Detection of Anomalous Bids in Procurement Auctions
2 Pages Posted: 24 Oct 2009 Last revised: 27 Oct 2009
Date Written: October 23, 2009
Procurement auctions may be aﬀected by abnormally low bids, whose acceptance may have negative consequences on the auctioneer. A method, based on the average submitted bid, is considered to detect such anomalous bids and aid the auctioneer in the possible rejection decision. Analytical expressions or simulation results are provided for the detection probability and for the false alarm probability. The performances heavily depend on the number of tenderers and on the dispersion of bid values. Both performance indices improve as the number of tenderers grows and generally degrade as the dispersion grows. Under some circumstances the false alarm probability may even result larger than the detection probability. The presence of multiple anomalous bids leads to a signiﬁcant worsening of the performance, while courtesy bids raise both the false alarm probability and the detection probability. The use of the average-bid criterion, though oﬃcial endorsed in national legislations, is therefore recommended as a strongly precautionary criterion, i.e. when the need to avoid anomalous bids is considered much more relevant than the costs associated to deeper investigation of anomalous bids or to the erroneous rejection of regular bids.
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