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Bernd Theilen - One of the best experts on this subject based on the ideXlab platform.

  • CONTRACT DELEGATION WITH BARGAINING
    Economic Inquiry, 2011
    Co-Authors: Bernd Theilen
    Abstract:

    I. INTRODUCTION Public procurement is a very important part of economic activity. It accounts for about 20% of gross domestic product (GDP) in the United States and 16% in the European Union (EU) countries. (1) Therefore, it is not surprising that many interest groups are at the stake whenever aspects of public procurement procedures are discussed. To limit the influence of these groups, the purpose of legislation in the United States and the European Community has been to unify public procurement procedures and restrict the discretionary power of contracting officers and agencies at lower administrative levels. The Federal Acquisition Regulation (FAR) in 2005 in the United States and directive 2004/18/EC of the European Parliament in 2004 are examples of this. One of the most important aspects in public procurement is the extent to which subcontracting is allowed. Traditionally, subcontracting has been judged negatively. For example, in construction, which amounts to a substantial part of public procurement, the FAR prevents contracts from being awarded to a single firm that supplies both design and engineering services (i.e., it requires contract centralization). However, recently most states have legislations that allow for exceptions like the use of the Design-Build Method (i.e., they allow contract decentralization). Lam, Chan, and Chan (2006) report that nowadays more than one-third of the construction projects in the United States and up to 50% in Japan use the Design-Build approach. Economic theory should explain whether this is because of the increased influence of pressure groups or if there exists an economic rational for this tendency. However, economic theory has had difficulty in explaining the superiority of subcontracting. To see this, consider a general contractor (or principal) who needs two suppliers (or agents) to realize a project. Either, he/she can contract directly both of them, or contract only one supplier and let him/her subcontract the other. Subcontracting obviously implies a loss of control over the subcontractee's contract for the general contractor. However, because he/she can always replicate the same contracts if he/she contracts directly with both suppliers, it is not easy to see the advantages of subcontracting. A common assumption in this literature is that the principal has all the bargaining power and can make a "take it or leave it" offer to the agent. Regarding public procurement this is a realistic assumption in cases in which there are many suppliers, but it fails to apply in cases in which the principal only can choose among a small number of suppliers. For example, this is the case in public procurement of defense systems, aeronautic and space equipment, or specific construction facilities such as water depuration plants, airports, or electric power plants. Although procurement in these cases is also based on fixed-price, cost-reimbursement, and incentive contracts, usually it also allows for negotiations. So, section 15.3 of FAR states that "negotiations are exchanges, in either a competitive or sole source environment, between the Government and offerors, that are undertaken with the intent of allowing the offeror to revise its proposal. These negotiations may include bargaining. Bargaining includes persuasion, alteration of assumptions and positions, give-and-take, and may apply to price, schedule, technical requirements, type of contract, or other terms of a proposed contract." This means that economic theory should take into account that contract design includes bargaining between parties at some stage of the process when contract centralization and decentralization are compared. To analyze this issue, a very stylized model is used to examine the advantages of centralized and decentralized organizations. Two agents work jointly on a project for a principal. Usually, in public procurement this is a contracting officer who represents a public agency. …

  • Monitoring Gains and Decentralization
    The B.E. Journal of Theoretical Economics, 2009
    Co-Authors: Bernd Theilen
    Abstract:

    This paper analyzes the delegation of contracting capacity in a moral hazard environment with sequential production in a project which involves a principal and two agents. The agent in charge of the final production can obtain soft information about the other agent's effort choice by investing in monitoring. I investigate the circumstances under which it is optimal for the principal to use a centralized organization in which she designs the contracts with both agents or to use a decentralized organization in which she contracts with only one agent, and delegates the power to contract with the other agent. It is shown that in this setting a decentralized organization can be superior to a centralized organization. This is because the principal is better off under monitoring and the incentives for an agent to invest in monitoring can be higher in a decentralized organization. The circumstances under which this is true are related to monitoring costs and the importance of each agent for production. The results explain the recent application of the Design-Build Method in public procurement.

  • Decentralization and the Gains from Monitoring
    2009
    Co-Authors: Bernd Theilen
    Abstract:

    This paper analyzes the delegation of contracting capacity in a moral hazard environment with sequential production in a project which involves a principal and two agents. The agent in charge of the …nal production can obtain soft information about the other agent's effort choice by investing in monitoring. I investigate the circumstances under which it is optimal for the principal to use a centralized organization in which she designs the contracts with both agents or to use a decentralized organization in which she contracts only one agent, and delegates the power to contract the other agent. It is shown that in this setting a decentralized organization can be superior to a centralized organization. This is because the principal is better off under monitoring and the incentives for an agent to invest in monitoring can be higher in a decentralized organization. The circumstances under which this is true are related to the monitoring costs and the importance of each agent for production. The results explain the recent application of the Design-Build Method in public procurement. Journal of Economic Literature Classi…cation Numbers: D23, D82, L14, L22. Keywords: Decentralization of Contracting, Monitoring, Moral Hazard.

