search query: @freeterm procurement / total: 13
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| Author: | Ganuza, J.J. |
| Title: | Competition and cost overruns in procurement |
| Journal: | Journal of Industrial Economics
2007 : DEC, VOL. 55:4 p. 633-660 |
| Index terms: | design management cost effectiveness |
| Freeterms: | procurement |
| Language: | eng |
| Abstract: | In this study the authors give a rationale for the noticed pattern in public procurement of underinvestment in design specification. The authors suggest a two-stage model in which the funder first decides how much to invest in design specification and auctions the project to horizontally differentiated contractors to receive the optimal offer. When the contract is made and implemented, the funder and contractor obtain new information about the optimal project design and renegotiate the contract in order to accommodate changes in the original project´s design. The authors suggest in their findings that the optimal strategy for funders would be to underinvest in design specification, which makes remarkable cost overruns likely. However when contractors are not horizontally differentiated such underinvestments do not occur, cost overruns are seen to come as a consequence of lack of competition in the procurement market. |
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