An Ordered‐Probit Analysis of Price and Performance in Competitively Tendered Contracts

Abstract

This article adopts an ordered-probit estimation procedure to investigate the influence of competitive tendering on contract price and perjormance. Using a two-equation recursive system the findings of Domberger, Hall and Li (1995) turned out to be robust to the orderedprobit methodology which confirmed the strong negative effect of competitive tendering on contract price. The evidence also suggested that performance was either enhanced or remained the sume in the presence of competition. Overall, the results of this investigation support the view that competitive tendering generates efficiency gains without adverse effects on quality of service.* We wish to thank Ian Walker, Denzil Fiebig, Christine Hall, Don Harding, a referee, and the editors of theilustralian Economic Review, David Johnson and Peter Kenyon, for helpful comments on earlier drafts. This article stems from a major research project on the performance of competitively tendered contracts for which original, unpublished data had to be collected. We are grateful to the many contracting organisations that participated in this study. Financial support was provided by the Australian Research Council and the New South Wales Treasury through collaborative research grant no. C49380004. Responsibility for errors and omissions remains our own.

Competitive tendering and contracting public sector services in Australia – a facilities management issue

“…There can be benefits to the efficient management of services through the introduction of competition (Domberger and Li, 1995;Yergin and Stanislaw, 1998). What this article has raised is that sufficient reservations exist to reserve judgement on the unrestrained use of CCT and CTC in delivering services as part of a facilities management approach.…”

“…The ideology supporting this preference for public choice derives from a nexus of forces where market forces have been elevated as the prime mechanism to improve inefficiencies and quality of service. Australian research (Domberger and Li, 1995;King and Maddock, 1996) advances competitive contracts as a transparent mechanism that enables people to choose between services. The National Competition Reform Act 1995 and the Council of Australian Governments (COAG) (established in 1992) have institutionalised the so-called new institutional economics as a corner stone of micro-economic reform throughout all levels of government.…”

Competition, Quality and Contract Compliance: Evidence from Compulsory Competitive Tendering in Local Government in Great Britain, 1987–2000*

“…They drew on samples of 40 and 38 authorities, respectively, of which 32 were common to both. 7 Domberger, Hall and Li (1995) and Domberger and Li (1995) are rare examples that test the joint effect of competition on cost and quality, and are based on a sample of 61 cleaning contracts in Australia. They found private tendered contracts cost less than their public non-tendered counterparts, 'without adverse effects on quality'.…”

“…Studies comparing service quality rarely make the distinction between contract specification and contract compliance. Domberger and Hensher (1993), Walsh and Davis (1993) and Austin Mayhead (1997) are notable exceptions; but, as far as we are aware, in no case is contract compliance modelled in terms of competition for local authority services.…”

Measuring the Performance of Community Organisations in Queensland and New Zealand

“…Competitive tendering is believed to result in cost efficiencies in the delivery of public services (McCarrey 1993;Industry Commission 1995;Domberger and Ah Lik Li 1995). Explanations of these cost savings, however, include reductions i n the employment conditions of workers (Paddon 199 I ;Reilly 1993), invalid comparisons of expenditure (Knapp 1991) and declines in the quality of services being delivered (Robinson 1993;Paddon 1993).…”