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The Costs of Secrecy: Economic Arguments for Transparency in Public Procurement

by Michael Karanicolas

 
This report examines data from three selected procurement systems to
demonstrate the practical benefits of openness in public contracting, and
specifically to demonstrate that the adoption of open contracting leads to more
competitive procurement processes, and ultimately to cost-savings and gains in
efficiency. While the heavily contextual nature of pricing and procurement
processes make causation difficult to prove, the trend around the world among
countries that have incorporated greater openness into their contracting schemes
suggests that there is indeed a relationship between openness and
competitiveness, and that open contracting has a tendency to lower prices paid. In
particular, analysis of contracting data from three robust open procurement
systems reveals significant increases in competition and in contracting diversity
following the systems’ adoption. Although basic economics suggests that
increased competition should decrease prices, this impact is also supported by
analysis of indicators such as whether contracts were awarded for less than their
estimated budget, as well as the decline in prices for relatively stable procurement
categories. In some instances, these savings can be tracked in the hundreds of
millions or billions of dollars. Together with the relatively modest costs of establishing
an effective open contracting system, these research findings present
a convincing case for why transparency in procurement makes sound fiscal sense.

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