INTRODUCTION
Necessity of research
Government spending is indispensable for every country The government, like every other entity, needs expenses to maintain its existence and perform its role in society in society
In macroeconomics, we know that:
I g , I p are government investment and private investment
Following this idea, when it comes to the economy from the perspective of aggregate demand, we talk about the presence of government expenditure and government investment
Public procurement plays a crucial role in fostering competitive markets, as highlighted by research from Nigel Caldwell, Helen Walker, and colleagues (2005) Additionally, Max Rolfs-Tam (2009) views public procurement as an essential instrument for driving innovation This underscores the significance of public procurement in enhancing both market competition and innovative practices within various sectors.
(2014), point out the role of public procurement in supply chain recovery
According to Louise Knight, Christine Harland, and their associates (2007), the public sector accounts for approximately 40 to 45 percent of spending in many developed economies, primarily focused on service provision and private sector procurement It is surprising that such a crucial component of national economies receives comparatively little attention.
2 research has been conducted on public procurement across nations and even within nations to improve procurement to deliver these benefits”
In his 2001 analysis, Khi V Thai highlighted that while public procurement is a crucial government function, it has been largely overlooked in academic education and research over the past two decades of the twentieth century.
In Vietnam, a 2012 study by the Public Procurement Agency under the Ministry of Planning and Investment highlights the significant role of public procurement in fostering economic development This process contributes to various aspects of the economy, emphasizing its importance in promoting growth and efficiency.
- Firstly, establishment of public procurement market with the connection between buyers who is government and sellers who are bidders, thereby promoting the development of industries and fields; and
- Secondly, promotion of technology transfer, experience and opportunity sharing among public procurement market participants; and
- Thirdly, encouragement of economic renovation from the centralizing and
“asking & giving” mechanism to market mechanisms; and
- The fourth, promotion of international economic integration, by opening the public procurement market
As of 2020, the public procurement market in Vietnam represented 48% of total budget revenue and 15.34% of GDP, providing significant business opportunities for 650,000 domestic enterprises This aligns with the UNICITRAL 2011 report, which indicates that procurement spending can constitute 10-20% of GDP and potentially exceed 50% of total government expenditure.
In Vietnam, the term "efficiency" in public procurement is closely linked to price reduction, which serves as a key indicator of success A public procurement package that attracts numerous bidders and achieves significant price reductions is deemed effective Reports from the Ministry of Planning and Investment reveal that the extent of price reduction varies across different ministries, sectors, and localities.
Research objective and research question
The research objective is to find out the relationship between price reduction, which is a crucial indicator of the efficiency issue of public procurement and relating factors
To clarify this object, the following questions shall be mentioned:
- What is public procurement and price reduction in public procurement?
- How is the current implementation of public procurement in Vietnam with price reduction issue?
- Which factors influencing price reduction in public procurement, and how they influence?
Finally, from the relationship between price reduction and relating factors, policy implications are recommended.
Research’s scope and methodology
Research period: From 2015 to the end of 2020
Research object: Bidding packages in the field of goods with information on the bidding process is public on the national e-procurement system
Research method: Quantitative study based on secondary data collected from the national e-procurement system.
Contributions
From 2015 to 2020, Vietnam made significant strides in public procurement implementation, focusing on a robust system of governing policies Key advancements included the adoption of online bidding processes and enhanced information disclosure through the national e-procurement system, aimed at increasing transparency and efficiency in procurement practices.
This research explores the relationship between price reduction and various factors, including the size of bidding packages, sector, procuring entity, region, number of bidders, number of envelopes in the bidding process, bidder selection methods, online bidding applications, and the duration of the bidding process.
- From analysis results, policies to improve the price reduction and efficiency of public procurement shall-be recommended
Research’s structure
This research consists of four chapters as follows:
This chapter introduces the necessity of research with background regarding public procurement, research’s question, research’s scope and methodology, and significance of the research
This chapter addresses the theoretical aspects of public procurement, examining key concepts and conducting a literature review on price reduction and internal factors It also provides an overview of the implementation of public procurement in Vietnam during the study period, highlighting the current state and offering initial insights for future expectations.
This chapter emphasizes quantitative analysis with sampling, analytical method, various regressions and findings
Chapter 4: Conclusion and policy recommendations
This chapter indicates conclusions from quantitative analysis and policy recommendations on the link with findings
THEORETICAL BASIS
Concept of public procurement
Procurement, as defined by the Vietnamese Encyclopedia (1995), is a specialized transaction method where the procurer announces the requirements and conditions for a project, allowing bidders to submit their proposed prices The procurer then selects the bidder who meets the conditions at the lowest price This method is widely used for acquiring assets and constructing both private and public works, with a particular emphasis on civil engineering projects.
The Model Law on Public Procurement by the United Nations Commission on International Trade Law (UNCITRAL) defines public procurement as the process through which public procurement agencies acquire goods, civil works, and services This comprehensive process encompasses various stages, including identifying demand, soliciting and selecting suppliers, and managing contracts with the chosen bidder.
