Detection of Anomalous Bids in Procurement Auctions

2 Pages Posted: 24 Oct 2009 Last revised: 27 Oct 2009

See all articles by Pier Luigi Conti

Pier Luigi Conti

University of Rome I

Maurizio Naldi

University of Rome Tor Vergata

Date Written: October 23, 2009

Abstract

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.

Suggested Citation

Conti, Pier Luigi and Naldi, Maurizio, Detection of Anomalous Bids in Procurement Auctions (October 23, 2009). Available at SSRN: https://ssrn.com/abstract=1493346 or http://dx.doi.org/10.2139/ssrn.1493346

Pier Luigi Conti

University of Rome I ( email )

Rome
Italy

Maurizio Naldi (Contact Author)

University of Rome Tor Vergata ( email )

Via del Politecnico 1
Rome, 00133
Italy

HOME PAGE: http://www.maurizionaldi.it

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