The paradox of choice in public procurement

I read yesterday an interesting article on how excessive choice options stress us. The more choice we have, the more difficult it is for us to feel happy with whatever choice we take. The paradox of choice has been well established in consumer psychology (explaining why shopping at Aldi and Lidl is more satisfying than Tesco) and most of The Guardian's article touches that familiar ground. What it did not mention, however, is how the paradox of choice affects us in public procurement. It does, and in three different levels.

#1 - Too many suppliers to choose from

I have always been amazed at the preference for the restricted procedure by UK contracting authorities (the UK is the only EU Member State) where the restricted procedure is used more often than the open. If the objective is to have a better outcome (better bids), the more suppliers that can make it to the tendering stage, the more sense it makes to use the open procedure instead of the restrictive.

When talking with procurement officers I always get the same explanation(s) for the phenomenon: we want to know well who we are getting in bed with (most) andwant to reduce the transaction costs at tendering stage (some). Fair enough, but I was never entirely convinced by these explanations. While it is true that transaction costs may go down at the tendering stage, contracting authorities are trading a longer procedure instead for that benefit (and one that is more costly at the start). As for the other explanation I am not particularly convinced either, since the other 27 Member States appear to be able to have functioning procurement markets without using the restricted procedure that often.

So far I have explained this UK oddity from another angle: the fear of being caught "making a mistake" and the associated reputation loss for the officer and the institution. This is the old "no one was ever fired for buying from IBM" mantra and goes a long way to explain the phenomenon, particularly in a country where legal challenges are the exception and not the rule. But it does not take us to the bottom of the question.

However, if we bring the framework of the paradox of choice into equation the logic becomes a lot clearer. It is much more difficult for procurement officers to feel satisfied with their decisions and in turn, confident in justifying them to their superiors or the losers. After all, it is easier to justify the decision on a pool of 5 bids than 30.

But there is another element that is important here: by reducing the number of bids to analyse, compare and contrast we are reducing the cognitive load on the decision-makers. I believe this operates more at a sub-conscious level than what procurement officers realise when they argue that they want to reduce "transaction costs". At the end of they day what they are really reducing is the cognitive load of making that decision.

#2 - Too many procedures too choose from

I originally became attracted to the paradox of choice theory because of the increased variety of public procurement "procedures": open, restricted, competitive procedure with negotiation, competitive dialogue, innovation partnership, negotiated procedure, framework agreements, dynamic purchasing systems, electronic auctions and design contests are all different options to achieve the end goal of buying something.

In consequence, every time that a procurement officer is tasked with buying something, he or she will have to incur in the cognitive load of choosing out of a myriad of 10 different procurement options, all of them passive, in theory, of taking you to your goal. How to pick the best one? And how to be sure we picked the best one? And how do we justify that we picked the best one to our superiors and the losers?

I feel this problem will be particularly acute with competitive procedure with negotiation, competitive dialogue and innovation partnership: their differences are smaller than people think and can certainly lead to a lot of second guessing by procurement officers. It does not help they share most of their grounds for use.

In consequence, here's a bold prediction: in countries like the UK and France (where competitive dialogue was extensively used in the last decade), there will be no net increase in the usage of these "special procedures" (competitive dialogue, competitive procedure with negotiation and innovation partnership) and the uncertainty generated will drive people to more familiar or traditional procedures.

A secondary prediction may be that while the net number of "special procedures" being used increases, these will come from a smaller pool of contracting authorities than those which used the competitive dialogue in the past.

#3 - Too many contract to go for

The paradox of choice may also have an unintended effect on the other side of the procurement table. I have long argued for barriers to procurement to be brought down and contracts to be made more accessible to as many potential suppliers as possible to increase competition, both intra-country and cross-border.

If the increase in contract availability does happen, it may well be that due to the paradox of choice, the number of active suppliers may actually not go up as much as expected and the overall number of bids may also not rise as much as people expect it to (usually the last ditch argument against open procedures in low value contracts).

So if bids and suppliers numbers do not go up in line with the increased availability of contracts, is that because they become more selective and bid for the ones they are more confident of or that their is so much choice out there that some suppliers simply get out of the market altogether due to the paradox of choice?