Report on the effects of large public contracts
Oslo Economics, in collaboration with Inventura, has on behalf of the Norwegian Ministry of Trade, Industry and Fishery written a report on the effects of large public contracts. The assignment was carried out as a follow-up to a report to the Norwegian parliament on public procurement, which was submitted in the spring of 2019 (Meld. St. 22 (2018-2019)). There, the government pointed out that there is a need for more knowledge about the effect large contracts has on the market.
The study assesses the effects of large contracts in general, and in the food and beverage market for large-scale households, the construction market and the hotel market. Our main finding is that clients in the food and beverage market should weigh the cost benefits of large contracts, against the positive competitive effects of the division. In hotel acquisitions, division by location will normally result in both lower costs and better competition. In the construction market, suitable contract size will vary widely between different projects.
As part of the investigation, we have also conducted a survey of the practice of the § 19-4 of the Norwegian procurement regulation (Anskaffelsesforskriften), also called “divide or justify” principle, among public procurers. The principle states that the client can choose to divide the procurement into several sub-contracts but must give a justification if the procurement is not divided. We find that there are varying practices for division among the procurers in our analysis, and in some industries, the trend has been towards larger contracts. We also find that there are some limitations to today’s principle, and that the ability of small and medium-sized businesses to compete for public contracts also depends on factors other than the number of subcontracts.