Public procurement transaction costs: a country-level assessment

IMPACT

The survey-based approach to the evaluation of public procurement costs described in this paper can be used by other countries and regions. Although the average overall transaction costs for public procurements in the case study country amounted to about 1% of the total value of concluded contracts, this figure was 6.6% to 8.1% for small purchases. This figure exceeds the budget saving from competitive procurement and calls for a need to simplify regulations around smaller procurements. This analysis of the procurement costs on Russian data will allow other developing countries to avoid the mistakes made in Russia, as well providing a way to realistically and affordably measure their procurement transaction costs.

ABSTRACT

This paper presents a public procurement transaction cost evaluation using a large-scale survey of procurers and suppliers. The study was conducted in Russia in 2017. The results of the survey confirmed that the lower the contract value, the more expensive the procurement procedure. An empirical analysis of factors impacting public procurement cost evaluation also revealed considerable differences between respondents with and without experience in complex procurement procedures. The paper makes an important contribution to the academic literature by elaborating a new approach to public procurement cost evaluation, as well as providing an empirical evaluation of direct transaction costs of public procurement.

KEYWORDS:

• Developing economies
• public procurement
• public sector customers
• suppliers
• transaction costs

Acknowledgements

This research was supported by the Program for Basic Research of the National Research University Higher School of Economics in 2019. The authors are grateful to Sergei Dashkov for assistance in developing the questionnaire and Ivan Begtin for his contribution to conducting the survey. They are also grateful to the public customers and suppliers who participated in the survey and to Jesse W. Campbell for helpful comments on a previous version of this manuscript and suggestions for improvement.

Disclosure statement

No potential conflict of interest was reported by the authors.