A small N correlational study looking at public works and IT purchases in the Slovak Republic in 20072009 suggests that electronic reverse auctions decrease prices as measured by discounts (final price / original estimated price) through increasing the number of bidders (Pavel & Sičáková-Beblavá, 2013). However, conditional on the number of participating bidders, the authors find no further price effect, i.e. no confirmation of higher intensity competition. The overall price effect attributed to the use of e-auctions compared to standard open auctions is estimated to be 2.4% lower price than the originally estimated contract value. Another correlational study using a considerably larger sample from Russian sugar purchases in 2011 finds a considerably larger effect correlated with e-auction use of 28.0%-28.7% additional increase in discounts (Yakovlev et al., 2014). This corresponds to 5.8%-6.7% lower price per kilogram compared to the regional average price of sugar. While the authors do not reach a clear conclusion regarding the mechanism bringing about price savings, they suggest it is due to the number of bidders and contract characteristics such as contract size and contract duration.

Given the very limited amount of evidence available to test the impacts of e-auction and e-evaluation tools, there is a general need to expand the evidence base in terms of more advanced analytical methods, multiple countries, and other product markets. As electronic reverse auction is currently used in only few countries (OECD, 2011b) but is increasingly promoted, a more solid evidence base seems indispensable.

# 4. <u>Preferential treatment of bidder and product classes</u>

# _a) Theory_

The clearest sign that public procurement is more and more treated as a strategic rather than administrative function is that it is increasingly used to pursue broader policy objectives through special procurement rules and procedures. These socio-economic and environmental objectives either relate to specific bidder classes or types of products. In the former case, policy objectives typically concern the support of small- and medium-sized enterprises (SMEs), minorities, and women-owned or run businesses. Targeting specific products - what is often called horizontal policy objectives - aim to promote sustainability, foster innovation, or support disadvantaged regions. In both of these cases, public procurement can pursue these goals by offering preferential treatment through adjusting scoring rules, reserving some contracts, or facilitating access to tenders (OECD, 2015). Such preferential policies have become widespread among OECD countries with about 60% of countries having special support for SMEs and green procurement while 40% supporting innovative goods and services (OECD, 2015).

One notable example is the US Small Business Act which positively discriminates SMEs in public procurement through i) set-asides for SMEs, i.e. reserving contracts to be awarded solely to them, with a target of 23% of direct contracts and 40% of subcontracts to SMEs. Other common measures include ii) carrying out trainings and workshops for SMEs and iii) making documentation or guidance focused on SMEs available online. In addition, iv) simplified administrative procedures are used to facilitate the participation of SMEs in tenders. Another example is Chile’s Women Supplier Certification scheme which aims to identify and recognize women-led businesses as well as those with more than 50% of women workforce. Moreover the inclusion of gender-specific criteria in public tenders has also been fostered across the country by the procurement agency.

In general, assigning additional points for designated bidder and product groups such as SMEs (preferences), preserving some tenders only for such bidders (set-asides), or lowering tendering costs for them (targeted capacity development) should lead to both higher participation and a higher success rate of such bidders and offers. These policies may carry costs in terms of value for money if the positively discriminated bidders are otherwise less productive or products are of a lower value/price ratio. However, if preferential policies lead to wider access and stronger competition, the net effect may also be positive on value for money (Marion, 2007). Applying any threshold, monetary or product content-related, is also likely to distort firm investment decisions potentially carrying longer-term costs with it (e.g. limiting company 15