In the book "Public Procurement: Principles, Categories and Methods", Jorge Lynch
(2013) argues public procurement as a process that includes all actions from the stage of identifying and planning for procurement request until the contract is awarded
In "Public Procurement Regulation: An Introduction" (2011), Arrow-smith Sue, Treumer Steen, and colleagues define public procurement as the government's process of acquiring essential goods and services for its functions They outline three key stages of public procurement: (i) identifying the required goods or services and the timing for procurement; (ii) selecting bidders and awarding contracts; and (iii) managing the contracts The authors also note that different systems use varying terminology for this concept, such as "government procurement" in the World Trade Organization framework and "government contracts" or "public contracts" in the United States.
In the publication “Strengthening Procurement Capacity in Developing Countries”
In 2012, the Development Assistance Committee of the Organization for Economic Cooperation and Development established a comprehensive framework for assessing public procurement systems, which encompasses four key pillars: (i) the legislative and regulatory framework, (ii) institutional framework and management capacity, (iii) procurement practices and market dynamics, and (iv) the integrity and transparency of the public procurement system.
The World Bank's "Country Procurement Assessment Review" (2019) outlines a public procurement framework comprising four key elements: the legal framework, institutional framework and capacity, procurement activities and practices, and the integrity of the procurement system This comprehensive framework serves as a foundation for establishing guidelines and benchmarking tools to evaluate the effectiveness of a nation's procurement system.
In Vietnam, public procurement is defined in Article 4 of the Law on Public Procurement No 43/2013/QH13 as the process of selecting bidders to enter contracts for consulting services, goods, civil works, and public-private partnerships, ensuring competition, fairness, transparency, and economic efficiency This definition distinguishes public procurement from private sector bidding under the Commercial Law, highlighting its specific scope within the Law on Public Procurement The process involves various stakeholders, primarily state agencies and state-owned enterprises, in the selection of bidders or investors.
Recently, the selection of investors comes into the Law on Public-private partnership Therefore, the scope of this study does not focus on investor selection but bidder selection.
The role of Public Procurement
According to the public procurement curriculum prepared by the Academy of Development Policy, public procurement has the following roles:
(i) For procuring entity – the buyer
Public procurement enables buyers to acquire essential goods and services efficiently while promoting cost savings through the dissemination of requirements via mass media This process fosters fair and transparent competition among sellers, ensuring that the principles of publicity and transparency are upheld As a result, project owners can confidently select bidders, minimizing the risk of collusion and enhancing trust in the procurement process.
Public procurement offers buyers increased consultation on goods and services, allowing procuring entities to explore new products from potential suppliers at competitive prices In a two-stage bidding process, procuring entities must outline general technical and financial requirements while inviting bidder feedback for the final bidding document Additionally, procuring entities are entitled to complimentary consultation services for preparing these bidding documents.
(ii) For bidder - the seller
In the public procurement process, procuring entities seek to acquire products that meet their requirements at the best possible price, while bidders strive to sell their goods or services at favorable prices This dynamic encourages suppliers to enhance their competitiveness by improving the quality of their offerings and developing innovative products at lower costs.
Participating in public procurement processes offers new or unknown suppliers a valuable opportunity to establish their brand and build trust with potential customers, ultimately leading to successful bidding and business growth.
Another benefit of public procurement for the bidders is the opportunity to know others and establish commercial relationships in the future
(iii) For socio – economic aspect
In addition to the perspective of sellers and buyers, public procurement plays an important role socio-economic aspect
- As mentioned, public procurement promotes economic renovation from the centralized and "asking - giving" mechanism to the market mechanism
- Secondly, it creates motion for development by enhancing equality, transparency and competition in the public procurement process
- Thirdly, through the public procurement process, compliance of entities with provisions of the law promotes transparent relationships in the society.
Bidder selection in public procurement
2.1.3.1 Type of public procurement package
According to the nature of work, there are five types of public procurement packages: civil works, consulting, non-consulting, goods, and mixed packages a Civil works package
The civil works package mandates bidders to execute tasks related to the construction and installation of civil work items and equipment This public procurement process is initiated following the approval of the design.
Goods package requires bidder to supply machinery, equipment, fuel, materials, components, spare parts, consumer products; medicines, medical supplies for healthcare facilities, industrial property copyright, intellectual property copyright c Consulting package
A consulting package entails the provision of knowledge, expertise, and skills by the consultant to the procuring entity Typical consulting services include the development of master plans, architectural designs, project management, financial management, cost estimation, bidding document preparation, bid evaluation, supervision, auditing, and training In contrast, a non-consulting service package focuses on services that do not require specialized consulting expertise.
Non-consulting service package requires the bidder to perform one or several activities including logistics, insurance, advertising or an installation that is not part of the
9 construction and installation process commissioning, training, maintenance, mapping, and services other than consulting services e Mixed package
A mixed package encompasses various project delivery methods, including engineering and procurement of equipment (EP), engineering and construction (EC), procurement of equipment and construction (PC), and engineering, procurement, and construction (EPC) Additionally, it may involve project development under a turn-key contract, integrating all aspects of engineering, procurement, and construction.
