Multi-Contract Tendering and Package Bidding in Procurement
HANDBOOK OF PROCUREMENT, Nicola Dimitri, Gustavo Piga, Giancarlo Spagnolo, eds., Cambridge University Press, 2006
25 Pages Posted: 20 Apr 2006
In practical activity, the procurer can often decide to split the supply of a product in multiple contracts, or lots. This paper surveys some competitive tendering procedures for multiple contracts and discusses how the choice of the most appropriate format of competitive tendering for the procurer should depend upon the costs that suppliers face in serving the contracts. In particular, a group of contracts is characterized by strong positive (negative) complementarities when the cost of serving them as a group is considerably lower (higher) than the sum of the costs of serving each of them alone. With both positive and negative complementarities in order to maximize savings, and obtain high quality standards for the procured goods and services, the buyer should introduce package bidding allowing suppliers to bid for sets of contracts as well as for single ones. Besides reducing suppliers' exposure to the risk of being awarded the "wrong" combination of contracts, package bidding allows to divide the supply in smaller lots without preventing large producers from exploiting economies of scale, thereby favoring smaller suppliers' participation and a more efficient allocation of the contracts.
Keywords: Procurement, complementarities, package bidding
JEL Classification: H57, D44, D81
Suggested Citation: Suggested Citation