Bidder participation

Bidder participation is one of the indicators used to calculate the zIndex score for evaluating contracting authorities.

The bidder participation indicator monitors the level of competition for each contract and penalizes calls that receive an unusually low number of tenders.

Competition is a key instrument in public procurement, which prevents corruption and cartel arrangements, reduces contract prices, and helps the contracting authority to achieve maximum value for its money. A bidder who does not have to compete against other bidders has no motivation to offer their best possible quality/price ratio. The influence competition has on final contract price has been confirmed by a number of academic studies. also focuses on bidder participation in its assessment of member states' public procurement performance.

The most common reasons for a call not to receive many bids include: poorly identified subject matter, inadequate qualification criteria, or insufficient publicity. Best practice (OECD (2009)) requires contracting authorities to avoid these shortcomings and to procure contracts in a way that encourages maximum competition.

This indicator is calculated in a two-step process. First, the level of competition is evaluated for each contract, and these levels are then averaged across all contracts for a given contracting authority, to give a partial indicator „k“.

Our calculation of k also reflects the fact that different markets are subject to different levels of competition. We compare the results for all contracts against the median number of tenders in contracts with the same or closely related CPV code. To maximise precision but avoid misleading statistics, this median value is calculated for the most detailed relevant level of CPV that has at least 20 contracts awarded. The sub-indicator „k“ thus compares the number of tenders submitted for a particular call with the usual number of tenders for that contract subject. If the median value cannot be obtained for specific tender (typically in small-scale contract), it is set equal to 1 and thus every level of competition is positively evaluated.

$$k =0.5 + \frac{tenders\:submitted\:per\:contract - median\:in\:category(tenders\:submitted)}{median\:in\:category(tenders\:submitted)}$$

The following graph illustrates the „k“ value for different levels of competition.

To give an example, the most common (median) number of bids in electricity contract competitions is four. Therefore electricity purchases with four bidders are assigned a k value of 0.5, calls that received six or more bids are awarded a k value of 1, and contracts awarded following a procedure with two or fewer tenders are assigned a zero k value. The zero value is assigned to all contracts awarded following calls to which only one bidder responded, even in industry sectors where single tenders are common (e.g. ICT). No competition takes place in such tenders and the fact that this practice is common throughout the whole industry sector is rather alarming than justificatory.

The second step in our calculation is to compute the aggregate indicator as the weighted sum of k indicators across all contracts awarded by the respective contracting authority. The awarded price of every contract is used as its weight, in order to emphasize the indicator results for bigger contracts. The resulting weighted sum is then divided by the total value of the relevant authority's contracts. Contracts with an undefined number of tenders are excluded from the evaluation, as authorities are already penalized for these through the Journal information qualityy indicator.

$$z_5 = \frac{\sum \sqrt{contract\:value}*k}{\sum\sqrt{contract\:value}}$$

Purchases using the commodity markets (where number of bidders is not available) are evaluated as having 5 bidders, which is slightly above average for respective commodities (natural gas and energy).

Beside the usual issue of low comparability across different types of contracting authorities, it could be argued that even within the same sector, the scope for competition may vary significantly across different locations and markets. Contracting authorities seeking suppliers on a smaller market may thus be disadvantaged by this indicator.

An further possible reason for low bidder participation may be a situation of vendor lock-in (described in the Winner concentration indicator) that was caused by the authority's previous management, in which potential bidders have no interest in bidding, because they are aware that the existing contractor has a competitive advantage - such as the existing infrastructure (that would have to be rebuilt again) and thorough knowledge of the environment and the client, enabling the present contractor to much more accurate price setting.

• Use non-discriminatory criteria. Carefully consider each qualification criterion, thinking about whether it might restrict competition by preventing certain bidders from entering the procedure, and about how useful it is to your contract.
• Communicate with potential bidders. Efficiency-minded contracting authorities should consult their intended investment projects prior to issuing a call for tender, especially if their knowledge of the relevant market is limited. Appropriate non-discriminatory ways of obtaining feedback include open day consultations and other means of notifying bidders of a prospective contract (implementing a machine-readable buyer profile, and accurately completing a contract notice registration form for the Journal - especially in terms of CPV codes, contract titles and descriptions). If a contract's subject matter proves too difficult to define precisely, it is also possible to communicate with bidders during the tendering procedure, by using a negotiation procedure with publication, a competition dialogue or a design contest. These are all preferable to an open procedure with unnecessary qualification criteria or inadequately defined tender specifications.
• Split contracts. Splitting larger contracts into lots (selected based on the particular subject matter involved), is advisable, so that each lot may be competed for by the maximum number of bidders. An example of this would be an environmental remediation, where the technological part (requiring certifications or qualified workers) is separated from the common earthworks, which can be carried out by a much broader field of suppliers.