Procurement of mixed packages is beneficial for project owners who have a project concept but face constraints in fully preparing and implementing it The public procurement process is essential for selecting a performance partner, encompassing the entire project scope, including project formulation, design, supply of goods and materials, and execution of civil works.
Diagram 2.1: Types of public procurement package
2.1.3.2 Form and method of bidding selection
In Vietnam, the Law on Public Procurement outlines various bidding selection methods, including open bidding, limited bidding, shopping, appointment, direct contracting, force-account, community participation bidding, and special bidding as determined by the Prime Minister, as specified in Article 26.
Types of public procurement package
Goods package consulting service package
Law on Public Procurement Procurement of medical equipment and vaccine in time of COVID 19 are examples for special cases of bidding according to the Decision of the Prime Minister
The application of different forms of bidding selection in detail is as follows:
- Open bidding applies to the majority of procurement packages and no restriction to any bidder;
- Limited bidding applies to some bidding packages where there are few potential bidders;
- Shopping applies to purchase goods which are available in the market with standard specifications, and package value is not higher than a certain threshold;
Appointment in procurement is crucial for managing natural disasters, defense, and security-related projects It is also utilized when the package value is minimal, making the traditional bidding process inefficient.
By scope and method of bidding selection, there are six types and three groups of bidding selection as follows:
Diagram 2.2: Types of bidding selection
The bidder selection process for goods, civil works, and non-consulting services involves three key evaluation methods: lowest cost, lowest evaluated cost (considering the entire project cycle), and a combination of technical and cost-based assessments.
Types of bidding selection (by scope and method of bidding selection)
11 selection process for consulting service consists of four methods: least cost, fixed budget, quality and cost-based, and quality-based
The bidding process can be categorized into one-stage and two-stage bidding based on the details of the bidding documents In one-stage bidding, the procuring entity has a clear understanding of the requirements outlined in the documents Conversely, two-stage bidding is utilized when the procuring entity lacks clarity on these requirements, providing only general technical and financial guidelines initially Feedback from bidders is then solicited to refine the final bidding documents, which are amended accordingly before the second stage of the bidding process This two-stage approach is infrequently used and is typically reserved for large, complex, or novel projects.
The bidding process comprises one-envelope and two-envelope methods In one-envelope bidding, bidders submit both their technical and financial proposals in a single envelope Conversely, two-envelope bidding mandates that bidders submit their technical and financial proposals separately, with the procuring entity only opening the financial proposals of those who meet the technical requirements.
Application of bidder selection form is as follows:
Table 2.1: Application of bidder selection form
Description Level of completion Frequency
- Is the basic method of bidder selection;
- Invitation to bid is public so that all bidders can attend
- Be applied to packages that consist of high technical requirements or special specification so that only few bidders can satisfy;
- Bidders in the short list (usually 3-5 bidders) are eligible to bid
- Be applied to bidding packages which under the threshold specified by the Government and belong to one of the
Description Level of completion Frequency following cases:
(i) Package of simple and common non- consulting services;
(ii) Package of common goods and available in the market with standard specifications;
(iii) Simple civil works with the approval of construction drawing design
- Be applied in procurement regarding natural disasters, force majeure, security, national defense, research, and testing or,
- Package value is small (under the threshold specified by the Government) so that advertising is unnecessary
- Be applied based on the original package that was conducted efficiently and transparently and the contract was signed;
- Based on the original package and signed contract, procuring entity is allowed to purchase additional goods through direct contract
- Be applied when the procurement unit is fully capable of implementing whole package
Example: A construction company can build its own house instead of selecting a construction bidder
Bidding with the participation of community
The procurement of packages under the national target program for poverty reduction in mountainous and remote areas is aimed at benefiting local communities Small-scale packages will be awarded to local communities and groups of local workers capable of managing the projects effectively.
The World Bank's procurement guidelines for goods, services, and consultant selection align closely with the Law on Public Procurement, although there are notable differences highlighted in the accompanying table.
Table 2.2: Bidder selection form: Vietnam’s regulation and the World
Procurement method Vietnam’s regulations The World Bank’s guidelines
National competitive bidding and international competitive bidding
National bidding is the default
International bidding applies under certain conditions regulated in the Law on Public Procurement
International bidding is the default National bidding only applies under certain conditions
Limited bidding Refer to national limited bidding
Refer to international limited bidding
Shopping - The threshold for shopping under normal process is 05 billion VND (about 210,000 USD)
The shopping thresholds for a streamlined procurement process are set at 500 million VND (approximately 21,000 USD) for goods and non-consulting services, 1 billion VND for civil works, and 200 million VND (around 8,400 USD) for regular state agency activities.
The threshold is 100,000 USD for goods and is 200,000 USD for simple civil works
Direct contract Is different from appointment Be considered as one case of appointment
Public procurement process
Professor Khi V Thai (2001) outlines key components of the public procurement process, which include procurement planning, preparing and processing procurement requests, developing and reviewing bidding documents, planning for bid evaluations, awarding contracts, and preparing and signing contracts.
