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Negative effects of EU funding:
- Public procurement-Investment crowding out
Jiří Skuhrovec, Petr Janský, Tomáš Křehlík
1. Effect on public procurement
Research question: what effect has external source of money on buyer?
o Is there less competition?o Does fixed time constraint result in less delays?o Is there stronger wastefull behavior?o Or does strict audit cause buyer to be more conservative?
Indicators of „cautiousness“ (?):o Tender modificationso Tender cancellationso Price competition
EU funding relevance in various countries
Methodology
Data:o Procurement from national database since 2006 (80K obs.)o Cleaned data: classified by OP, sector, procedure type, bids count,
date of award.
Identification strategy:o We predict price competition, number of bidders, probability of
cancellation, modificationo We use Poisson (modifications, bids), and Probit (price criterion,
cancellation) regressiono Both overal and OP-level models are used
Tender cancellations
oMisspecified tender? Legal risks vs. deadlines
oEU funded procurements cancelled mode frequently 2010+ (ROP, VaVpI)
Price competitionoUse of price criterion
grows over time
oLegal certainty vs. Quality issues
oFinding: EU funds, tred is stronger by 10% - mostly OP ŽP, VaVpI, VK
2007 2008 2009 2010 2011 2012 2013 201420.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
Use of price competition
National sourcesEU funds
Selected results (2014)IOP OP
DopravaOP LZZ OP
VaVpIOP VK OP ŽP PRV ROP
(joint)
Price competition
20 %*** 18 %*** -32 %*** 20 %*** 19 %*** 20 %*** 11 %** 10 %***
Cancellations(2010)
5 %* 12 %* 4 %* 0 % (spikes 2012)
2 % 2 % 2 % 7 %***
Modifications 13 % 122 % *** 14 % 45 % *** - 42 %* -10 % -24 % 24 %***
Table shows differences with respect to procurements without eu funding with same subject.
Findings
o In public procurement, buyers use EU funds more conservatively than their owno Frequent cancellations and modificationso Use of price competition
Impact:o Reduction in quality, competitiono Increased overheadsSolution?
o Qualitative criteria (methodology needed)o Negotiated procedures (curse of open procedure)o Better market research, documents preparation
2. National investment crowding out
Research: How funding impacts real budget of recipient?
o Is there growth of spendings, by 100% of the funding?o How are spendings divided among spending categories?o Are national investments crowded out?
Additionality principle– structural funds should not merely replace investments done at national level. Can be measured more precisely? Level of project / recipient?
Methodology
Data:o Profit and loss sheets of 700 major cities 2010-2013o EU fund awards to cities
o Unclear year of spending
Methodology:o Spendings aggregated 2010-2013o Two resulting datasets 2010-2013:
o With overlaps (undervalues)o Without overlaps (overvalues)
o Cross section regression (robust regression to check)o We examine relation Funding-> Spending (total, investments,
personal, other)
ResultsProgramme Total Investment Other Personal
OP Environment
0.9 – 1.1*** 0.9 – 1.1*** 0 0
Regional OPs(joint)
0.8 - 1.4*** 0.8 - 1.2*** 0.1* 0
OP R&D 0 0 0 0
OP Human resources
3.4* 0 0 2.1 - 2.8**
Integrated OP 0 0 0 0
Model residuals
Outliers. Potential use in audit practice.
CityTotal expeditures
(2010-2013), mil. Kč
Predicted
expendituresResidual
Relative
error
Město Litoměřice 775.93 1104.46 -328.53 -0.42
Město Třebíč 1325.71 1584.31 -258.6 -0.2
Město Trutnov 1044.46 1302.81 -258.35 -0.25
Město Příbram 1029.38 1279.58 -250.2 -0.24
Město Raspenava 585.52 815.88 -230.36 -0.39
Conslusions
Proof of concept:o With OP Environment and regional OPs model fits well the datao Other OPs – not homogeneous, unclear impact on budget
Possible uses:o Fine tuning for concrete calls, Ops (more accurate results)o Residual controllo Redefinition of aditionality?o Spillover measurement, impact on indetness etc.
