Is It All Worth It? Litigation Risks in Public Procurement and Role of Reputation in Particular. Evidence From Finland

Abstract

Litigation and reputation are not independent of each other. Public procurement court proceedings take months, if not years, resulting in significant costs for all parties concerned: the contracting authority, the appellant and also for the winning tenderer. The fear of post-award litigation is one of the main reasons that contracting authorities tend to avoid taking risks in contract awards. On the other hand, the risk of being regarded as litigious can influence tenderers’ decision-making if they assume that such a reputation may affect their success in future procurement procedures. Access to remedies is an integral part of well-functioning public procurement. The purpose of this article is to analyse the significance of possible reputational factors in tenderers’ decision-making regarding whether or not to litigate. In behavioral law theory, reputational factors have in fact been considered as non-monetary (dis)incentives, which may affect company’s decisions. This is further supported by recently published empirical economics research suggesting that contracting authorities have indeed a tendency to avoid tenderers with bad reputation. This article analyses the connection between reputation and litigation in public procurement context using empirical methods and data collected via survey from companies that have withdrawn their complaints to the Finnish Market Court in 2020 and 2021. The survey shall be conducted in February-March 2022 and thus the conclusions of the empirical part of the research are still unknown. Nonetheless, and on the basis of earlier legal research, we submit that reputational factors indeed play an important role in economic operators’ decisions on initiating court proceedings.