"When you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot express it in numbers, your knowledge is of a meagre and unsatisfactory kind; it may be the beginning of knowledge, but you have scarcely, in your thoughts, advanced to the stage of science, whatever the matter may be."
Lord Kelvin

CRCB-WP/2017:1

September  27st  2017

Tóth, István János – Hajdu, Miklós: Versenyerősség, társadalmi veszteségek és a 25 millió forintos értékhatár rejtélye. 2009-2016 közötti magyar közbeszerzések statisztikai vizsgálata / Intensity of competition, social loss and the enigma of 25 million HUF threshold. Statistical analysis of Hungarian public procurement in the period of 2009-2016. Working Paper Series: CRCB-WP/2017:12.

In this paper, we present evidence on some unwanted and unexpected effects of the regulation of thresholds in Hungarian public procurement. The change of Hungarian Public Procurement Law in 2011 (Act no. CVIII. of 2011.) established a new procedure type with low transparency which can be used only below certain threshold (25 million forints). This law provides the issuers with the opportunity to choose between the new procedure type and the open procedure. This policy was not based on any impact assessment study. In the analysis, we use the data of 138.743 Hungarian public tenders in the period of 2009-2016. First, we test the price distortion using the Benford law with first two-digit test and then we analyse the relationships amongst price distortion and several indicators of intensity of competition and corruption risks. To test these links, we use net contract values. We calculated the direct social loss for every tender and we checked the impact of price distortion on the weight of social losses as well. The results confirm the phenomenon of price distortion related to the threshold of 25 million HUF in service sector during 2011-2015. The threshold created a good opportunity for issuers and winners to avoid open public procurement. The results also confirm that this distortive behaviour of issuers and winners occurs with lower intensity of competition and higher level of corruption risks. Consequently, the weight of direct social losses is significantly higher in tenders with net contract value directly below the threshold analysed than in other tenders. Accordingly we point out the negative social effect of the new regulation of 2011. Finally our results underline the importance of ex ante and ex post impact assessment studies in the economic policy decisions.

( Paper in Hungarian, PDF)