Keith R Molenaar - One of the best experts on this subject based on the ideXlab platform.

  • Municipal Water/Wastewater Project Delivery Performance Comparison
    Journal of Management in Engineering, 2013
    Co-Authors: Jennifer S. Shane, Susan M. Bogus, Keith R Molenaar
    Abstract:

    AbstractOwners of water/wastewater facilities can choose from several project delivery Methods, including the traditional design-bid-build Method or an alternative Design-Build Method. When choosing a project delivery Method, the owner should consider both the project goals as well as the performance of different project delivery Methods. Detailed data on project delivery performance allow owners to match project goals, such as time savings, with project delivery Methods. Detailed data on project delivery performance do not currently exist for the water/wastewater sector. Through a survey of water/wastewater facility owners, data were collected on 31 Design-Build projects and sixty-nine design-bid-build projects. A statistical analysis of the data determined that schedule growth for Design-Build projects was half that of design-bid-build projects; more Design-Build projects finished at or below budget; and both project delivery Methods produced projects of comparable quality. Although this is the first st...

  • model for public sector design build project selection
    Journal of Construction Engineering and Management-asce, 1998
    Co-Authors: Keith R Molenaar, Anthony D Songer
    Abstract:

    Public sector owners are rapidly identifying new construction procurement Methods. Changing procurement laws and documented project success are encouraging owners to attempt the Design-Build Method of project procurement. Design-Build is a radical departure from the traditional design-bid-build Method. This paper reports on the analysis of 122 case studies and the resulting automated tool for public sector Design-Build project selection. Prediction models are developed for five performance criteria that correlate specific project characteristics to success. Performance criteria and associated models include budget variance, schedule variance, conformance to expectations, administrative burden, and overall user satisfaction. Project characteristics are categorized as project, owner, market, and relationship variables. Statistically significant correlations with success include scope definition, schedule definition, budget definition, project complexity, agency experience, agency staffing, owner design input, Design-Build market, Design-Builder prequalification, and Method of selection.

Mark C. Friedlander - One of the best experts on this subject based on the ideXlab platform.

  • DESIGN/BUILD SOLUTIONS
    Journal of Management in Engineering, 1998
    Co-Authors: Mark C. Friedlander
    Abstract:

    Design/build as a project delivery Method is not new. In ancient times the distinction between design and construction had not yet evolved. Early in this century, it was common for architects and engineers to be “master builders,” constructing or coordinating the construction of the structures that they had designed. The resurgence of design/build as a project delivery Method threatens to upset many of the expectations that have developed around the design/bid/build model. Private-sector owners have particularly recognized its efficiency, shortened project delivery times and single-point responsibility, all of which account for its increasing usage. Despite its growth in popularity, however, both owners and design/builders have run into obstacles in the assumptions found in the law and the private marketplace that have grown up around design/bid/build construction. Although all complex construction projects involve important legal issues, the unique legal issues arising from the design/build Method of project delivery are not overly complex. Having been involved in a large number of design/build projects in both the public and private sectors, I have found that the legal issues that are peculiar to design/build projects can be broken down into the following categories: the relationships and loyalties among the parties; the design professional’s standard of care, performance warranties; entitlement to change orders; licensing problems; insurance/bonding problems and conflicts with competitive biding laws.

Jennifer S. Shane - One of the best experts on this subject based on the ideXlab platform.

  • Municipal Water/Wastewater Project Delivery Performance Comparison
    Journal of Management in Engineering, 2013
    Co-Authors: Jennifer S. Shane, Susan M. Bogus, Keith R Molenaar
    Abstract:

    AbstractOwners of water/wastewater facilities can choose from several project delivery Methods, including the traditional design-bid-build Method or an alternative Design-Build Method. When choosing a project delivery Method, the owner should consider both the project goals as well as the performance of different project delivery Methods. Detailed data on project delivery performance allow owners to match project goals, such as time savings, with project delivery Methods. Detailed data on project delivery performance do not currently exist for the water/wastewater sector. Through a survey of water/wastewater facility owners, data were collected on 31 Design-Build projects and sixty-nine design-bid-build projects. A statistical analysis of the data determined that schedule growth for Design-Build projects was half that of design-bid-build projects; more Design-Build projects finished at or below budget; and both project delivery Methods produced projects of comparable quality. Although this is the first st...

L. Pretorius - One of the best experts on this subject based on the ideXlab platform.