Oversight and Efficiency in Public Projects: A Regression Discontinuity Analysis

During the execution of a public project (e.g., the construction of a hospital), should regulators continually scrutinize the contractor’s operations? Or is this behavior obstructive? In this paper we explore the causal impact of government oversight on a project’s delay time and cost overrun. To this end, we collect a sample of 30,004 projects across 70 U.S. federal agencies and 5,557 private contractors. We exploit a regulatory bylaw in federal procurement. If a project’s estimated budget exceeds a pre-established cutoff, then the project’s operations are heavily scrutinized through evaluation teams, progress reports, and expenditure approval forms. If, conversely, a project’s budget is below this cutoff, these operational checks are waived. Using a regression discontinuity design, we find that decreasing the intensity of oversight significantly decreases a project’s delay time and cost overrun. Further, our results indicate that the effectiveness of government oversight depends on (i) the contract type and (ii) the contractor’s experience.