An economic analysis of debarment

Abstract

With a view to reducing the consequences of corruption in public procurement, many governments have introduced debarment of suppliers found guilty of corruption and some other forms of crime. This paper explores the market effects of debarment on public procurement. Debarment is found to make little difference in markets with high competition, while in markets with low competition it may deter corruption as long as firms value public procurement contracts in the future and there is a certain risk of being detected in corruption. On the other hand, debarment -when it works -has an anti-competitive effect, and this effect will contribute to facilitate collusion between suppliers. Debarment may work as a tool against collusion, but only if targeting one firm at the time (such as a ring-leader or the specific beneficiary when the collusion is detected) -and not all the members of a cartel. If designed with an understanding of the market mechanisms at play, debarment can deter both collusion and corruption, thus improving the results of public procurement. If so, most current debarment regimes need modification.JEL Classification: K21, K23, K42, L41, H57

Public procurement with unverifiable quality: The case for discriminatory competitive procedures

“…The latter is best obtained by means of negotiation-like procedures, which, however may not perform well in terms of efficiency. The second approach (Klein and Leffler, 1982;Board, 2011;Calzolari and Spagnolo, 2013;and Auriol and Søreide, 2015) still relies on the use of competitive procedures, but endows the buyer with an extremely harsh punishment device when quality is not delivered -she can debar the cheating firm from the competitive environment. In other words, a cheating firm faces the potential threat of being unable to submit a bid for the relevant contract in the future.…”

Governments’ Enforcement of Corporate BriberyLaws:

“…In addition, the authority to determine whether a corporation would be eligible to bid on public contracts, or, alternatively, would be debarred, could be included in such regulations instead of being vested in procurement agentswho are the ones in a position to take bribes. 48 Criminal law investigations would be reserved for circumstances in which an offense most probably has happened. They would aim to identify the facts of the case (which would not be negotiable, as in today's settlements) and would impose a criminal law penalty on the liable individual(s) or corporate offender(s).…”

Debarment and Collusion in Procurement Auctions

“…The only existing study on debarment is theoretical and focuses on its effect on corruption (Auriol and Søreide, 2017). The study shows that debarment will effectively deter corruption in small markets if the probability of debarment is sufficiently high 2 and if bidders sufficiently value contract awards in future procurement auctions.…”

“…First, our work contributes to the theoretical analysis of debarment and corruption (Auriol and Søreide, 2017) by exploring the effect on debarment on collusion. Second, our work contributes to the literature on fines in procurement auctions (Hamaguchi et al, 2007) by investigating the effect of debarment within a procurement auction.…”