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“Bidding the project” vs. “bidding the envelope” in public sector infrastructure procurements

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  • Basso, Leonardo J.
  • Ross, Thomas W.

Abstract

We study the relative efficiency of two mechanisms actually employed in large-scale public procurements, often for transportation projects such as roads, bridges and rapid transit systems. In the more common “bidding the project” mechanism, the government specifies the size of the project (a quantity) and firms bid prices (the lowest bid winning). In the “bidding the envelope” mechanism the government specifies what it is willing to spend and firms bid quantities (the highest winning). With uncertainty about project costs and benefits, the much less frequently applied “bidding the envelope” mechanism can lead to higher value for money. Its advantage lies in its ability to allow quantity to adjust to high or low costs.

Suggested Citation

  • Basso, Leonardo J. & Ross, Thomas W., 2018. "“Bidding the project” vs. “bidding the envelope” in public sector infrastructure procurements," Transport Policy, Elsevier, vol. 64(C), pages 61-75.
    • Handle: RePEc:eee:trapol:v:64:y:2018:i:c:p:61-75
    DOI: 10.1016/j.tranpol.2017.09.004
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    References listed on IDEAS

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    More about this item

    Keywords

    Public infrastructure procurement; Auction mechanisms; Prices vs quantities;
    All these keywords.

    JEL classification:

    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises

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