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Economies of scale versus the costs of bundling: Evidence from procurements of highway pavement replacement
Swedish National Road and Transport Research Institute, Society, environment and transport, Transport economics. Department of Industrial Economics and Management, KTH, Sweden.ORCID iD: 0000-0002-2876-6505
Swedish National Road and Transport Research Institute, Society, environment and transport, Transport economics.ORCID iD: 0000-0002-5814-917X
2023 (English)In: Transportation Research Part A: Policy and Practice, ISSN 0965-8564, E-ISSN 1879-2375, Vol. 173, no July, article id 103701Article in journal (Refereed) Published
Abstract [en]

Although most public procurements involve decisions concerning bundling, only a limited body of empirical research guides policy on this matter. In this paper, we examine the cost effects of bundling in the competitive tendering of highway pavement replacement with hot-mix asphalt. For this we use linear regression on data from a comprehensive sample of such contracts procured by the Swedish infrastructure manager (IM) during the 2012–2015 period. We find that bundling affects the procurer's cost in multiple and partly counteracting ways. Our results show that economies of scale are strong but diminishing and counteracted by the costs of bundling and bundling-related factors. Overall, the findings support the Swedish IM's current bundle design but also suggest that most of the contracts are still inefficiently small. While not perfectly generalizable to other markets, the findings provide some support for the increased promotion and use of the bundling of small-scale road rehabilitation projects in the USA. Two main implications of the results are that bundling policy should emphasize proximity and similarity rather than whether the work is small in scale and that the scope for efficient bundling should be accounted for when optimizing the timing of pavement replacement.

Place, publisher, year, edition, pages
Elsevier, 2023. Vol. 173, no July, article id 103701
National Category
Economics
Identifiers
URN: urn:nbn:se:vti:diva-19751DOI: 10.1016/j.tra.2023.103701ISI: 001017169900001Scopus ID: 2-s2.0-85159571164OAI: oai:DiVA.org:vti-19751DiVA, id: diva2:1761923
Available from: 2023-06-02 Created: 2023-06-02 Last updated: 2025-06-04Bibliographically approved
In thesis
1. Improving the Efficiency of Public Procurement: Empirical evidence using micro-level contract data
Open this publication in new window or tab >>Improving the Efficiency of Public Procurement: Empirical evidence using micro-level contract data
2023 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

The aim of this thesis is to provide new insights into how public procurers can achieve more for the money by improving the design of their auctions and contracts. Specifically, the thesis examines how the efficiency can be influenced by the following three aspects: the method of bid evaluation (the award mechanism), whether items are procured separately or grouped into larger contracts, and variations among procurers in the activities and quantities they specify in a given case.

The thesis includes four essays that analyze detailed contract information from Swedish procurements of road reinvestments and public bus services. For a comprehensive sample of the examined contracts, information has been collected from procurement documents and compiled into rich microdata sets. The use of microdata has enabled detailed reviews of how the procurements have been designed as well as statistical analysis of associations between the procurer’s choices and the outcome. While the essays primarily focus on results and implications regarding their respective research questions, the kappa provides a more general discussion about quantitative microanalysis in the field of procurement. This reflects a complementary aim of the thesis, which is to contribute to well-informed decisions regarding whether and how contracting authorities should facilitate analyses of this kind.

The kappa highlights how microdata at the contract level enable research that considers both the ‘uniqueness’ of each procurement and random variation. In the analyses of road reinvestments, the detailed data allows us to consider several important characteristics of the contracts and the treated road segments. Similarly, the analysis of bus punctuality considers several aspects of the traffic assignment. In this way, quantitative microanalysis can provide reliable quantifications of how costs and quality are affected by both the procurer's actions, while considering the external conditions. Many of these associations are too complex to be reliably assessed by an individual civil servant, even if it is highly knowledgeable and experienced. However, the thesis emphasizes that even quantitative analysis can yield misleading results if the data material is not good enough, for example, if the sample is too small or relevant aspects are not captured.

Abstract [sv]

Denna avhandling syftar till att ge nya insikter om hur offentliga upphandlare kan uppnå mer för pengarna genom förbättringar av hur de utformar sina kontrakt och auktioner. I synnerhet undersöks hur effektiviteten kan påverkas av följande tre aspekter: metoden för anbudsutvärdering (tilldelningsmekanismen), om objekt upphandlas separat eller är grupperade till större kontrakt, samt skillnader i hur olika upphandlare specificerar aktiviteter och mängder i ett givet fall.

I avhandlingen ingår fyra artiklar som analyserar detaljerad kontraktsinformation från svenska upphandlingar av vägreinvesteringar och kollektiv busstrafik. Denna information har samlats in från förfrågningsunderlag för ett stort antal kontrakt inom respektive verksamhet. Det sammanställda mikrodatamaterialet har möjliggjort såväl detaljerade kartläggningar av hur upphandlingarna har utformats som statistisk analys av samband mellan upphandlarens agerande och utfallet. Medan artiklarna främst är fokuserade på resultat och implikationer angående deras respektive forskningsfråga, förs i avhandlingens kappa en mer generell diskussion om kvantitativ mikroanalys inom upphandlingsområdet. Detta svarar mot ett kompletterande syfte med avhandlingen, vilket är att bidra till välinformerade beslut angående om och hur upphandlande myndigheter bör främja analyser av detta slag.

Avhandlingens kappa belyser hur mikrodata på kontraktsnivå möjliggör för analyser som beaktar skillnader i förutsättningar mellan olika upphandlingar och slumpmässig variation. I analyserna av vägreinvesteringar beaktas kontraktens och de åtgärdade vägsegmentens karaktär, och i analysen av busstrafikens punktlighet beaktas flertalet aspekter av det specifika trafikuppdraget. På så vis kan kvantitativ mikroanalys ge tillförlitliga kvantifieringar av hur kostnader och kvalitet påverkas av upphandlarens agerande, med hänsyn tagen till de externa förutsättningarna. Många av dessa samband kan antas vara alltför komplexa för att en individuell bedömning ska vara tillförlitlig, även om den individen är mycket kunnig och erfaren. Avhandlingen understryker dock att även kvantitativ analys kan ge vilseledande resultat om datamaterialet inte är tillräckligt bra, exempelvis om urvalet är för litet eller relevanta aspekter inte fångas.

Place, publisher, year, edition, pages
Stockholm: KTH Royal Institute of Technology, 2023. p. 34
Series
TRITA-ITM-AVL ; 2023:21
Keywords
Public procurement, public sector efficiency, auction design, award mechanisms, bundling, transport infrastructure, public transport
National Category
Economics
Identifiers
urn:nbn:se:vti:diva-19930 (URN)978-91-8040-680-2 (ISBN)
Public defence
2023-09-22, F3 / https://kth-se.zoom.us/j/62634423221, Lindstedtsvägen 26, Stockholm, 13:00
Opponent
Supervisors
Available from: 2023-10-04 Created: 2023-10-04 Last updated: 2023-10-10Bibliographically approved

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Ridderstedt, IvanNilsson, Jan-Eric

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