Does e-procurement save the state money?
| Pages | 58-78 |
| DOI | https://doi.org/10.1108/JOPP-09-01-2009-B002 |
| Published date | 01 March 2009 |
| Date | 01 March 2009 |
| Author | Marcos Singer,Garo Konstantinidis,Eduardo Roubik,Eduardo Beffermann |
| Subject Matter | Public policy & environmental management,Politics,Public adminstration & management,Government,Economics,Public Finance/economics,Texation/public revenue |
JOURNAL OF PUBLIC PROCUREMENT, VOLUME 9, ISSUE 1, 58-78 2009
DOES e-PROCUREMENT SAVE THE STATE MONEY?
Marcos Singer, Garo Konstantinidis,
Eduardo Roubik and Eduardo Beffermann*
ABSTRACT. Scientific literature reports scarce evidence of whether Internet-
based procurement systems improve the efficiency of State purchases. We
propose a methodology to estimate savings in: (i) the centralization of
administrative tasks, and (ii) price differentials due to a larger number of
contractors and suppliers bidding on contracts. We test our methods with
ChileCompra, the Chilean e-procurement agency. During 2007, 885 Chilean
State agencies used this system to purchase US$4.5 billion in products and
services. Our preliminary results show price reductions of 2.65% and
administrative cost savings of 0.28%-0.38% between 2006 and 2007.
INTRODUCTION
Government procurement represents 18.42% of the world GDP
(Auriol, 2006). Many countries have created specialized agencies in
order to develop and manage business-to-government (B2G)
electronic procurement (e-procurement) systems. They have done so
to achieve the following objectives:
1) Promote the use of Internet across different industries;
2) Give signs of transparency, as the transactions between
contractors and State agencies become public;
3) Reduce administrative cost by improving the procurement
process; and
----------------------------
* Marcos Singer, Ph.D., is a Professor, Business School, Pontificia
Universidad Católica de Chile. His teaching and research interests are in
operational research, public procurement and public policy. Garo
Konstantinidis, Eduardo Roubik, and Eduardo Beffermann are research
assistants.
Copyright © 2009 by PrAcademics Press
DOES e-PROCUREMENT SAVE THE STATE MONEY? 59
4. Reduce purchasing prices, due to a more efficient operation
and to a larger number of potential contractors.
This paper will evaluate objectives (3) and (4) when the
procurement mechanism is through “electronic public bids.” It is
“electronic” as the interaction takes place through the Internet. First,
we present a method to assess the administrative cost reductions
due to centralization. It consists of estimating the unit costs of
different procedures, and multiplying those costs by the number of
times the State avoids repeating the procedures. Second, we use
auction theory to estimate the price differential due to a change in
the number of bidders. Third, we present two surveys, one for State
executives in charge of procurement and one for contractors, which
allow us to learn how e-procurement affects the number of bidders.
Fourth, we apply these methodologies to estimate the savings
produced by ChileCompra, the Chilean governmental agency in
charge of procurement. Finally, we summarize our conclusions, the
limitations of our work and future research.
ADMINISTRATIVE COSTS SAVINGS
In theory, e-procurement reduces administrative costs and
bureaucracy by helping the State avoid repeating tasks such as
registration and certification of contractors, allowing for more efficient
control mechanisms and reducing paperwork. Anecdotal evidence
seems to confirm this. In an exploratory study, Carter et al. (2004)
find that electronic reverse auctions (e-RAs) increase productivity and
reduce cycle times for buyers, particularly in the case of repeated
auctions.
Many scholars observe these success stories with skepticism,
and are reluctant to interpret them as general results (Presutti, 2003;
Brun, Corti & Cozzini, 2007). Information and communication
technologies do not generate efficiency by themselves. To be
successful, several organizational strengths (education and expertise,
discipline, process effectiveness, technical infrastructure) must
complement them. Technologies that are at a more developed stage,
such as ERP, SCM, and CRM systems, still have very dissimilar, and
often disappointing, effects (Hendricks, Singhal & Stratman, 2007).
The results are even less auspicious in developing countries, as their
To continue reading
Request your trial