Competition Issues in Public Procurement: Is Tender Design the Solution?

Abstract

Public procurement is one of the most important economic activities for any economy. The forward linkages and its impact on social and industrial policy give it “an engine of growth” dimension. In this attempt, we try to study why competition is crucial for the success of any procurement policy. The fundamental need for public procurement is to be efficient, as an “efficient” public procurement not only reduces public expenditure but also has positive externalities. The basic framework within which we try and study the competition concerns in public procurement is based on two types of concerns, namely collusive and non-collusive. These two types of concerns emanate from a combination of numerous factors like number of sellers, demand conditions, and market dynamics. The factors, which result in inefficient procurement, are often not amenable to quick changes to ward off the threats completely. Therefore, a multi-prolonged approach is needed for efficient public procurement outcomes. Tender designs draw the boundaries of the competition field where sellers compete for the market. Therefore, they can incorporate elements to address specific threats that a particular procurement market face. Hence, the tender design is a potential tool which can be utilised to mitigate and address these concerns.