Estimation of procurement costs incurred by public customers: a case study of a Russian region
| Pages | 68-87 |
| DOI | https://doi.org/10.1108/JOPP-03-2018-005 |
| Date | 05 March 2018 |
| Published date | 05 March 2018 |
| Author | Andrei Yakovlev,Olga Balaeva,Andrey Tkachenko |
| Subject Matter | Public policy & environmental management,Politics,Public adminstration & management,Government,Economics,Public finance/economics,Taxation/public revenue |
Estimation of procurement costs
incurred by public customers: a
case study of a Russian region
Andrei Yakovlev
Institute for Industrial and Market Studies & Faculty of Social Sciences,
School of SocialSciences National Research University Higher Schoolof Economics,
Moscow, RussianFederation
Olga Balaeva
Faculty of Business and Management, School of Business Administration,
National Research University Higher School of Economics,
Moscow, Russian Federation, and
Andrey Tkachenko
Institute for Industrial and Market Studies,
National Research University Higher School of Economics, Moscow,
Russian Federation
Abstract
Purpose –This paper aims to measure the cost of procurement because public procurement procedures
prescribed by legislation not onlyenhance transparency and competition but also entail certain transaction
costs forboth customers and suppliers.
Design/methodology/approach –These costs are important to the efficiency of the procurement
system. However, very few previous studies have focused on estimating procurement costs. This paper
proposesa methodology for public procurement cost evaluation.
Findings –This paper shows how procurementcosts can be calculated using a formalized survey of public
customers. This methodology was tested witha representative group of public customersoperating in one
region of the RussianFederation.
Originality/value –The authors formulate the policy implications of this paper, as they relate to the
improvement of publicprocurement regulations and argue that this methodologicalapproach can be applied
in other developingand transitioning economies.
Keywords Regulation, Public procurement, Effectiveness, Public customer, Procurement costs
Paper type Research paper
Introduction
During the past decade, many countries have undertaken reforms of their public
procurement systemswith a view to reduce the level of corruption and increase procurement
competition, transparency and efficiency (European Commission, 2014). At the same time,
This paper was prepared as part of the project “Efficient public procurements: incentives and barriers”
and supported by the Basic Research Program of the Higher School of Economics in 2015-2016. The
authors are grateful to three anonymous reviewers for their very valuable comments. Authors also would
thank the specialists of the Kaluga Regional Ministry for Competition Policy for the information and
organizational support they provided for our study.
JOPP
18,1
68
Journalof Public Procurement
Vol.18 No. 1, 2018
pp. 68-87
© Emerald Publishing Limited
1535-0118
DOI 10.1108/JOPP-03-2018-005
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1535-0118.htm
the ultimate goal of public procurement regulations is to increase the socioeconomic
efficiency of public procurements.This means not only decreasing budgetary expenses as a
result of bidding price reductionsbut also ensuring the supply of high-quality goods,works
and services within establishedtimelines.
The use of public procurement procedures prescribed by legislation not only enhances
transparency and competition but also entails certain transaction costs (Williamson, 1979)
for both customers and suppliers. Theamount of these costs may exceed the positive effects
expected from the regulation of public procurement procedures. Thus, taking these costs
into account and providing measures for their mitigation are important elements of
optimizing the procurementprocess.
The significance of procurement costs as a public procurement efficiency factor was
confirmed by a PwC study conducted for the EuropeanCommission in 2011 (PwC, 2011) that
used a large data set. The study showed that the average aggregate procurement cost
represented approximately 1.4 per cent of the total procurementvalue within the European
Union (EU). The PwC study is one of the few studies that have evaluated public
procurement costs at the macro level (Singer et al.,2009). It is worth mentioning that few
studies have been devoted to publicprocurement costs. Most of those publications evaluated
costs at the local (micro) level –the level of an individualorganization or project (Costantino
et al.,2012;Gardenal,2013;Jasko et al.,2015).
The purpose of this study is to develop a public procurement cost evaluation
methodology for a large group of public customers operating in one region that is based on
the approach proposed by PwC (PwC, 2011) and takes into account the Russian-specific
method for evaluating thepublic procurement costs of a single public procurement customer
(Balaeva and Yakovlev,2017).
The regional public procurementcost evaluation methodology we propose was piloted in
one Russian region –the Kaluga region. Most of the typical publiccustomers operate at the
regional level, and the evaluation of their costs –particularly in relation to various
procurement procedures and procurementsof various values –can provide insight into the
measures needed to optimize public procurement regulation. We believe that our approach
can be applied to other developing countries at the organizational, regional and national
levels. The findings of this study promptseveral conclusions concerning the effectiveness of
procurement procedures, types of procurers and possible regulatory changes to the
procurement system.
Literature review
Public procurementregulation is an extremely important issue for legislationbecause public
procurement constitutes a significant component of public bodies’activities. Moreover,
public procurement plays an important role in the national economies of both developed
(European Commission, 2008;Klemperer, 2002) and developing countries (Dlamini and
Ambe, 2012). It accounts for 10-15per cent of the gross domestic product (GDP) in developed
countries and even morein developing nations (Lewis and Bajari, 2011;Ohashi, 2009).
Two important features of public procurements in both developed and developing
countries are very strict regulations and a tendency to encourage competition during the
procurement process compared to private sector procurements (Tadelis, 2012;Yakovlev
et al.,2010).Excessively rigid regulations and a propensity for promoting open auctions are
unavoidable consequences of increased risk of corruption among public organizations’
officials (Büchner et al.,2008), favoritism (Laffont and Tirole, 1991) and third-party
opportunism (Moszoro and Spiller, 2012). Simultaneously, such rigid regulations may raise
the transaction costs of procurementsand reduce the benefits of competitive procedures.
Estimation of
procurement
costs
69
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