is well positioned to take a leading role in finding and disseminating best practices. Ultimately, the responsibility for instructing and overseeing improvements in this area lies with the governing bodies of the public agencies, given that the agencies do not set their own agendas.

Abstract [sv]

Bland OECD-länder allokeras nära en tredjedel av offentliga sektorns utgifter genom offentlig upphandling. Detta innebär att offentliga myndigheters förmåga att hantera upphandlingsformatet har en betydande påverkan på hur mycket de, och den offentliga sektorn i stort, uppnår i relation till sina mål och ansvarsområden. Denna avhandling syftar till att ge nya insikter om hur offentliga upphandlare kan uppnå mer för pengarna genom förbättringar av hur de utformar sina kontrakt och auktioner. I synnerhet undersöks hur effektiviteten kan påverkas av följande tre aspekter: metoden för anbudsutvärdering (tilldelningsmekanismen), om objekt upphandlas separat eller är grupperade till större kontrakt, samt skillnader i hur olika upphandlare specificerar aktiviteter och mängder i ett givet fall.

I avhandlingen ingår fyra artiklar som analyserar detaljerad kontraktsinformation från svenska upphandlingar av vägreinvesteringar och kollektiv busstrafik. Denna information har samlats in från förfrågningsunderlag för ett stort antal kontrakt inom respektive verksamhet. Det sammanställda mikrodatamaterialet har möjliggjort såväl detaljerade kartläggningar av hur upphandlingarna har utformats som statistisk analys av samband mellan upphandlarens agerande och utfallet. Medan artiklarna främst är fokuserade på resultat och implikationer angående deras respektive forskningsfråga, förs i avhandlingens kappa en mer generell diskussion om kvantitativ mikroanalys inom upphandlingsområdet. Detta svarar mot ett kompletterande syfte med avhandlingen, vilket är att bidra till välinformerade beslut angående om och hur upphandlande myndigheter bör främja analyser av detta slag.

Två av artiklarna undersöker i vilken utsträckning och hur Trafikverket kan förbättra sin effektivitet i sin upphandling av vägreinvesteringar, efter att prioriteringen av objekt redan är gjord. Trafikverket upphandlar årligen dessa arbeten för omkring 2 miljarder kronor. Om bättre upphandlingsmetoder skulle innebära att samma arbeten kan upphandlas för 5% lägre kostnad, skulle cirka 100 miljoner kronor årligen frigöras för ytterligare åtgärder. Artiklarna indikerar att effektiviseringspotentialen är större än så. Resultaten stödjer Trafikverkets policy att gruppera liknande och närliggande åtgärder men implicerar att kontrakten generellt inte är tillräckligt stora för att fullt ut dra nytta av stordriftsfördelarna. En slutsats är att det är motiverat för Trafikverket att i högre grad beakta förutsättningarna för effektiv gruppering av åtgärder vid beslutet om när en åtgärd genomförs.

De andra två artiklarna undersöker hur de regionala kollektivtrafikmyndigheterna (RKM) har implementerat tilldelningsmekanismen bästa förhållande mellan pris och kvalitet (BPK) samt dess effektivitet. Detta alternativ till lägsta pris och högsta kvalitet förespråkas inom EU:s upphandlingslagstiftning och är dominerande i många länder. Forskningslitteraturen som undersöker hur väl myndigheter implementerar BPK är dock begränsad i omfattning och mycket fragmenterad. Den ena artikeln visar att BPK är vanligt förekommande i svenska upphandlingar av kollektiv busstrafik men också att det är stora skillnader mellan olika RKM vad gäller om och hur de har tillämpat denna tilldelningsmekanism. Utifrån ekonomisk teori har flera tillämpningar har icke-fördelaktiga och troligtvis ej avsedda egenskaper. Den andra artikeln på detta tema utnyttjar att en RKM varierat mellan prestationsfokuserad BPK och lägsta pris över tid, och dessutom kunde tillhandahålla data på ett relevant och tillförlitligt utfallsmått. Baserat på 30 månaders observationer på uppmätt punktlighet påvisas ingen skillnad i utförarens prestation mellan lägsta pris och en BPK. Slutsatsen är att förespråkandet av BPK inte i tillräckligt hög grad ackompanjeras av vägledning om när och hur denna mekanism bör användas.

