4 results
4 - Procurement contracting strategies
-
- By Gian Luigi Albano, Senior Economist Consip Research Unit, Italy, Giacomo Calzolari, Associate Professor of Economics University of Bologna, Italy, Federico Dini, Junior Economist Consip Research Unit, Italy, Elisabetta Iossa, Professor of Economics Brunel University, UK, Giancarlo Spagnolo, Head of the Research Unit at Consip, Italy: Visiting Associate Professor of Economics at the Stockholm School of Economics, Sweden
- Edited by Nicola Dimitri, Università degli Studi, Siena, Gustavo Piga, Università degli Studi di Roma 'Tor Vergata', Giancarlo Spagnolo, Stockholm School of Economics
-
- Book:
- Handbook of Procurement
- Published online:
- 04 November 2009
- Print publication:
- 28 September 2006, pp 82-120
-
- Chapter
- Export citation
-
Summary
Introduction
Well-designed supply contracts are essential to effective procurement. By fixing obligations and promises, contracts protect each party in a procurement transaction against the risk of unexpected changes in the future behaviour of business partners, thereby allowing safe and efficient planning, investing, and production in decentralized supply chains. Contract obligations ensure, for example, that a buyer will receive the right service or good when and as needed, as promised by her supplier, and that the supplier's investment specific to a particular procurement will not be ‘wasted,’ in the sense that the buyer will indeed buy what she ordered at the agreed terms.
There are several types of contracts and very many dimensions along which apparently similar contracts differ, so that choosing the right contracting strategy is not always easy for a buyer. And a bad choice of contract can have very negative consequences for a buyer in terms of cost and quality of supply. However, economists and practitioners would agree on considering contract flexibility, the incentives for quality and cost reduction, and the allocation of procurement risk as the most important dimensions influencing the buyer's choice of the procurement contract.
In this chapter we offer simple and practical indications on how to choose among different types of procurement contracts. We focus on situations where the needs of the buyers are unlikely to change during the execution of the contract, so that renegotiation of the initial contract specifications, which is generally costly for the buyer, is unlikely to occur.
3 - When should procurement be centralized?
-
- By Nicola Dimitri, Professor of Economics University of Siena, Federico Dini, Junior Economist at the CONSIP Research Unit Rome, Italy, Gustavo Piga, Professor of Economics University of Rome Tor Vergata
- Edited by Nicola Dimitri, Università degli Studi, Siena, Gustavo Piga, Università degli Studi di Roma 'Tor Vergata', Giancarlo Spagnolo, Stockholm School of Economics
-
- Book:
- Handbook of Procurement
- Published online:
- 04 November 2009
- Print publication:
- 28 September 2006, pp 47-81
-
- Chapter
- Export citation
-
Summary
Introduction
Technological and organizational innovations can make it possible to have more cooperation and more initiative simultaneously. Information technology is an obvious source of such movements. By allowing finer performance measurement and better communications, it facilitates getting more initiative (through lowering the cost of providing incentives) and more cooperation (by making coordination easier and increasing contacts among units).
(Roberts 2004, p. 112)Motivated by the need to control costs and streamline processes, the issue of centralization versus decentralization has captured the interest of researchers, practitioners and public administrators from a variety of perspectives and is becoming increasingly important for many organizations. An efficient procurement policy is arguably one of the key activities in private companies, international institutions and governments. In this chapter we discuss purchasing systems from the specific point of view of their degree of centralization.
Given the considerable volume of resources involved, firms and governments always seek to optimize procurement so as to deliver value for money to business units and taxpayers. In pursuing such a goal often the first important choice is to choose between centralized and decentralized purchasing; profitability, performance and budget control within a private company or a public institution can vary considerably according to how purchases are organized and managed.
12 - Scoring rules
-
- By Federico Dini, Junior Researcher CONSIP Research Unit, Rome, Italy, Riccardo Pacini, PhD Student in Economics University of Rome Tor Vergata, Italy, Tommaso Valletti, Reader at Tanaka Business School Imperial College London, UK
- Edited by Nicola Dimitri, Università degli Studi, Siena, Gustavo Piga, Università degli Studi di Roma 'Tor Vergata', Giancarlo Spagnolo, Stockholm School of Economics
-
- Book:
- Handbook of Procurement
- Published online:
- 04 November 2009
- Print publication:
- 28 September 2006, pp 293-321
-
- Chapter
- Export citation
-
Summary
Introduction
Competition for procurement contracts is widely recognized to have a multidimensional nature. The buyer often cares about both the price and other non-monetary attributes, including various measures of quality. The typical mechanism that can be used in these circumstances is a scoring-based competitive bidding. In such a competitive bidding format, participants bid for price and non-price attributes (quality). The buyer then selects the winner using a scoring rule that weights price and quality, with the aim of achieving best value for money. Hence, scoring competitive bidding involves the choice of a scoring rule that allows the buyer to rank offers and to determine the final contractor. Scoring competitive bidding can be more costly to design and run than price-only mechanisms, since it requires the evaluation of potentially complex quality attributes. However, it also guarantees more flexibility when handling the trade-off between price and quality.
In this chapter we investigate several practical issues concerning scoring rules that should inform the choices of private and public procurers. First, we examine how the procurer should choose the scoring rule according to her preferences. This explains how to solve the possible tension between low prices and high quality. Second, we describe different scoring rules and we analyse their properties paying particular attention to features such as simplicity, predictability and ability to promote competition. We identify the settings where a particular scoring rule is likely to work better than others do, providing some practical conclusions.
18 - Designing reputation mechanisms
-
- By Chrysanthos Dellarocas, Professor of Information Systems, University of Maryland, USA, Federico Dini, Junior Economist, CONSIP Research Unit, Italy, Giancarlo Spagnolo, Head of the Research Unit at Consip, Italy: Visiting Associate Professor, Stockholm School of Economics
- Edited by Nicola Dimitri, Università degli Studi, Siena, Gustavo Piga, Università degli Studi di Roma 'Tor Vergata', Giancarlo Spagnolo, Stockholm School of Economics
-
- Book:
- Handbook of Procurement
- Published online:
- 04 November 2009
- Print publication:
- 28 September 2006, pp 446-482
-
- Chapter
- Export citation
-
Summary
Introduction
A common problem in procurement is the presence of relevant aspects of an exchange that cannot be fully specified in an explicit contract, because for example they are not verifiable by a third party (like a court or an arbitrator) at reasonable cost. Non-contractibility opens the door to two well-known forms of opportunism: ‘ex-ante’ and ‘post-contracting’ opportunism. Ex-ante opportunism takes place at the supplier selection stage, when the valuation of a good or service by the buyer depends on some unobservable characteristics of the seller or the good/service it provides. This often results in an undesirable matching between buyers and sellers, that is, in situations where a buyer may end up interacting with a seller (or buying a good) that does not have the desired characteristics (e.g., quality), even though sellers (goods) with the desired characteristics are present in the market. Post-contracting opportunism refers to possible opportunistic behaviour of one trading party during the procurement transaction that reduces the welfare of the other; for example, a contractor or a seller who, after having been selected, reduces below the level agreed upon the quality of service (or the effort exerted) on those aspects of the supplied good/service that are difficult or costly to monitor.
Appropriate explicit incentive contracts can partly overcome these informational problems when indicators correlated to the non-contractible features exist. Procured goods and services often present important qualitative aspects that are difficult to specify and enforce contractually and buyers have limited contractual tools to control opportunism.