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Sous-traitance et avenants dans les marchés publics: une illustration

Author

Listed:
  • Francois Marechal

    (IPNO - Institut de Physique Nucléaire d'Orsay - CNRS - Centre National de la Recherche Scientifique - IN2P3 - UP11 - Université Paris-Sud - Paris 11)

  • Pierre-Henri Morand

    (CRESE - Centre de REcherches sur les Stratégies Economiques - UFC - UFC - Université de Franche-Comté)

Abstract

Subcontracting is a widespread use in procurement contracting. However, subcontracting regulation differs between countries. In the USA e.g., each bidder is required to submit the potential subcontracting plan before the award of contracts when they exceed $500,000 ($1,000,000 for construction). On the contrary, in Canada and in the EU, contracting authorities may ask the tenderer to precise in his bid, the share of subcontracting but also may allow him to choose the subcontracting plan after the award of the contract. Therefore, the purpose of this paper is to compare these two legal frameworks and derive subcontracting regulatory rules in public procurement. Government contracts awarded by fixed price sealed bid auctions are often renegotiated by change orders, which occur after the contract is signed. These are due to exogenous uncertainty characterizing the contract and might either rise or decrease the initial amount. In our paper, the potential amount of change orders depends on the subcontracting level. If the firm undertakes the whole contract, it faces all the exogenous uncertainty. By subcontracting part of the contract, the firm reduces its potential change orders. However, it may extract specific rents from subcontractors (e.g. because of sunk or learning costs, subcontracting generates rents, but due to agency relation, too much subcontracting may become unprofitable for the firm). This trade-off determines the optimal choice of subcontracting. On the one hand, raising the share of subcontracting reduces the potential amount of change orders. On the other hand, the firm may obtain more rents. Bidders choose their optimal bid taking into account rents and expected change orders. Nevertheless, the value of these change orders may differ from the one, which was first expected and may lead to ex post negative profits. We consider that the aim of the public buyer is to choose the rule that yields the lowest expected cost. Comparing pre and post-award subcont
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Francois Marechal & Pierre-Henri Morand, 2002. "Sous-traitance et avenants dans les marchés publics: une illustration," Post-Print hal-01313451, HAL.
  • Handle: RePEc:hal:journl:hal-01313451
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01313451
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    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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