Improving the performance of first-price auctions in Russian public procurement

Federal law No. 44-FZ of 5 April 2013 «On the contract system in procurement of goods, works, services for state and municipal needs» provided for use by customers two standard auctions - first-price sealed-bid auction (presented in the form of request of quotations, open contest & request of proposals), as well as an English auction (presented in the form of electronic auction). The former Federal law of 21.07.2005 № 94-FZ «About placing of orders for deliveries of goods, performance of works, rendering of services for state and municipal needs» was allocated a similar standard auctions. The request for quotations is one of the most popular ways of purchasing goods for state and municipal needs in Russia. In 2014 the state customers conducted more than 306 thousand requests for quotation that exceeded 20.7 percent of all competitive procurement procedures.Statistics on public procurement of Russia for the last 4 years showed that the first-price sealed-bid auction in almost all cases is more profitable than the English auction. However, the request for quotations retains one very significant disadvantage associated with the inability of the revaluation of the contract during the procurement procedures. In the paper, the author proposes the model of a hybrid auction that combines two first-price sealed-bid. The auction rules are closer to the rules of the English auction, however the secrecy of winning bid in each round of the auction promotes competition. The auction winner is the participant who has offered the lowest price for executing the contract in the final stage, as well as in the first or second stage. Thus, for victory in the auction the participant will need to win at least two stages, that will ensure the interest of the participants in revealing of real values, and thus will not reduce the number of participants. A new method for determining the winner in the auction allows to abandon discrimination in access to the next stages of the hybrid auction.