14 this section, the author does not mention the procedure of reviewing and approving for each step in the public procurement process
Procurement guidelines from the World Bank and ADB, as outlined by Khi V Thai, encompass several key components: procurement planning, preparation and issuance of bidding documents, bid preparation, bid evaluation, and contract award The review procedures for both institutions include prior and post-approval reviews For prior reviews, all relevant documents, such as public procurement plans and draft contracts, must receive a no-objection notice from the World Bank or ADB before the Project Management Unit (PMU) can proceed In contrast, for post-approval, the PMU is not required to obtain a no-objection from these institutions prior to approval, as these documents will instead be subject to inspection by the World Bank or ADB after completion.
Vietnam's procurement process aligns with OECD indicators, as noted by Peter Trepte and Tran Hung (2012) in the National Public Procurement System Assessment Report under OECD/DAC Baseline Indicators - Pillar I The Law on Public Procurement outlines a comprehensive process that includes: (i) planning for bidder selection, (ii) preparation for bidder selection involving the formulation of bidding documents or requests for proposals, (iii) execution of bidder selection, which encompasses advertising and issuing bidding documents, (iv) evaluation of bids or proposals, and (v) approval of contractor selection results followed by contract signing.
A critical process for bidder selection demonstrated in the following diagram:
Preparation of bidding document Bidding document appraisal
Selection of short list Procuring entity
Issuance, revision and clarification of bidding document
Establishment of specialist team, appraisal team
Bid closing and bid opening
Step 3: Bids evaluation andnegotiation Bidder ranking
Contract negotiation (first-ranked bidder get first invitation)
Submission of bidder selection result
Appraisal of bidder selection result
Approval of bidder selection result Publication of bidder selection result
Contract signing and contract management
Procuring entity Project owner and bidder
Factors influencing price reduction in public procurement
2.3.1 Concept of price reduction in public procurement
Numerous studies on public procurement highlight the significance of price reduction, albeit with varying phrasing Khi V Thai (2001) emphasizes that the main advantage of competition in public procurement is its ability to lower contract prices effectively.
In their 2005 study, Jeffrey M Keisler and William A Buehring highlight that government agencies, facing budget constraints, are under increasing pressure to lower prices while maintaining their operational effectiveness A key strategy for achieving cost reductions involves procurement activities that promote competition among suppliers, allowing government agencies to leverage the capabilities of the private sector The study estimates potential cost savings based on the competitive conditions present in the research context.
Marcos Singer, Garo - Konstantinidis, and associates (2009) emphasize that a primary objective of e-procurement is to lower public procurement costs by facilitating efficient bidding processes and encouraging a greater number of bidders.
Price reduction refers to the gap between the most competitive bidder's price and the original budget estimate A key goal of the public procurement process is to ensure that the winning bidder's price remains significantly below the ceiling budget.
In the annual public procurement report and inspection report of the Ministry of Planning and Investment, price reduction in public procurement is calculated as follows:
Price reduction rate (%) = 100 – price of successful bidder/estimated budget*100
2.3.2 Price reduction and efficiency issue in public procurement
According to research of Bea-ta Gavur-ova, David Tucek and associates (2018), and of Jan Pavel (2013), efficiency and price reduction in public procurement are the same
Qi Wang, Renjie Zhang, Junqi Liu (2020) point out three aspects of efficiency in public procurement, namely time, price, and perception
Kishor Vaidya & John Campbell (2016) argue that efficiency in public procurement consists of getting a lower price, lower expenditure for the bidding process, saving time and personnel for procurement
In Vietnam, public procurement efficiency hinges on price reduction, but it also encompasses the quality of goods and services, adherence to the procurement process, timely procurement, and the successful bidder's contract performance.
2.3.3 Factors influencing price reduction and effectiveness of public procurement
Research by Jeffrey M Keisler and William A Buehring (2005) highlights the significant impact of bidder participation on price reduction, demonstrating that the benefits peak at four bidders Their quantitative analysis considers variables such as bidder capacity and price sensitivity, suggesting that increasing the number of bidders can effectively lower costs, especially in markets with limited competition Similarly, AndréS Gómez-Lobo and Stefan Szymanski (2001) found a correlation in the UK, where a higher number of bidders is associated with reduced service prices.
In their 2020 study, Qi Wang, Renjie Zhang, and Junqi Liu analyzed 838 contracts in Chengdu, China, revealing that the price reduction in public procurement is negatively correlated with the implementation of green public procurement (GPP) Conversely, their findings indicate a positive relationship between price reduction and both the number of bidders and the significance of the price factor in the evaluation process.
In a study conducted by António Aguiar Costa, Amílcar Arantes, and Luís Valadares Tavares in 2013, it was found that online bidding did not have a significant impact on the discount rate during the bidding process, with a significance level of 5%.
A study by Ikumu Chimwani, Mike A Iravo, and Ondabu Ibrahim Tirimba (2014) explores the relationship between public procurement efficiency and key variables such as information technology, the procurement process, personnel, and information storage systems Utilizing a descriptive design, the research gathered data through interviews and questionnaires to assess these factors.
