Provider Selection and Renegotiation Incentive of Incomplete Contracts: Empirical Relevance on Public Work Procurement

Posted: 18 Dec 2009 Last revised: 15 Jan 2010

See all articles by Calogero Guccio

Calogero Guccio

University of Catania - Department of Economics and Business

Giacomo Pignataro

University of Catania - Faculty of Economics

Ilde Rizzo

University of Catania - Department of Economics and Business

Date Written: August 1, 2009

Abstract

The literature on public procurement pays great attention to the rules underlying tendering procedures as well as on the specification of the type of contract to be awarded. Less attention has been paid to the incompleteness of the contract; this issue is relevant in the public work sector because it offers room for the contract renegotiation and, therefore, for the increase of the final price. This paper offers empirical evidence of the potential effects of different tendering procedures (i.e. negotiation vs. auction) on the contract renegotiation in the public work sector. The results show that, in presence of incomplete contracts, an excessive emphasis on the tendering rules, in absence of an efficient system of sanctions and incentives, can induce firms to behave strategically: they will offer very low bids to be awarded the contract, looking for renegotiating during the contract implementation.

Keywords: incomplete contracts, procurement, public work

JEL Classification: D23, D82, H57, L14, L22, L74

Suggested Citation

Guccio, Calogero and Pignataro, Giacomo and Rizzo, Ilde, Provider Selection and Renegotiation Incentive of Incomplete Contracts: Empirical Relevance on Public Work Procurement (August 1, 2009). Rivista Italiana degli Economisti, Vol. 2, August 2009, Available at SSRN: https://ssrn.com/abstract=1525514

Calogero Guccio (Contact Author)

University of Catania - Department of Economics and Business ( email )

Corso Italia 55
Catania, 95129
Italy

Giacomo Pignataro

University of Catania - Faculty of Economics ( email )

Catania, 55
Italy

Ilde Rizzo

University of Catania - Department of Economics and Business ( email )

Corso Italia 55
Catania, 95129
Italy

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