Competition

Competition and the use of tenders and auctions

 

Establishing a sound framework of competition law does not exhaust the role competition policy can play in increasing welfare. Governments should consider competition, and its potential benefits, across the whole range of their policies. Policy design accounting for competition can promote efficient outcomes in a variety of ways.

Governments resort to auctions and tenders in a variety of settings, namely public procurement, privatisations and in the allocation to a private firm of the right to operate an infrastructure service and collect the resulting revenues. But, the mere use of competitive tendering does not ensure a successful outcome.

The OECD has held two hearings on the topic further to previous work on concessions and procurement. The first one, in December 2014, aimed to provide useful ideas and guidance to competition authorities on how governments can design auctions and tenders appropriately. The discussion benefited from the views of Prof. Peter Cramton and Prof. Marcos Ponti.

In June 2015, the second hearing focused on the so-called “Abnormally Low Tenders” and the division of public procurement contracts into lots.  Governments have become increasingly worried with the risk of cost overruns, underperformance and default following tenders being awarded to overly optimistic bids. This Hearing discussed these concerns and the different approaches to address them, as well as their impact on tender efficiency. The discussion also addressed the division of contracts into lots, a primary tool to achieve strategic goals such as the promotion of SMEs and competition in the market.

The discussion permitted to reach some guidance on best practices on these two important issues. Prof. Gian Luigi Albano (CONSIP, Italy) took part in the discussion. 

KEY CONCLUSIONS FROM THE DISCUSSIONS:

  • Well-designed competitive tendering provides important opportunities for cost saving. Nonetheless, procurement for complex projects and concessions pose particularly challenging tender design issues.
  • When multiple attributes matter, product specification and assessing the willingness to pay for variations in each attribute add complexity to the tender design.
  • Long lasting concessions can reduce uncertainty in terms of investment recoupment, but long concessions can also lead to foreclosure and the loss of the competition effect, as time distance from the tender moment increases. These two effects should be carefully balanced.
  • Reducing the scope and incentive of bidders to place overoptimistic offers with an expectation to later renegotiate can reduce the risk of less favourable outcomes, namely underperformance or default.
  • Performance monitoring is crucial for ensuring good tender outcomes, particularly when quality and investment matter.

  » Full list of Competition Policy Roundtables

MEETING DOCUMENTATION 

KEY DOCUMENTS

Executive summary with key issues from 2014-2015 hearings • Synthèse des auditions de 2014 et 2015 

2015 Issues paper •  Note de réflexion de 2015

2014 Issues paper •  Note de réflexion de 2014

Detailed summary of the 2015 discussion • Compte rendu de la discussion de 2015

Detailed summary of the 2014 discussion  • Compte rendu de la discussion de 2014

EXPERT PAPERS AND PRESENTATIONS

Gian Luigi Albano Bio
Head of Research, CONSIP, Italy presenting Abnormally low tenders (2015) 

Peter Cramton Bio 
Professor of Economics, University of Maryland, USA presenting Market design in energy and communications (2014)  ppt 

Marco Ponti Blog
Professor of Economics, Polytechnic University of Milan, Italy presenting The Italian transport case (2014) • ppt

PRESENTATIONS

» Download the 2015 Presentations (.zip)

» 2014 Presentations: Marco Ponti • Peter Cramton • European Union • Italy • Romanian paper  Romanian Presentation • OECD Secretariat  

RELATED POLICY ROUNDTABLES

Competition Issues in Public-Private Partnerships - Hearing (2014)

Methods for Allocating Contracts for the Provision of Regional and Local Transportation Services (2013)

Recent Developments in Rail Transportation Services (2013)

Competition Policy and Concessions (2007)

Public Procurement (2007)

Concessions (2006)

Competition in Bidding markets (2006)


SEE ALSO

» Fighting Bid Rigging in Public Procurement 

» Access the full list of Competition Policy Roundtables

» Link to the  OECD Competition Home Page  

 

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