Public Procurement Officials Focus on Cost and Reputation Criteria

It is crucial for buyers in public procurement in Germany and Finland to avoid allocating public contracts to bidders with a bad reputation. However, the possibility of being able to avoid such bidders is limited in practice. According to a current ‘EconPol’ study in cooperation with ZEW Mannheim, public buyers either shun procurements which exceed expected costs or they reject these if they do not meet quality expectations.

“Exceeding the budget is viewed in a negative light within administration. Coming below the estimated budget is viewed differently altogether and plays a significantly lower role. This stems from the fact that budget overruns often face strong criticism from the public. However, cost savings of a similar amount do not receive the same level of appreciation,” says EconPol researcher Janne Tukiainen, one of the authors of the study.

“Decision-makers in public procurement state that they have a substantial amount of discretionary power. The way in which decisions are made is still, however, largely seen as a ‘black box’. In our study, we investigated the preferences of procurement officials regarding procurement outcomes,” says Sebastian Blesse, co-author of the study.

For the decision-makers, a certain degree of competition is important in the tendering process. Therefore, the fact that this is often lacking in public procurement in Germany and Finland is not due to the decision-makers working in this area. The risk of legal disputes or the preference for regional suppliers also proved to be less important for public buyers in the study.

The study additionally asked the procurement officials to assess the biggest perils of a desirable procurement process. The most commonly given answer was the strict bureaucratic requirements for the procurement process, as they hinder exercising discretionary powers to an optimal level for procurement workers. For example, EU regulations constrain the autonomy of public buyers to rule out bidders with a bad reputation.