Subcontracting Requirements and the Cost of Government Procurement

Rosa, Benjamin (2020): Subcontracting Requirements and the Cost of Government Procurement.

Abstract

Government procurement auctions can be subject to policies that specify, as a percentage of the total project, a subcontracting requirement for the utilization of historically disadvantaged firms. This paper studies how these subcontracting policies affect auction outcomes using administrative data from New Mexico’s Disadvantaged Business Enterprise (DBE) program. Through the use of a procurement auction model with endogenous subcontracting, I show that subcontracting requirements need not correspond to higher procurement costs – even when disadvantaged firms are more costly. I find small differences in procurement costs as a result of New Mexico’s current policy.

• Item Type: MPRA Paper
• Language: English
• Keywords: Procurement, Subcontracting, DBE Goals
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design > D44 - Auctions; H - Public Economics > H7 - State and Local Government ; Intergovernmental Relations > H76 - State and Local Government: Other Expenditure Categories; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R4 - Transportation Economics > R42 - Government and Private Investment Analysis ; Road Maintenance ; Transportation Planning

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