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Statement of the problem
Background
The regulatory framework pertaining to public procurement is under
constant discussion. Representatives of procuring entities often criticize
it for being complicated and for encumbering procurement procedures,
thereby making them costly to follow and dysfunctional. Suppliers are often
critical of the way the regulatory framework is applied and they sometimes
put forward accusations of arbitrariness in the choice of suppliers or even
corruption. It is a fact that violations occur, sometimes conspicuously so.
A number of factors are important to the efficiency of a procurement
system, such as the general level of transparency (OECD 2009), use of
e-procurement (Vaidya et al. 2006), competence of procurement officials,
and organizational framework (Schotanus et al. 2010). Among the basic
design parameters, the threshold above which the regulatory framework
applies is arguably one of the most important. Any design of the regulatory
framework will necessarily represent a compromise between partly
conflicting aims. Whatever threshold for procurement rules is chosen, there
will be cases where the gains reaped from formal procurement do not cover
the administrative costs. Likewise, formal procurement may not be carried
out even though conditions in the situation at hand would warrant such a
procedure.
The thresholds laid down in EU public procurement directives vary
depending on the domain in which they apply (for overviews, see Bovis
(2005) or Arrowsmith (2009)). The dominant thresholds are 200 000 EUR
for services and 5 million EUR for works. A reasonable requirement is that
parameters such as these as far as possible have some empirical basis.
EU procurement directives and national legislation are only to a limited
extent based on analyses of potential gains and transaction costs; however,
unsurprisingly, there is considerable variation below the EU threshold
across otherwise similar countries (OECD 2010). There exist a number
of studies of the gains from competition, but these often refer to more
fundamental reforms, such as the transition from in-house production to
outsourcing preceded by formal procurement. Therefore, they may be
difficult to use in discussions on specific aspects of public procurement
regulations.
The present study was carried out in order to remedy partly this situation.
A number of actual procurement operations in central and local government
in Sweden were analyzed at a relatively detailed level in order to ascertain
the actual gains at different levels of competition. These gains were
confronted with the actual transaction costs associated with more or less
