The price of a public contract is lower the more bidders participate in the tendering processes. This analysis is based on data from more than 2,000 Danish tenders published in the period of 2015 to 2022. The findings suggest that contracting authorities pay lower prices for tendered contracts when competition, measured by the number of bidders, is strong. The results indicate that, on average, the contracting authority achievies a price reduction of 10-13% when four bids are received instead of just one. Furthermore, the analysis shows that the risk of receiving an expensive winning bid, defined as a contract price exceeding the expected contract price by more than 20%, is reduced when competition increases. The analysis also adds to the ongoing debate on funding the welfare state, indicating that effective public procurement plays a critical role in securing financing. If procurement rules are used to pursue other goals it might reduce competition and will require the public sector to find other funding sources. Overall, the analysis shows that there can be significant benefits for society in ensuring public procurement processes are as frictionless and competitive as possible.

The paper is available here

Intervenants
Kasper Bek Aagaard — The Danish Competition and Consumer Authority
Jesper Gregers Linaa – The Danish Competition and Consumer Authority and Department of Economics, University of Copenhagen