Scandinavian Working Papers in Economics
Umeå Economic Studies,
Umeå University, Department of Economics
No 821: Tender Evaluation and Award Methodologies in Public Procurement
Mats Bergman () and Sofia Lundberg ()
Additional contact information
Mats Bergman: Department of Economics, Postal: Södertörn University of South Stockholm, Sweden
Sofia Lundberg: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden
Abstract: The EU procurement directives stipulate that public contracts are awarded to the lowest bidder or to the bidder with the economically most advantageous offer; the latter requiring that a scoring rule must be specified. We provide a simple theoretical framework for tender evaluation and discuss the pros and cons of common scoring rules, e.g., highest quality (beauty contest) and price-and-quality-based evaluation. Some descriptive facts are presented for a sample of Swedish public procurements. We argue that the most common method, price-to-quality scoring, is flawed for several reasons. It is non-transparent, making accurate representation of the procurer’s preferences difficult. It is often open to strategic manipulation, due to dependence on irrelevant alternatives, and it is unreasonably non-linear in bid prices. We prefer quality-to-price scoring, where money values are assigned to different quality levels. When the costs of quality are relatively well-known, however, lowest price is the preferable award criteria.
Keywords: Public Contracts; Public Procurement; Scoring Rules; Quality
36 pages, March 16, 2011
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