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Efficient public procurements: incentives and barriers

Priority areas of development: economics, state and public administration
2016
The project has been carried out as part of the HSE Program of Fundamental Studies.

Objective: analysis of drivers determining incentives for efficient public procurement and identification of barriers hampering public procurement efficiency improvement.

Methods: for purposes of classification of the procured goods, jobs and services under survey, analysis of overall development trends of the Russian public procurement system and behavior of participants in public procurements, the study relies on the methodology of institutional economic theory as well as the concepts formulated in the theory of contracts. Analysis of the gathered empirical data was conducted by standard econometric methods. Data on procurement of standard homogeneous products – iodine, cotton wool, sugar, and AI-92 gasoline – was collected and analyzed on the basis of methodologies developed and tested in the previous IIMS studies within the project framework.

Empirical basis of the survey: in framework of the project “Efficient public procurements: incentives and barriers” in 2016 data from available sources (zakupki.gov.ru website) on the orders placed and contracts concluded in 2011-2013 for procurement of simple homogeneous medical products – iodine and cotton wool were gathered and analyzed. A database was formed in a format acceptable for econometric analysis. Monthly regional data on the prices of these products were also collected from Rosstat website gks.ru. Data on other simple products – granulated sugar, flour, AI-92 gasoline – gathered during the previous stages of the project were also added to these simple medical products. The collected data were used to analyze the efficiency of contracts from perspective of customers’ subordination types and to examine procurement decentralization through authorized agencies. The influence of the supplier’s ownership structure on the ultimate price of the supplied product was also studied for granulated sugar and AI-92 gasoline.

On the basis of surveys Georating 2008, 2011 and BEEPS 2012 corruption index in the regions were constructed and its connection with the type of procurement procedure were investigated. Data were also gathered on contracts concluded by regional and municipal customers, and the relationship between the type of procedure and the corruption index in the regions was analyzed.

Contact data of all public customers and suppliers were collected for conducting a wide-scale electronic survey to explore public customers’ incentives and barriers and their costs.

Results:

The survey Efficient Public Procurements: Incentives and Barriers produced the following results:

For price analysis of simple homogeneous goods depending on the type of supplier:

  • Considerable overpricing was registered during sugar procurements from state-owned suppliers using non-transparent procedures as compared to the prices of private suppliers. This effect became even stronger for repeated contracts. At the same time, the price margin between public and private suppliers was insignificant during valid electronic auctions. However, the repeated contracts with public suppliers were overpriced during void auctions.

For price analysis of simple goods depending on the type of customer:

  • Procurement efficiency of flour, sugar, and AI-92 gasoline during 2011-2013 depended on the customer’s economic freedom level and liberty to dispose of the saved budget-allocated funds. Unitary enterprises were the most efficient ones while the most inefficient ones were procurements of public institutions and the federal government authorities. In addition, procurements of autonomous institutions were more efficient than procurements of public sector institutions. Organization of procurements through authorized agencies turned out to be an effective tool of reducing the average procurement price on competitive markets such as the markets of flour and sugar. Procurement efficiency on the market of AI-92 gasoline was achieved by pooling customers together for joint bidding.
  • During procurement of simple medical products iodine and cotton wool, the prices of public procurements were on average 7-14% lower than the retail regional prices. The regional customers had the greatest decrease in prices of these products over the retail regional price, averaging some 12-22%. Regional and municipal customers also purchased the products at prices below the retail price by some 8-15%. Procurement centralization by pooling customers resulted in more efficient budget expenditure.

For construction of the regional corruption index and its correlation with the type of procurement procedure:

  • The corruption index in regions is not homogeneous in different sectors of economic activity of public agencies and types of respondents’ populated settlements.
  • Positive correlation was registered between the probability of an auction being void and the corruption index in the region. Increase of the corruption index also leads to higher frequency in requests for quotations as compared to auctions.
  • The corruption index has a positive correlation with the normalized price of granulated sugar during competitive procedures, and negative during single sourcing.

For conducting an electronic survey of customers and suppliers:

  • A questionnaire has been developed and tested for questioning customers and suppliers for evaluating incentives and barriers to efficient public procurement under 44FL.
  • A model sample was used to demonstrate that the evaluation of costs received during e-questioning in combination with more simple questions produces commensurable evaluations of costs as compared to in-depth interviews held at previous stages of the project.

Recommendations for application of R&D results:

The outcome of the project can be applied in the following areas:

  • For identifying the typology of corruptive practices during procurements of simple homogeneous products. Taking the performed analysis into account, the costs of procurement monitoring and control can be reduced by establishing the types of interaction between the customers and the suppliers where corruptive behavior is more probable.
  • During the reform of the administration system and improving the performance of public sector organizations by procurement centralization through authorized agencies and joint bidding.
  • During the development of recommendations on changing procurement activity regulation from the perspective of procurement costs.