18 sample of individuals is used and contributes to the conclusion that the majority of respondents agree on the importance of all the factors studied above for public procurement efficiency
Jan Pavel and Emilia Sičáková-Beblavá (2013) highlight that employing competitive and transparent bidding processes can lower the costs of goods purchased, thereby enhancing budget efficiency in public procurement Their research emphasizes the importance of the professional competence of procuring entities in achieving procurement efficiency, noting that the use of inadequate bidding procedures can lead to a substantial rise in final prices.
2.4 Overview of implementation of public procurement in Vietnam from 2015-
2.4.1 Governing policies on public procurement
From 2015 to 2020, summary on legal documents on public procurement is as follows:
No Issuing unit Title/content
Law on public procurement No 43/2013/QH13
2 The Government Decree No 63/2014/NĐ-CP guiding the implementation of Law on public procurement on bidder selection
Decision No 17/2019/QD-TTG on regular procurement of public entities in special cases
Decision No 1402/QD-TTG on 2016 on e-procurement roadmap
Directive No 13/2017/CT-TTG on strengthening the use of domestic goods and materials in public procurement;
Directive No 47/2017/CT-TTG on rectification of public procurement
Circular No 01/2015/TT-BKHDT on Standard Bidding
No Issuing unit Title/content
Investment Document for consulting service
Circular No 03/2015/TT-BKHDT on Standard Bidding Document for civil works
Circular No 05/2015/TT-BKHDT on Standard Bidding Document for goods
Circular No 04/2017/TT-BKHDT on the conduction of e-procurement and standard bidding document for e- procurement
Circular No 11/2019/TT-BKHDT on publication of procurement information
Directive No 03/2019/CT-BKHĐT on rectification of public procurement
Other circulars on public procurement plan, inspection, and report on public procurement, bidding evaluation…
Circular No 15/2019/TT-BYT on procurement of drug in public hospitals
Circular No 14/2020/TT-BYT on procurement of medical equipment in public hospitals
Circular No 35/2016/TT-BTC on centralized procurement of public asset
Circular No 58/2016/TT-BTC on regular procurement of public entities
2.4.2 Application of online bidding and information disclosure on national e- procurement system
2.4.2.1 Road map on the application of online bidding
The advancement of information technology has made online bidding an essential trend for improving the transparency and publicity of public procurement processes A report by the Ministry of Planning and Investment highlights the implementation of online bidding, noting that prior to 2015, this practice was not widely adopted.
In 2015, online bidding transitioned from a pilot phase to an official implementation, following the introduction of Circular No 07/2015/TT-BKHDT-BTC, which regulated procurement information publication and online bidding application Initially tested in three units—Vietnam Electricity (EVN), Vietnam Posts and Telecommunications Group (VNPT), and the Hanoi People's Committee—this shift led to a significant increase in online bidding packages Consequently, the data on e-procurement for that year is relatively limited compared to subsequent years.
The national e-procurement system has expanded its capabilities to facilitate online bidding for nearly all public procurement packages, including goods, consulting services, non-consulting services, and civil works However, it excludes packages with multiple independent parts where bidders can only participate in selected sections As of 2020, the majority of public procurement packages for goods valued below a certain threshold are eligible for this online bidding process.
5 million VND (about 215,000 USD), are subject to conduct through the system Therefore, generally there is almost no special requirement for the application of online bidding in public procurement
Implementation of online bidding in the period of study is in the following table:
Table 2.4: Application of online bidding Year Application of e-bidding
2015 Pilot at EVN, VNPT and Hanoi People's Committee
In 2016, at least 20% of all packages selected through bidding were categorized as shopping, while 10% of small-scale packages utilized either open or limited bidding methods.
2017 At least 30% of total number of packages which form of bidder selection is shopping;
15% of total number of small-scale packages in which form of bidder selection is open bidding or limited bidding
At least 40% of total number of packages which form of bidder selection is shopping;
2018 30% total number of small-scale packages in which form of bidder selection is open bidding or limited bidding
2020 At least 60% of total number of packages and 25% of total number of package value of which form of bidder selection is shopping or open bidding;
100% packages which form of bidder selection is shopping or open bidding and satisfy threshold as follows:
- Not higher than 5 billion VND for goods, consulting and non- consulting service
- Not higher than 10 billion VND for civil works
2.4.2.2 Disclosure of public procurement information on the national e-procurement system
Transparency in public procurement is essential for ensuring accountability and public trust Major organizations like the World Bank and ADB, along with various national regulations, emphasize the importance of information disclosure in their procurement guidelines Additionally, transparency is a key component of procurement assessments conducted by the World Bank in its "Doing Business Report" and by the OECD in its procurement baseline indicator system.
QUANTITATIVE ANALYSIS ON FACTORS INFLUENCING
Introduction
Utilizing quantitative analysis is essential for informed decision-making, particularly in econometrics, where economists assess the influence of independent variables on a dependent variable In public policy, decision-makers aim to evaluate the effects of specific factors on outcomes through econometric models This study focuses on understanding the relationship between various elements in the public procurement process and their impact on price reduction, serving as a vital tool for policymakers.
