We examine how the increased accessibility of public purchasing data affects competition, prices, contract allocations, and contract performance in government procurement. The European Union recently made its already public but difficult-to-access information about the process and outcomes of procurement awards available for bulk download in a user-friendly format. Comparing government contracts above EU publication thresholds with contracts that are not, we find that increasing the public accessibility of procurement data raises the likelihood of competitive bidding processes, increases the number of bids per contract, and facilitates market entry by new vendors. Following the open data initiative, procurement prices decrease and EU government agencies are more likely to award contracts to the lowest bidder.
However, the increased competition comes at a cost ─ firms execute government contracts with more delays and ex-post price renegotiations. These effects are stronger for new vendors, complex procurement projects, and contracts awarded solely based on price. Overall, our results suggest that open procurement data facilitates competition and lowers ex-ante procurement prices but does not necessarily increase allocative efficiency in government contracting.
That was Duguay, Rauter, and Samuels in their Nov. 27, 2019 paper, “The Impact of Open Data on Public Procurement.” HT: Kevin Lewis.
I have often argued that more cost and price data that the government collects should be made available to the public. The three reasons I’ve heard not to go down this path include: (1) we can’t show the profits that firms are making; (2) we can’t show overhead and other rates; and (3) there is something proprietary about how the firm uses management reserve.
I personally don’t see any of these as valid arguments. (1) Profits are already managed by the government. And if there were extremely high profit rates, then that should act as a signal to other firms that they should try to enter the market and compete away the profits. (2) For firms doing over $200M in business with the government, their overhead rates are directly negotiated with the government. Plus, overhead rates in themselves say little about efficiency without a full understanding of how labor and materials are tagged (I can lower overhead rates without changing real costs by, for example, shifting foremen from overhead to direct cost pools). (3) And I see no reason to fret over the management reserve issue… I was told lawyers raised concern.
It is very hard for me to imagine any real proprietary information coming from costs by work breakdown structure.
The authors of the paper, however, find that additional procurement information does not lower prices in the end. It increases competition and lowers contract price bids, but ultimately increases change orders. In other words, we would expect lower contract award prices as well as increased cost growth.
I can imagine this outcome. Open data makes contract solicitations easier to find. And then it also helps the firms determine a more competitive “price to win,” which may be a lower price. But there is not continual competition that keeps costs down. The government is still locked in, and so must pay whatever the cost overruns turn out to be.
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