The Price of Few Tenders : -Evidence from Public Procurement of Internal Cleaning Services in Sweden

University essay from Umeå universitet/Nationalekonomi

Author: Samielle Drake; [2020]

Keywords: ;

Abstract: The key objective of a procuring entity is to ensure that it procures services and goods with satisfactory quality at a reasonable cost, but how does the competitive environment effect the realization of these ambitions? The empirical analysis aimed to investigate the effect of qualifications criteria, interpreted as a mean to ensure high-quality services, on the number of submitted tenders as well as the effect of the number of tenders on the size of the bids of public procurement of internal cleaning services in Sweden during 2015-2017. The expectation is that qualification criterions imposes both entry costs and costs associated with fulfilling the contract. With increased prerequisite costs, firms could choose not to participate as the cost associated with becoming a qualified tender are considered too high. Further, increased competition is expected to reduce the size of the placed bid. The diminution of the size of the bid is expectedas a consequence of reduced mark-ups with increased level of competition. To test the hypotheses, an instrument variable 2SLS regression was considered. The main results of the empirical analysis concluded that there are costs associated with few tenders. The direction of effects of setting qualification criteria did not yield cohesive results, as some increased the number of tenders and other decreases them, while some had no significant effect.

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