Sampling
- Research object: Goods packages of public procurement that are organized to select bidder in Vietnam from 2015-2020
- Sample size: 1191 observations spreading over the period 2015-2020
Data is manually gathered from the National e-Procurement system, focusing on the goods sector through both online and offline bidding each year Continuous observations are recorded, ensuring that if a procuring entity has multiple similar packages, only one is collected, after which the collection process shifts to another bidding package or a different procuring entity.
Software
Data shall be processed by STATA version 13.
Analytical method
This study employs multiple linear regression, a statistical method in econometrics that establishes a mathematical relationship between a dependent variable and multiple independent variables within the research context.
The regression model in this study is: y = β 0 + β 1 x 1 + β 2 x 2 + + β 9 x 9 + u
- y is the dependent variable, refers to price reduction rate (reduct)
The independent variables in this study include package value (x1), competition appearance during the bidding process (x2), sector of procurement (x3), the application of a one-envelope system in bidding (x4), the type of procuring entity—public or enterprise (x5), the region involved (x6), the number of bidders participating (x7), the presence of e-bidding (x8), and the year the bidding process takes place (x9).
- β 1 , β2, β9 are slope parameters of x 1 to x 9 to be estimated
Name and explanation of dependent and independent variables are as follows:
Table 3.1: Variables in regression model
Symbol Variable’s name Unit/convention y Price reduction rate
Reduct (%) = 100 - successful bidder’s price/package value*100 x 1 Package value (pack.val) Million VND x 2 Dummy variable for competitive bidding x 2 = 1 for competitive bidding process
Symbol Variable’s name Unit/convention process (compt) x 2 = 0 for non- competitive bidding process x 3 Sector of procuring
In the procurement sector, a structured approach is utilized, with specific allocations for various categories: three units dedicated to drug and medical equipment, two units for electrical items, three units for informatics and telecom products, and four units for miscellaneous procurement needs Additionally, a dummy variable is implemented to represent the one-envelope bidding process.
In the context of public procurement, the bidding process can be evaluated based on several criteria For two-envelope bidding, the score is calculated as (one.env) x 4 = 0, while for one-envelope bidding, it is (one.env) x 4 = 1 The procuring entity is classified as a public unit or enterprise, with a score of (ent.unit) x 5 = 0 for public units, which include public administrative and non-business units, and a score of (ent.unit) x 5 = 1 for enterprises, encompassing state-owned and private entities engaged in procurement activities The regional classification assigns scores based on location: (region) x 6 = 1 for the North, (region) x 6 = 2 for the Central region, and (region) x 6 = 3 for the South Additionally, the number of bidders participating in the bidding process is a crucial factor in evaluating procurement outcomes.
The minutes of the bid opening indicate that there is no recorded number of bidders for offline bidding, marked as (no.bid) x 7 Additionally, for e-bidding processes, dummy variables are utilized, with (N/A) indicating offline bidding and (x 6) set to 0 for this category.
Symbol Variable’s name Unit/convention
(e-bid) x 6 = 1 for online bidding x 9 Year of bidding process
Descriptive statistic of the data set
The descriptive statistic of data set full obs is as follows:
Table 3.2: Descriptive statistic on variables
The dataset comprises 1,191 observations across 10 variables, including 6 continuous variables and 4 binary (dummy) variables that take values of 0 or 1 The variables analyzed in this study are reduct, packval, compt, sector, oneEnv, entunit, region, nobid, ebid, and year.
Explanation for each variable is in previous section
Variable Obs Mean Std Dev Min Max
The analysis of the variables reveals key statistics, including the mean, standard deviation, minimum, and maximum values For instance, the variable "packval" ranges from 10 to 486,070, with a mean of 6,634.67 Additionally, the dummy variable "compt," which takes values of 0 or 1, has a mean of 0.8320739 This mean, being greater than 0.5, indicates that competitive bidding processes are more prevalent than non-competitive ones, aligning with the regulations set forth in the Law on Public Procurement, which prioritizes open bidding.
Due to the lack of information regarding the variable Nobid, which has an N/A value for 432 offline bidding packages, the software indicates no observations for Nobid in Table No 8 Consequently, I have transferred these 432 procurement packages with N/A values to a separate dataset labeled del.NA.
Doing similar command to this data set, the descriptive statistic is:
Table 3.3: Descriptive statistic of 759 observations
Variable Obs Mean Std Dev Min Max
The descriptive statistics table includes 759 observations across all variables, showing a change from the previous analysis of 1,159 observations Consequently, the mean, standard deviation, minimum, and maximum values of the variables have been adjusted accordingly.
Regression and findings
3.6.1 Regression with all independent variables and with all observations
(i) Regression with all independent variables
For del.NA data set, with command reg reduct packval compt oneEnv entunit Region
Nobid Ebid Year, robust, we get the following result:
Table 3.4: Regression with all independent variables
In this regression with 759 observations:
- Influence of packval, compt, nobid and ebid are significant at 0.05 - level
- In contrast, influence of oneEnv, region and year are not significant, even at 0.1 level;
- For variable of entUnit, its influence is not significant at 0.05 but significant at 0.1 level;
At a significance level of 0.1, sectors 2 and 4 demonstrate a notable increase in price reductions during procurement when compared to sector 1.