Avhandlingens kappa belyser hur mikrodata på kontraktsnivå möjliggör för analyser som beaktar skillnader i förutsättningar mellan olika upphandlingar och slumpmässig variation. I analyserna av vägreinvesteringar beaktas kontraktens och de åtgärdade vägsegmentens karaktär, och i analysen av busstrafikens punktlighet beaktas flertalet aspekter av det specifika trafikuppdraget. På så vis kan kvantitativ mikroanalys ge tillförlitliga kvantifieringar av hur kostnader och kvalitet påverkas av upphandlarens agerande, med hänsyn tagen till de externa förutsättningarna. Många av dessa samband kan antas vara alltför komplexa för att en individuell bedömning ska vara tillförlitlig, även om den individen är mycket kunnig och erfaren. Avhandlingen understryker dock att även kvantitativ analys kan ge vilseledande resultat om datamaterialet inte är tillräckligt bra, exempelvis om urvalet är för litet eller relevanta aspekter inte fångas.

En central poäng i avhandlingen är att det standardiserade och rigida upphandlingsförfarandet skapar goda förutsättningar för insamling av användbara upphandlingsdata. Potentialen för detta har dock i stort förblivit outnyttjad av myndigheterna själva. I stället har dessa data främst sammanställts inom enskilda forsknings- och utredningsprojekt, där till och med insamlingen av förfrågningsunderlag varit ett påtagligt hinder. I Sverige har Trafikverkets informationshantering och kostnadskontroll fått återkommande kritik. Trafikverket är dock långt ifrån värst i klassen i dessa frågor, utan kritiken speglar främst myndighetens position som en av Sveriges största upphandlare. En övergripande slutsats i avhandlingen är att myndigheter bör ta en mer aktiv roll i arbetet med att förbättra hur upphandlingsdata på kontraktsnivå samlas in och hanteras. Särskilt behövs välstrukturerad arkivering av förfrågningsunderlag samt system för att följa hur kontraktens kostnader och innehåll förändras efter att de har tilldelats. För mindre myndigheter är det rimligt att denna utveckling samordnas eller drivs av en centraliserad funktion. Trafikverket, å andra sidan, har goda förutsättningar för att ta en ledande roll i att finna och sprida framgångsrika arbetssätt inom detta område. I slutändan är det myndigheternas styrande organ som har ansvaret att instruera och följa upp förbättringar inom detta område, eftersom myndigheter inte sätter sina egna agendor.

Place, publisher, year, edition, pages
Stockholm: KTH Royal Institute of Technology, 2023. , p. 153
Series
TRITA-ITM-AVL ; 2023:21
Keywords [en]
Public procurement, public sector efficiency, auction design, award mechanisms, bundling, transport infrastructure, public transport
National Category
Economics
Research subject
Economics
Identifiers
URN: urn:nbn:se:kth:diva-334674ISBN: 978-91-8040-680-2 (print)OAI: oai:DiVA.org:kth-334674DiVA, id: diva2:1790852
Public defence
2023-09-22, F3 / https://kth-se.zoom.us/j/62634423221, Lindstedtsvägen 26, Stockholm, 13:00
Opponent
Supervisors
Available from: 2023-08-30 Created: 2023-08-23 Last updated: 2023-09-15Bibliographically approved
List of papers
1. Economies of scale versus the costs of bundling: Evidence from procurements of highway pavement replacement
Open this publication in new window or tab >>Economies of scale versus the costs of bundling: Evidence from procurements of highway pavement replacement
2023 (English)In: Transportation Research Part A: Policy and Practice, ISSN 0965-8564, E-ISSN 1879-2375, Vol. 173, article id 103701Article in journal (Refereed) Published
Abstract [en]

Although most public procurements involve decisions concerning bundling, only a limited body of empirical research guides policy on this matter. In this paper, we examine the cost effects of bundling in the competitive tendering of highway pavement replacement with hot-mix asphalt. For this we use linear regression on data from a comprehensive sample of such contracts procured by the Swedish infrastructure manager (IM) during the 2012–2015 period. We find that bundling affects the procurer's cost in multiple and partly counteracting ways. Our results show that economies of scale are strong but diminishing and counteracted by the costs of bundling and bundling-related factors. Overall, the findings support the Swedish IM's current bundle design but also suggest that most of the contracts are still inefficiently small. While not perfectly generalizable to other markets, the findings provide some support for the increased promotion and use of the bundling of small-scale road rehabilitation projects in the USA. Two main implications of the results are that bundling policy should emphasize proximity and similarity rather than whether the work is small in scale and that the scope for efficient bundling should be accounted for when optimizing the timing of pavement replacement.

