Phd defence Baynesagn Asfaw Ambaw

performance-based contracting in public procurement of developing countries 

Public procurement is an important function of government since it has a considerable impact on the country’s economy. Public procurement practice, especially in developing countries, typically focuses on the least cost approach, which does not help to achieve value for public money. Selecting the lowest acceptable bid minimizes the judgmental decisions on the qualitative aspects of the bid; however this does not always provide a required result. In the least cost bid, suppliers usually tend to ignore the quality-related aspects and supply inferior products and services. In practice, they tend to offer and deliver nothing but the minimum required quality and sometimes even less than that. This results in buying low-quality goods and services.

 Public procurement in developing countries is associated with a number of problems such as corruption, buying inferior quality goods and services, lack of accountability, etc. Performance-based Contracting (PBC) is suggested to solve such problems. It is believed that the use of PBC can assist in the efficient utilization of the public resources. Here, we investigate whether this suggestion can work in the public procurement of developing countries. This thesis contains five separate studies including a literature review which is reported in chapter two of the dissertation. The other chapters analyze the practice of PBC in developing countries, taking Ethiopia as a case.

The studies use a set of different and complementary research methods like interviews, survey, secondary data, focus group discussion and analysis of the procurement legal framework of different countries and international institutions, which helps to triangulate the data collected.

The literature analysis shows that the research on PBC increased over the last decade but is limited to specific areas (developed countries) and sectors (e.g. health, human service, etc.). The research findings to date do not clearly show whether PBC will also work in the context of developing countries. In addition, the conceptual definition of PBC is clearly outlined, and advantages and disadvantages of using PBC are analyzed and outlined based on the evidence from the literature.

To analyze the practice of performance-based contracting in public procurement of developing countries a study was conducted among the federal procuring entities of Ethiopia. The majority of these public organizations have not yet used PBC even though it is allowed by the law. This is mainly due to the fear of corruption, since PBC uses qualitative aspects of the bid in addition to price for bid evaluation and award, and lack of knowledge and training on using PBC.  

Agency theory (Eisenhardt, 1999) and transaction cost economics theory (Williamson, 1987) are employed as a framework to analyze the existing problems of public procurement and how using PBC can minimize such problems. Most of the problems in the contract performance process arise either due to cognitive capability that the principal is unable to predict the entire future scenario and not able to include all the required information in the contract agreement (Rindfleisch & Heide, 1997; Williamson, 1987) or due to goal incongruence and information asymmetry between the contracting parties (Eisenhardt, 1999), as each tends to work in their own personal interest rather than the common goal. Using PBC is suggested as a solution for such problems.  The data analysis in this study confirms the suggestions and finds that PBC is expected to minimize problems of accountability, corruption, and procurement cost and time overrun, and to improve quality in public procurement.

The analysis of a number of relevant legal frameworks shows that PBC is systematically promoted and cited in the legal framework for public procurement in many countries and international organizations. However, most of the procurement laws, directives, and rules and procedures lack a proper guide on how to evaluate the contract performance, pay at the end of the contract performance, and apply incentive packages in the contract performance process. The lack of a properly guiding legal framework may contribute to the low practice of PBC in the public procurement systems of developing countries.

The willingness of public procurement professionals to use PBC in the public procurement system is examined through a study of the influence of perceived usefulness and perceived ease of use.  The regression analysis revealed that when procurement professionals perceive PBC as useful, they are more willing to use it in the public procurement system. Perceived ease of use has a significant effect on the confidence of procurement professionals to use PBC only when they perceive it as useful. It is concluded that a clear understanding on the benefits of PBC and how to apply it in the public procurement system enhances the willingness of procurement professionals to use PBC.