Public Procurement Award Methods : Insights from the Economic Literature and Case Law

In every public tender, a method is used to rank the bids submitted in the tender. Choosing the right award method can be very beneficial to the public body. On the other hand, an unwise choice of an award method may lead to bad results. The economic literature and case law reveal important and sometimes surprising insights into the use of different award methods. This article seeks to bring these insights to public bodies. The article has four chapters. The first chapter discusses the economic theory of indifference-utility curves of the public body and the bidders in the tender, and how the use of absolute scoring formulas enables bidders to locate the optimal meeting point between the curves. The second chapter presents the ranking paradox to which relative scoring formulas are exposed, and its consequences on bidders' right to review bids that did not win the tender. Also, the chapter discusses the concern that relative scoring formulas may allow collusion between bidders. The third chapter shows how relative weight determined by the public body for the price and quality components may not reflect their true relative weight. The fourth chapter draws attention to the problem of determining unrealistic weights in the tender, and offers guidelines for correctly determining them. Also, the chapter shows that determining realistic weights does not necessarily prevent manipulations by bidders, and discusses alternative award methods to deal with this problem. At the conclusion of each chapter, the legal consequences arising from the economic insights are discussed