yakovlev et al. presentation at ippc (aug 2014)
DESCRIPTION
IPPC6TRANSCRIPT
An impact of different regulatory regimes on the effectiveness of
public procurement
6th International Public Procurement Conference, Dublin City University, Dublin,
Ireland, August 14-16, 2014
Andrei Yakovlev, Andrey Tkachenko,
Olga Demidova & Olga Balaeva
The problem Risks of corruption higher level of accountability demand for
and introduction of strict regulation (WB 2006, PwC 2011)
But what about effectiveness of procurement?
Two different approaches:
- Higher competition and lower prices as main criteria
- Higher quality of supply and timely contract execution
Less flexible and less efficient procurement design in public sector
comparing to private sector (Tadelis 2012).
Risks of ‘third party opportunism’ (Spiller & Moszoro 2012) – as one
of reasons of regulation rigidity.
Limitation of competition can be conductive for better procurement
outcomes and can create long-term incentives for new suppliers
(Spagnolo, 2012).
Focus and findings of this paper
We try to estimate effects of changes in procurement
regulation – with shift from very rigid to more flexible rules
Research approach – quasi-natural experiment with
procurement outcomes measured by diff-in-diff method.
Empirical base – procurement data of two big public
universities in Russia in 2011-2012: first one introduced new
more flexible rules in July 2011, second one placed orders
according to old rigid rules during all considered time period
Performance indicators: level of competition, initial price
decrease, delays in contract execution
Key findings: decline of competition combined with better
contract execution – in the line with theoretical predictions
Russian institutional context
Overall institutional conditions:
High level of corruption
Declining quality of services in public sector
(education, healthcare etc.) and lack of
incentives to improve it
Two big reforms:
New Federal Law on Public Procurement (94-FL)
adopted in 2005 and implemented in 2006
Reform of public sector entities (2006-2011)
Reform of public procurement: key ideas and expectations
Key target announced for the public – fighting corruption by
limiting discretion opportunities in selection of suppliers at all
levels of public administration
increasing transparency (not only placement of all orders at
special federal web-portal but also obligatory public
announcement of ‘initial price’ for all public buyers)
simplifying access to PP for new suppliers (first of all – SME)
Main expected consequence:
Increase in competition saving of expense for state budget
Reform of public procurement: instruments and consequences
Key instruments of 94-FL:
Obligatory procedures for almost all procurements
Limitation of procurements channels only four options: open
auction (later – e-auction), tender (for R&D and some services),
RFQ (for small procurements), single-sourcing
Selection of suppliers only on price criteria
Starting from 2008-2009 – increasing critics of reform, complaints of
public buyers about opportunistic behavior of suppliers.
In 2010: political decision on elaboration of new law on ‘federal
contract system’ – introducing more flexible regulation. Adopted by
parliament in 2013, became effective on January 1st, 2014.
But some elements of ‘contact system’ were introduced already in
2011-2012 – in framework of reform of public sector entities
Reform of public sector entities
Target announced for public – increase effectiveness of
healthcare and education, provide right incentives for
managers of public sector entities
Main instrument: differentiation of public entities in three
categories
– State-owned entities no autonomy
– Budget-funded entities (BFE) limited autonomy
– Autonomous organizations (AO) broader autonomy
Link of PS reform to PP reform
Legal status Sources of financing Types of
activities
Procurement
regulation
State owned
entity /
enterprise
State budget
(according to
expenditures estimate)
Prisons, some
types of utilities,
entities with
control functions
94-FL
Budget-
funded entity
Mostly state budget
with limited
opportunities to earn
money in the market Schools,
hospitals,
universities,
public libraries,
museums
94-FL
Autonomous
organization
Annual ‘state order’ for
relevant services. No
liability for government
to cover all expenses
of public entity
94-FL – till 2011.
Since 2011 – AO can
avoid 94-FL rules if it
has own Procurement
provision adopted by
its supervisory board
Organizations description and procurement rules
Organization No1 – autonomous organization
Till July 2011 conducted its procurements according to 94-FL, but
afterwards enforced its own Procurement Provision
Conducted 1656 contracts to the total value RUR 4136 million
Organization No2 – budget-funded entity
During the entire period 2011-2012 conducted its procurements according
to 94-FL
Conducted 1335 contracts to the total value RUR 1196 million
Main differences of Procurement Provision in Organization No1 from 94-FL
Extension of the spectrum of the procurement procedures
Increasing reputational requirements for bidders
Substantiation of the initial price by customer department and certain
restrictions on dumping in bidding process
Target to reduce risks of opportunism at the stage of contract execution
Basic procurement characteristics of two universities
Year of contract
conclusion Number Total value
(RUR million) Average value
(RUR thousands)
Organization
No. 1 2011 818 2067.44 2527.43 2012 838 2068.87 2468.82
Organization
No. 2 2011 681 597.81 877.84
2012 654 598.63 915.33
Parameters Search goods Experience goods Credence goods
number % number % number %
Number of contracts concluded
Org. No.1 472 28 1058 64 128 8
Org. No.2 296 22 787 59 252 19
Total value of concluded contracts (procurement budget), RUR million
Org. No.1 375.21 9 2946.24 71 817.60 20
Org. No.2 80.59 7 1091.96 91 23.88 3
Empirical data
Collected procurement information included the following initial data:
procurement method;
contract subject;
type of procured goods (works, services);
procurement budget;
number of bidders filed for competition, admitted to consideration and
participated in auction;
winner’s bid;
contract number;
contract conclusion date and execution period;
information on actual payments under the contract (time and amount).
