Evaluating bids on price and quality

Ivan Ridderstedt and Roger Pyddoke, K2 Working paper 2021:7

The standard public procurement approach has been to award contracts to the lowest bidder meeting the requirements. In the EU, another award mechanism is almost as common and, moreover, is being promoted, i.e. awarding contracts to the best combination of price and quality, though whether this provides better value has rarely been studied. We contribute relevant empirical evidence by analyzing performance in public bus service contracts. In awarding contracts, a Swedish regional public transport authority alternated between favoring the lowest price and evaluating both price and bus operators’ processes for managing and improving bus service. The results of comparing these two approaches suggest that bus operators perform equally well in terms of punctuality regardless of the award mechanism. We conclude that caution is needed when promoting and implementing award mechanisms evaluating both price and quality. Knowledge of whether and how these outperform lowest price mechanisms remain limited in practice.

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K2 reports
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