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Comparative analysis of public procurement efficiency under regulation regime changes

Priority areas of development: economics, state and public administration
2015
The project has been carried out as part of the HSE Program of Fundamental Studies.

Objectives: Examining the consequences of applying new forms of government regulation of procurements to different commodity groups; evaluating the efficiency of procurement procedures in respect of different groups of goods purchased by bodies of public administration and government organisations, and analysing incentives for various customer organisations.

Methods: For classification of the procured goods, jobs and services under consideration, analysis of the general trends in development of the public procurement system in Russia and behaviour of participants in public procurement activities the survey relies on the methodology of institutional economic theory and concepts formulated in the theory of contracts. Analysis of the gathered empirical data was performed by standard econometric methods. The impact of purchasers’ characteristics on contract fulfilment efficiency is assessed with the use of the methods described in the surveys (Davison & Sebastian, 2012). Data on procurement of individual product groups under survey – sugar, flour, AI-92 and AI-95 gasoline, milk, and fish – were gathered and processed according to the methods developed and tested during the previous studies performed by the IIMS within the framework of the project.

Empirical base of the survey: The survey of procurement efficiency of budget sector organisations in 2015 involved the collection and analysis of procurement data of one major budget sector institution for 2008-2013. The performed analysis revealed the impact of the level of financial autonomy of the procurement division on public procurement efficiency in terms of competition and contract fulfilment.

To study the efficiency of public procurement of simple homogeneous products, data were gathered in 2015 from available sources (zakupki.gov.ru website) on the orders placed and contracts concluded in 2011-2015 for the following groups of products: gasoline, flour, sand sugar, fish, and milk. A database acceptable for econometric analysis was formed. Weekly regional data on prices were also taken from Rosstat website gks.ru. The data were used to evaluate the efficiency of public procurement contract placement. Overviews of the markets of milk, flour, sugar and fish were also prepared for 2012-2015.

The survey of the impact of customers’ personal characteristics on efficiency of public procurement contracts fulfilment used the findings of a survey of 1600 procurement specialists from the National Institute of Governmental Purchasing (NIGP), the United States, conducted by B. Davison and R. Sebastian.

The efficiency of procurement procedures under 44-FL was evaluated for different groups of products: inspection, experimental, and fiduciary goods, using the case studies of gasoline, road repair and construction jobs, and R&D. 44-FL was compared to 94-FL (using the criteria of competitiveness of the procedure, and level of price decreases during the auction) for different product groups: inspection, experimental, and fiduciary goods.

Results:

In the study of organizational forms and incentives for the effective implementation of public procurement, the following results were obtained:

  • Standard monitoring of structural units of a large organisation has shown higher efficiency of procurements of “self-supporting” structural units with tighter budget constraints. However, after enhancement of centralised monitoring the differences between “self-supporting” and “budget” units became insignificant. Moreover, in the second period a slight increase in efficiency was registered for “budget” units and relative reduction in efficiency for “self-supporting” ones.

On the market research of simple homogeneous goods (food products and gasoline) we obtained the following conclusions:

  • Public procurement prices of flour and sugar for customers engaged in different types of activity differ significantly. In addition, the procurement procedure influences the public procurement price of flour and sugar. The customer’s subordination level is significant in the event of complex procurements involving many products.
  • Prices of repeated contracts for homogeneous goods significantly higher than prices of non-repeated contracts for nontransparent and incompetent procedures.

Studies devoted to the efficiency of the procurement due to human factors led to the following conclusions:

  • It has been concluded that the sample in B. Davison’s survey was unbiased and representative. The share of employees of institutions at the state and district level turned out to be much higher in the United States than in Canada. The share of respondents working at institutions with relatively small annual procurement volumes was slightly higher in the United States than in Canada.
  • It has been concluded that Canada generally is characterised with larger procurement institutions and units than the United States.

According to the results of the analysis of the effectiveness of placing an order within 44-FZ in comparison with 94-FZ, we have the following conclusions:

  • It has been shown that the procurements of gasoline within the framework of both laws – 44-FL and 94-FL – were mainly conducted through e-auctions and open tenders. However, under 44-FL the relative unit prices significantly higher than under 94-FL.
  • Competition and price decreases during auctions for road jobs were higher in the period after the enforcement of 44-FL. The biggest number of contracts on construction jobs was concluded at the customer’s local level, but procurements made by customers at the federal level were the most expensive ones.
  • After the adoption of 44-FL, a considerable reduction in the annual number of R&D contracts was registered.  R&D procurements through competitive procedures became more competitive. Under almost all procedures the average price of R&D contracts is higher for 44-FL. Under 44-FL the largest procurement were conducted through single-supplier procedure, but under 94-FL the largest R&D contracts were conducted using open tenders.

Recommendations for application of R&D results:

The results obtained in the project may be applied in the following areas:

  • Reforming the system of governance and raising the performance efficiency of budget sector organisations in terms of creating internal incentives for their structural units.
  • Detecting and identifying corruptive practices during the procurement of simple homogeneous products. In view of the findings, it is possible to reduce expenses on procurement monitoring and control by automatic selection of organizations with high probability of corruption.
  • Developing recommendations for changing the procurement regulation regime.
  • Forming HR policy for procurement divisions building on the previous experience, qualifications and delegating of duties on the staff.