Easing renegotiation rules in public procurement: Evidence from a policy reform

Abstract

Public procurement contracts require frequent renegotiation. Exploiting a natural experiment induced by the implementation of an EU policy in the Czech Republic, we examine the effect of easing renegotiation rules on the outcomes of public procurement. We document that the policy decreased winning bids but did not change the final price, as post-award renegotiations offset the initial bid reductions. We find no evidence of a decline in the quality of the delivered procurement projects. We rationalize our findings using a stylized theoretical model.