Analysis on Procurement Auction System in Public Procurement Service

This paper considers the effect of various types of procurement auction system on competition focusing on the rate of successful bidding. We analyze the number of bidders and the rate of successful bids using online procurement data of the Public Procurement Service. The average number of bidders is 301 and the average rate of successful bids is 87.42% while the weighted average rate is 75.13%. These numbers show that there is quite strong competition among bidders and the rate is lower as the expected price is higher. When we analyze the data of price procurement auction, the rate is also shown to be lower as the expected price is higher. Furthermore, the rate decreases as the number of bidders increases which naturally makes the competition stronger. Meanwhile, the analysis finds that the inclusion of the onsite bidding, the PQ(Pre-Qualification) result, or major-10 winning companies cannot explain the rate much in our data. In case of turnkey-alternative, the average rate of successful bidding for 484 cases record 90.20%. The average is 84.89% with 120 alternatives and 91.97% with 364 cases of turnkey. The reason why the rate of turnkey-alternative is lower than that of price procurement auction is the lack of competition as well as the systematic difference. By setting up a model, we are able to explain the difference in rate caused by the respective reason. When we suppose there are 3 bidders in case of price procurement auction for a project that exceeds 100 billion won, the rate is expected to be around 64%. This implies that difference of 26% is caused by the systemic difference and 3% by the lack of competition. Therefore, we conclude that the difference in rate between turnkey-alternative and price procurement auction is caused mainly by the systemic difference. In case of PPP(Public Private Partnership) projects, among 154 projects in total, only 40% has more than 2 bidders that compete. The average number of bidders is 1.88 which is less than 2, and the average rate of successful bids is 90%. In sum, under the price procurement auction, there is strong competition which is reflected by the rate of successful bids. However, there is room to decrease the rate by strengthening the competition under the turnkey-alternative. Also with PPP projects, we expect the rate can be steadily reduced with revived competition among bidders