R-squared value is 0.3040 and indicates the estimated model explains 30.4% of the changes of the dependent variable
(ii) Regression with full observations
Due to the N/A values in the nobid variable, the regression analysis was conducted using the full dataset of 1,191 observations, excluding the nobid variable By applying the command "reg reduct packval compt oneEnv entunit Region Ebid Year, robust" on the full observations dataset, we obtained the results as specified.
Table 3.5: Regression with all observations
In this regression with 1191 observations:
- The influence of compt, ebid, entunit is significant at 0.05 level;
- In contrast, the influence of oneEnv, region, year are not significant, even at 0.1 level P-value of pakval is higher than 0.1, but considerably lower than p-value of oneEnv, region, year
The analysis of sector variables reveals that the p-values for sectors 2 and 4 indicate a significantly greater price reduction in procurement compared to sector 1 This finding aligns with earlier regression results, which included a full set of independent variables but had fewer observations.
R-squared value is 0.1602, this indicates the estimated model explains 16.02% of the changes of the dependent variable and lowers than the R-square of model regression with all independent variables (30.4%)
When comparing the independent variable regression (Table 10) with the observation regression (Table 11), it is noteworthy that the appearance of compt is highly significant in both models; however, the coefficient value in Table 10 is negative.
Research indicates that competitive bidding typically results in lower price reductions, contrary to the prevailing view among public policymakers and existing literature, which suggests that this process actually leads to greater price reductions.
The correlation among independent variables can introduce bias in a regression model, necessitating an examination of the correlations between variable pairs In the analysis of the del.NA dataset using the command cor reduct packval compt oneEnv entunit Region Nobid Ebid Year, the results indicate significant relationships that warrant further investigation.
Table 3.6 Correlation between independent variables
(obsu9) packval Compt Sector oneEnv entUnit Region Nobid packval 1
Year 0.4441 0.1675 -0.0698 -0.499 -0.1489 -0.1284 0.2058 ebid year ebid 1 year 0.1786 1
Table 12 shows a high correlation between ebid and compt Therefore, the two variables should be not included in regression together
3.6.3 Regression with either ebid or compt
In this section, for the reason of correlation between ebid and compt, either ebid or compt shall be included in regression
Using the del.NA data set, we executed the commands "reg reduct packval compt oneEnv entunit Region Nobid Year, robust" and "reg reduct packval oneEnv entunit Region Nobid Ebid Year, robust," yielding two distinct results.
- Influence of packval, compt, nobid are significant at 0.05 level;
- In contrast, the influence of oneEnv, region, and year are not significant, even at 0.1 level;
- For the variable of entUnit, its influence is nearly significant at 0.05 level;
The analysis indicates that sectors 2 and 4 demonstrate a significant reduction in procurement prices compared to sector 1, as evidenced by their p-values in the regression model.
In the regression without compt:
- The influence of packval, ebid, nobid are significant at 0.05 level;
- In contrast, the influence of oneEnv, region, year are not significant, even at 0.1 level;
- For the variable of entUnit, its influence is not significant at 0.05 but significant at 0.1 level;
In the analysis of sector variables, the p-values for sector 2 and sector 4 indicate that procurement efforts in these sectors lead to greater price reductions, mirroring the trends observed in the overall procurement sector.
1 In addition, the R-square of the two models are nearly the same and equal to R-square in regression with both nobid and ebid
3.6.4 Overall findings about the influence of factors on price reduction
Different regression methods yield varying results, particularly in the coefficients and p-values of independent variables Notably, certain variables show consistent significance across various regressions; for instance, the influence of ebid, nobid, and compt is significant at the 0.05 level, while oneEnv, region, and year do not reach significance at the 0.1 level Detailed findings indicate the specific impact of these factors on price reduction.
Table 3.9: Findings of regressions Variable/factor Findings within study
Packval p-value and coefficient considerably change different model
With 591 observation regression, p-value is lower than 0.05 and coefficient is minus With 1191 observation regression, p-value exceeds 0.1 and coefficient is plus
Influence of pacval may be possible but the direction is still vague
Sector p –values of sector 2 and sector 4 suggest that procurement of sector 2 and sector 4 have higher price reduction in comparison with procurement in sector 1
The influence of compt is significant at the 0.05 level across all regressions, with a positive coefficient as shown in Table 13 This suggests that the implementation of competitive bidding contributes to greater price reductions.
Coefficient value of this variable in Table 13 shows that application of competitive bidding contributes 2.323321 % in price reduction
OneEnv p-value of oneEnv overtake 0.1 many times at all regressions so that the number of envelopes has no significant influence on price reduction
The entunit p-value ranges from 0.007 to 0.1, with a consistently positive coefficient across all regressions, indicating that enterprises achieve greater price reductions than public entities.