Place, publisher, year, edition, pages
Elsevier BV, 2023
Keywords
Bundling, Efficiency, Grouping, Highway, Public procurement, Road work
National Category
Economics
Identifiers
urn:nbn:se:kth:diva-331566 (URN)10.1016/j.tra.2023.103701 (DOI)001017169900001 ()2-s2.0-85159571164 (Scopus ID)
Note

QC 20230711

Available from: 2023-07-11 Created: 2023-07-11 Last updated: 2023-08-24Bibliographically approved
2. Efficiency measurement in the tendering of road surface renewal contracts
Open this publication in new window or tab >>Efficiency measurement in the tendering of road surface renewal contracts
2023 (English)In: Journal of Productivity Analysis, ISSN 0895-562X, E-ISSN 1573-0441Article in journal (Refereed) Published
Abstract [en]

The problem of slow productivity growth in the road construction (and wider construction) industry is well known. The present paper suggests a means for efficiency analysis in one part of this industry, namely road surface renewal in Sweden, built upon the application of Stochastic Frontier Analysis (SFA) techniques. The paper is novel in that it focuses on project level rather than firm or contractor level performance and takes the perspective of the inefficiency that may result from the way the contracts are specified by the highway agency’s pavement engineers (client side). We compare 233 renewal contracts tendered over a four-year period via the estimation of a cost frontier, with controls for heterogeneity between projects. Our results produce first estimates that expose substantive differences in the relative efficiency performance of different engineers within the Swedish highways procurement organisation (Trafikverket); with indicative savings of around €40 m out of a total road renewals budget in Sweden of €200 m. We also find substantial economies of scale that could, in principle, point to further cost savings if road renewal projects can be packaged up as larger projects. These client-side savings represent potentially important sources of savings in addition to those that can be achieved through the pressure of competitive tendering on the supplier side. The paper therefore illustrates how disaggregate analysis of project level information can readily be used for revealing important information about how best to frame the procurement process and thus deliver productivity and unit cost improvements over time. 

Place, publisher, year, edition, pages
Springer Nature, 2023
Keywords
Construction, D25, Efficiency, Highways, L25, Procurement, Productivity, R42, Tendering
National Category
Economics
Research subject
Economics
Identifiers
urn:nbn:se:kth:diva-334669 (URN)10.1007/s11123-023-00678-z (DOI)001008448800001 ()2-s2.0-85161886230 (Scopus ID)
Note

QC 20230824

Available from: 2023-08-23 Created: 2023-08-23 Last updated: 2023-08-24Bibliographically approved
3. Evaluating Bids on Price and Quality: The impact on the performance of Swedish public bus services
Open this publication in new window or tab >>Evaluating Bids on Price and Quality: The impact on the performance of Swedish public bus services
2024 (English)In: Journal of Transport Economics and Policy, ISSN 0022-5258, E-ISSN 1754-5951Article in journal (Refereed) Accepted
Abstract [en]

Theoretical work on auctions has shown conceptual benefits of awarding contracts to the bidderoffering the best combination of price and quality rather than the lowest bidder.Correspondingly, EU policy on public procurement promotes such multi-criteria bid evaluation,which is already common in Europe. However, very few empirical studies have examined theeffects of this policy. This study analyzes panel data on monitored quality in Swedish publicbus service contracts awarded using either mechanism. We do not find that the studiedimplementations of award mechanisms perform differently and conclude that the superiority ofthe currently promoted mechanism remains uncertain.

Keywords
Public procurement, award mechanism, supplier selection, lowest price, scoring rule, best price-quality ratio, public bus services, punctuality, performance.
National Category
Economics
Identifiers
urn:nbn:se:kth:diva-334673 (URN)
Note

QC 20230824

Available from: 2023-08-23 Created: 2023-08-23 Last updated: 2024-03-15Bibliographically approved
4. The Wild West of Public Procurement: A Review of Award Mechanisms used for Swedish Public Bus Services
Open this publication in new window or tab >>The Wild West of Public Procurement: A Review of Award Mechanisms used for Swedish Public Bus Services
(English)Manuscript (preprint) (Other academic)
Abstract [en]

Awarding public contracts to the best combination of price and quality has become a standardand promoted policy in the EU. Still, there is little evidence on how well public agenciesimplement this policy, here termed scoring rules. This study reviews how Sweden’s publictransport authorities (PTAs) implemented scoring rules, using a sample of 560 contracts forpublic bus services. The review shows large differences in whether and how different PTAsimplemented scoring rules. Several PTAs used non-monetary scales for their scoring rules andmany quality criteria, linked to the suppliers’ plans and internal processes. This variant is foundto present issues regarding transaction costs, as well as heightened risk of moral hazard andadverse selection. The paper concludes that public procurers need better guidance on when andhow to use scoring rules for achieving a good price-quality trade-off.

Keywords
Public procurement, bus services, award mechanism, best price-to-quality ratio, economically most advantageous tender, lowest price.
National Category
Economics
Identifiers
urn:nbn:se:kth:diva-334672 (URN)
Note

QC 20230824

Available from: 2023-08-23 Created: 2023-08-23 Last updated: 2023-08-24Bibliographically approved

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