Influence of Simplified Procurement Methods on Competition for Public Sector Construction

Abstract

In response to problems of cumbersome regulations and understaffed public agencies, governments have worked to simplify procurement statutes and streamline processes. One of the most widely used simplified processes in the United States public sector is a subclass of agreements known as indefinite delivery–indefinite quantity (IDIQ) contracts. Some scholars and practitioners have criticized their use, suggesting public officials have taken advantage of simplified procedures at the expense of protecting the public interest. Specifically, IDIQ contracts have been seen as limiting competition, with adverse consequences for markets and price. However, no studies to date have empirically examined claims of limited competition from simplified procurement tools like IDIQ. This paper seeks to address that gap by evaluating the use of IDIQ contracts in the context of federal construction procurement. Using univariate and multivariate statistics, this study examined bid data from 935 U.S. Department of Defense (DoD) construction projects awarded between 2008 and 2015. The results show that IDIQ contracting does correspond with lower levels of competition as measured by the number of bids, even when controlling for factors like delivery method and market conditions. Using microeconomic theory and traditional assumptions of low-bid contracting, such limits on competition could have negative economic consequences. However, multiple-award IDIQ contracts also appear to be effective at maintaining a minimal level of competition needed to protect the public’s interest while potentially lowering the transaction costs of both proposers and government agencies. For design-build projects in particular, IDIQ contracts may serve as a streamlined alternative to two-step source selection. This study serves as the largest empirical analysis of IDIQ contracting to date and adds to the bodies of knowledge on public procurement and competition in the construction industry. The findings lay the groundwork for researchers to explore the production and transaction cost tradeoffs of IDIQ contracting. The study will also prove useful for public policymakers overseeing procurement regulations and for practitioners that develop or bid on IDIQ contracts.