Coefficient value of entunit in Table 11 shows that the price reduction of enterprises is 2,080302 % - higher than price reduction of public entities
Region p-value highly is higher than 0.1, so that region where bidding process takes place has no significant influence on price reduction at this level
Variable/factor Findings within study
Nobid p-value = 0.000 at all regressions and its coefficient are almost plus so that we conclude that higher nobid significantly lead to higher price reduction
Coefficient value of nobid in Table 11 shows that increasing of one bidder leads to increasing of 3.140141% in price reduction
Ebid p-value = 0.000 at all regressions and its coefficient are always positive, so that we conclude that application of e-bidding significantly leads to higher price reduction
Coefficient value of ebid in Table 11 shows that application of e- bidding leads to increasing of 4.321321% in price reduction
Year p-value of year clearly exceeds 0.1 so that this variable has no significant influence on price reduction
According to M Keisler and William A Buehring (2005), an increase in the number of bidders significantly influences outcomes, particularly up to four bidders This study will analyze data sets that include both full observations and independent variables, focusing on the impact of bidder participation categorized into groups of 1 to 4 bidders and those with 4 or more bidders.
In the analysis of the dataset "nobid to 4" and "nobid from 4," sourced from either full.obs or del.NA, we utilized the command "reg reduct packval compt oneEnv entunit Region Nobid Year, robust." The results are presented in Tables 16 and 17.
Table 3.10 Regression with nobid from 1 to 4
Table 3.11: Regression with nobid from 4
Despite a lower R-squared value and fewer observations, the p-values and coefficients of independent variables in regressions with nobid ranging from 1 to 4, and nobid above 4, remain consistent with previous findings The p-value for nobid is 0.000 when it ranges from 1 to 4, and 0.001 for values higher than 4, indicating that nobid is significant at both the 0.05 and 0.01 levels A similar outcome is observed when substituting compt with ebid in the regression model.
Although regression results with the above data set help to reach some considerable findings, bias is unavoidable In detail:
CONCLUSIONS AND PUBLIC POLICY RECOMMENDATIONS
From quantitive analysis from this study, the following conclusions are provided:
- The application of competitive bidding, e-bidding and increasing of bidder are important factors to get a higher price reduction;
- In the condition that package value is built up properly, enterprises are more possible to get a higher price reduction than public enities;
- Price reduction varies by sector, for example, procurement of goods in the electrical sector is significantly leads to a higher price reduction in parallel with the health sector;
The analysis reveals that the variables of year, region, and the number of envelopes in bidding do not significantly correlate with price reduction This finding regarding the year variable contrasts with initial expectations based on the annual reports from MPI Further investigation with a larger dataset is necessary to clarify this discrepancy.
- There are an existance of the relationship between package value and the price reduction but the dimension is still vague
From quantitive analysis of this study and upon conclusions, public policy recommendation within this research are:
Competitive bidding should remain a top priority to achieve significant price reductions Therefore, proposals from project owners and procuring entities to raise the threshold for noncompetitive bidding and broaden the instances of sole source procurement should be rejected.
Implementing online bidding in public procurement can significantly enhance price reduction and improve transparency To achieve these benefits, it is essential to focus on the applications of e-bidding that lead to higher price reductions Additionally, strengthening the national e-procurement system is crucial for maximizing the effectiveness of online bidding.
The e-bidding platform is set to undergo enhancements to improve user-friendliness, drawing inspiration from popular online shopping sites like Lazada and Tiki Addressing user complaints about system usability is crucial for fostering greater engagement and encouraging the adoption of e-bidding practices.
The national e-procurement system plays a crucial role in enhancing the efficiency of public procurement processes To improve policy-making, it is essential to prioritize quantitative research and the collection of big data related to public procurement This focus will facilitate evidence-based decision-making and ensure better outcomes in procurement practices.
Increasing the number of bidders is crucial for achieving greater price reductions in bidding processes To attract more participants, it's essential to improve regulations and enhance transparency regarding bidding information Additionally, the current restrictions on purchasing bidding documents—such as unavailability or lack of responsible personnel—should be addressed and incorporated into legal frameworks.
Bidding documents must be designed to encourage participation from a wide range of bidders rather than favoring a select few To achieve this, the Ministry of Planning and Investment (MPI) should provide clearer guidelines for creating these documents and implement appropriate penalties for any barriers that restrict bidder participation For instance, procuring entities that create bidding documents limiting bidder involvement will not be held accountable for producing an alternative document.
According to finding about package value, there is an existance of the relationship between package value and price reduction but the dimension of the relation is vague
Project owners should have the flexibility to determine the size of bidding packages, ensuring that it aligns with the project's nature and the characteristics of the potential bidder market.
The study reveals that enterprises achieve greater price reductions in procurement compared to public entities, indicating that state agencies may be conducting procurement processes inefficiently This highlights the need for state agencies to streamline and expedite their procurement procedures to enhance efficiency and competitiveness.
Ensuring transparency in the bidding processes of state agencies is crucial One effective solution is to hire specialized enterprises to manage these procedures For instance, a public hospital may choose not to utilize its medical staff for bidding tasks and instead engage a procurement company to handle the acquisition of pharmaceuticals.
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