Cost-Benefit Analysis of Bid Protests: A Representative Bidder Model
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Authors
Melese, Francois
Subjects
Protest
corruption
competition
procurement
acquisition
corruption
competition
procurement
acquisition
Advisors
Date of Issue
2020
Date
Publisher
Taylor & Francis
Language
Abstract
The goal of any procurement process is to obtain ‘value for money.’ Bid protest systems are intended to help. The U.S. Department of Defense, NATO, the EU, UN, OECD, and WTO, all authorize losing bidders to protest public procurements. The threat of a protest is meant to increase government accountability, and encourage vendor participation. An extensive legal and regulatory literature discusses intended benefits of protests, but is surprisingly silent about the costs. The goal of this study is to examine both costs and benefits. Military acquisition offers an illustration. The dual objective is to minimize corruption, and maximize competition. Sadly, protest systems can inadvertently discourage both. Moreover, past protests by defense companies have generated signifi- cant costs, and triggered dangerous delays of critical defense equipment, materiel, services, and supplies required for national security. The static, probabilistic, micro-economic, partial equilibrium, representative bidder model presented in this paper offers a cautionary tale for defense organizations, government agencies, countries, and international institu- tions that authorize bid protests. The model reveals multiple potential deficiencies of protest systems, and recommends analysis of portfolios of alternatives to eliminate fraud and favoritism, and increase competition, to improve procurement outcomes.
Type
Article
Description
The article of record may be found at https://doi.org/10.1080/10242694.2018.1557974
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Citation
Francois Melese (2020) Cost-Benefit Analysis of Bid Protests: A Representative Bidder Model, Defence and Peace Economics, 31:5, 502-516, DOI: 10.1080/10242694.2018.1557974
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This publication is a work of the U.S. Government as defined in Title 17, United States Code, Section 101. Copyright protection is not available for this work in the United States.