FEEM working papers "Note di lavoro"
Date: 11/1/2017

Cost Uncertainty and Time Overruns in Public Procurement: a Scoring Auction for a Contract with Delay Penalties

Cesare Dosi (University of Padova, Centro di Ricerca Interuniversitario sull'Economia Pubblica CRIEP); Michele Moretto (University of Padova, Fondazione Eni Enrico Mattei)
JEL n.: C61, D44, D86, K12
Keywords: Public Procurement, Fixed-price Contracts,  Real Options, Time Overruns, Scoring Auctions, Liquidated Damages


Drawing on the real-options theory we analyse bidding behaviour in a sealed-bid-first-score procurement auction where suppliers, facing variable production costs, must simultaneously report the contract price and the cost level at which they intend to perform the project. We show that this award mechanism is potentially able to maximize total welfare. Next we look at the time incentives required to ensure compliance with the promised optimal trigger value. We show that ex-post efficiency may call for delay penalties higher than the anticipated harm caused by time overruns, in so doing questioning the efficiency rationale of existing liquidated damages rules.


Suggested citation: Dosi, C., M.  Moretto, (2017), 'Cost Uncertainty and Time Overruns in Public Procurement: a Scoring Auction for a Contract with Delay Penalties', Nota di Lavoro 2.2017, Milan, Italy: Fondazione Eni Enrico Mattei

Download file
Download PDF file

FEEM Newsletter & Update

Subscribe to stay connected.

Your personal data will be processed by Fondazione Eni Enrico Mattei. – data Controller – with the aim of emailing the FEEM newsletter & Update. The use of Your email address is necessary for the implementation of the newsletter service. You are invited to read the Privacy Policy in order to obtain additional information about the protection of Your rights.

This Website uses technical cookies and cookie analytics, as well as “third party” profiling cookies.
If you close this banner or you decide to continue navigating on this Website, you express consent to the use of cookies. If you need additional information or you wish to express selective choices on the use of cookies, please refer to the   Cookie PolicyI agree