We introduced additional variables:
delays in contracts execution;
type of procured goods (search / experience / credence goods);
dummy variable reflecting the adoption of Procurement Provision by
Organization No.1
Methodology
In order to compare data of these two universities in 2011-2012 we
applied the difference in differences methodology (Ohashi 2009).
Dependent variables (DV):
1. level of competition (measured by number of bidders)
2. price decrease at the bidding (in percentage of the initial price)
3. problems of contracts execution (measured as a delay in
execution in days)
Main explanatory variable: dummy for introduction of own
procurement provision in Organization No.1
Control variables (CV): type of good, method of procurement,
duration of contract, procurement budget, quarter of delivery – for
DV-1. The same CV + number of bidders for DV-2 and DV-3.
Restricted sample for DV-1 and DV-2 – only competitive procedures
Main Hypotheses
We used data of Organization No. 2 for the control. Therefore
we assumed no influence of adoption of Procurement Provision
in Organization No. 1 on procurement performance of
Organization No. 2
For Organization No. 1 after adoption of its Procurement
Provision we expected
Lower level of competition
Smaller price decrease at the biddings (comparing to initial
price)
Shorter delays in fulfillment of contract obligations
Level of competition
Organization No.1 Organization No.2
Model 1 (Lin.) Model 2 (Lin.) Model 3 (Lin.) Model 4 (Lin.)
Type of procured
good - 1
Search goods Reference category Reference category
Experience goods 0.041 -0.154
Credence goods -0.321*** -0.657***
Type of procured
good - 2
Goods Reference category Reference category
Works 0.392** 0.764**
Services -0.026 -0.188*
Method of
procurement
RFQ Reference category Reference category
Tenders -0.721*** -0.718*** Excluded
Open Auction -0.323*** -0.348*** Absent
Electronic auctions -0.008 -0.048 -0.914*** -0.827***
Simplif. procedures 0.039 0.044 Absent
Duration Contract duration (days) -2.1*10-4 -4*10-4 0.0026*** 0.0025***
Budget Logarithm of the budget 0.117** 0.146*** 0.0043 0.0139
Provision Procurement Provision
enforced in Organization 1 -0.674*** -0.709*** 0.135 0.168
R2 0.1 0.1 0.15 0.13
Number of observations 1239 1239 929 929
Price reduction at the biddings
Organization No.1 Organization No.2
Model 1 (Lin.) Model 2 (Lin.) Model 3 (Lin.) Model 4 (Lin.)
Type of
procured
good – 1
Search goods Reference category Reference category
Experience goods 2.68*** -0.213
Credence goods 2.59* -4.46*
Type of
procured
good – 2
Goods Reference category Reference category
Works 0.327 -2.03*
Services 2.93*** 1.49
Method of
procurement
RFQ Reference category Reference category
Tenders 2.34* 2.79** Excluded
Open Auction 2.57** 2.65** Absent
Electronic auctions 3.93** 3.94** -0.28 -1.32
Simplif. procedures -0.48 -0.47 Absent
Number of bidders 6.75*** 6.70*** 4.77*** 4.65***
Duration Contract duration (days) 0.00056 0.0013 0.017** 0.021***
Budget Logarithm of the budget -1.07** -1.212*** -0.810*** -0.811***
Provision Procurement Provision
enforced in Organization 1 -1.39 -1.38 -1.13 -1.38
R2 0.42 0.42 0.34 0.34
Number of observations 1239 1239 929 929
Delays in contracts execution
Organization No.1 Organization No.2
Model 1 (Lin.) Model 2 (Lin.) Model 3 (Lin.) Model 4 (Lin.)
Type of procured
good – 1
Search goods Reference category Reference category
Experience goods 1.15 -0.418
Credence goods 1.10 1.04
Type of procured
good – 2
Goods Reference category Reference category
Works 20.67 *** 0.988
Services -0.489 1.92*
Method of
procurement
RFQ Reference category Reference category
Tenders 0.8889 -0.267 Excluded
Open Auction -1.671 -0.507 Absent
Electronic auctions 3.372 3.603 -0.531 -0.864
Simplif. procedures -1.430 -1.864 Absent
Single-source 2.569 2.692 -1.44 -1.51
Quarter of delivery is 4-th -3.12 -4.28 -0.167 -0.014
Number of bidders 1.61 2.17 0.739 0.735
Contract duration (days) -0.018*** -0.023*** 0.034** 0.037**
Logarithm of the contract cost 0.896 0.919 0.816* 0.816
Price reduction 0.051 0.025 -0.016 -0.014
Provision enforced in Organization 1 -7.17 *** -7.68 *** 1.14 1.18 R2 0.12 0.08 0.05 0.05
Number of observations 1415 1415 1313 1313
Conclusion
Using empirical data on procurements of two big Russian
universities in 2011-2012 we showed that adoption of more
flexible procurement regulation can reduce the level of
competition but it improves contract execution
Limitations of our results and prospects for future research:
– Only two universities check on broader sample
– In both cases: big universities with diversified procurements
and qualified and competent procurement staff – they could
gain from higher flexibility of new rules. But what about
small organizations?