This study aims to review Korea’s bidding systems for public projects focusing on the lowest bid and turnkey/alternative methods, which are the country’s primary bidding methods for large scale public projects, and to draw implications for further discussions on the effectiveness of diverse bidding systems.
Analysis, based on the Public Procurement Service data, of how different bidding systems affect competition in bidding for public projects, especially in terms of the bid price rate, shows that a typical public project attracted 301 bidders on average with the average bid price rate standing at 87.42% and the weighted average bid price rate at 75.13%. This indicates that the higher the standard price of a project, the lower the bid price rate.
An empirical analysis focusing on the lowest bid method found that a higher standard price leads to a lower bid price rate, and that the more bidders there are, the lower the bid price rate becomes due to heightened competition. The average bid price rate was 90.29% for the 484 projects that adopted either turnkey or alternative bidding systems. The 120 projects that used an alternative system had an average bid price rate of 84.89%, while the remaining 364 projects with turnkey systems had a rate of 91.97%. The average number of bidders for the 18 turnkey/alternative projects for which the number of bidders could be checked marked as low as 2.94, contrasting sharply with the lowest bid projects.
The relatively lower bid price rate of turnkey/alternative projects compared to lowest bid projects can be attributed to the difference in the degree of competition under the two systems, as well as differences among the institutions themselves. The lowest bid projects worth more than 100 billion won showed the average number of bidders to be 33.75 and the average bid price rate to be 61.18%, indicating a significant divergence from turnkey/alternative projects.
With private projects, competition among bidders occurred only for 61 (40%) out of the 154 projects studied. The average number of bidders stood at 1.88, which fell short of the minimum required rate of two, and the average bid price rate was 90%.
Under the lowest bid method, competition among bidders led to significant price competition, which was reflected in the bid price rate. On the contrary, for turnkey/alternative systems, there is significant room for competition to drive bid price rates down, even when taking into account procedural complexity or technical peculiarity. For private projects, effective competition is occurring for less than half the total projects. It is expected, however, that promoting competition among private businesses will continuously drive down the average bid price rate, which currently stands at nearly 90%.
공공투자사업의 입낙찰 자료 연구(Korea’s public project bidding systems)
|Series Title; No||정책연구시리즈|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < General|
|Holding||KDI; KDI School|