Factors influencing price reduction in public procurement of goods in vietnam from 2015 to 2020

VIETNAM NATIONAL UNIVERSITY, HANOI
VIET NAM JAPAN UNIVERSITY

HOANG THI BINH

FACTORS INFLUENCING PRICE
REDUCTION IN PUBLIC PROCUREMENT
OF GOODS IN VIETNAM
FROM 2015 TO 2020

MASTER’S THESIS


VIETNAM NATIONAL UNIVERSITY, HANOI
VIET NAM JAPAN UNIVERSITY

HOANG THI BINH

FACTORS INFLUENCING PRICE
REDUCTION IN PUBLIC PROCUREMENT
OF GOODS IN VIETNAM
FROM 2015 TO 2020
MAJOR
CODE

: PUBLIC POLICY
: 8340402.01

SUPERVISOR:
DR. DANG QUANG VINH

Hanoi, 2021


COMMITMENT
I hereby declare that the thesis "Factors influencing price reduction in public
procurement of goods in Vietnam from 2015 to 2020” is my own research under the
supervision of Dr. Dang Quang Vinh. The data used in the thesis is truthful, the
quantitative analysis and conclusions of the thesis were not public in any other
research. The source of citation for this thesis is fully stated. I am able and willing to
take responsibility for my thesis.

Hanoi,21 July, 2021
Author

Hoang Thi Binh


ACKNOWLEDGEMENTS
During my completion of master thesis, I get many valuable encouragements,
guidance and support that help me to complete and attain knowledge and wonderful
experiences. With all my respect and gratitude, I would like to express my sincere
appreciation to:
My supervisor, Dr. Dang Quang Vinh – Lecturer of Master’s Program in Public Policy
for his enthusiastic instruction throughout my research’s process. His insightful
advices, scientific knowledge and timely support has inspired me and helped me a lot
in improving the research.
My Vietnamese and Japanese professors at Master’s Program in Public Policy,
including Dr. Nguyen Thuy Anh, Dr. Vu Hoang Linh, Dr. Phung Duc Tuan, Prof.
Kawashima Hiroichi, Prof. Fujimoto Koji, Prof. Okamoto Naohisa, for their valuable
comments, interesting courses and their attention to my master thesis progress.

I would also want to send my gratitude to Ms. Pham Thi Lan Huong, Program
Assistant of Master’s Program in Public Policy for her kind support in both academic
issues and training procedures needed.
Finally, I would like to thank my family for being a wonderful moral support that gave
me so much motivation and enthusiasm to overcome difficulties in the research
process as well as the whole master course.


TABLE OF CONTENTS
LIST OF TABLES ........................................................................................................... i
LIST OF DIAGRAMS ....................................................................................................ii
CHAPTER I. INTRODUCTION .................................................................................... 1
1.1. Necessity of research ................................................................................................ 1
1.2. Research objective and research question ................................................................ 3
1.3. Research’s scope and methodology..........................................................................3
1.4. Contributions ............................................................................................................3
1.5. Research’s structure..................................................................................................4
CHAPTER II: THEORETICAL BASIS ......................................................................... 5
2. 1. Overview of public procurement .............................................................................5
2.1.1 Concept of public procurement ............................................................................ 5
2.1.2. The role of Public Procurement .......................................................................... 6
2.1.3. Bidder selection in public procurement .............................................................. 8
2.2. Public procurement process ....................................................................................13
2.3. Factors influencing price reduction in public procurement....................................16
2.3.1 Concept of price reduction in public procurement ............................................ 16
2.3.2. Price reduction and efficiency issue in public procurement ............................. 16
2.3.3. Factors influencing price reduction and effectiveness of public procurement . 17
2.4. Overview of implementation of public procurement in Vietnam from 2015-2020
.......................................................................................................................................18
2.4.1. Governing policies on public procurement ....................................................... 18

2.4.2. Application of online bidding and information disclosure on national eprocurement system ....................................................................................................... 19
2.4.3. Overview implementation of public procurement in Vietnam from 2015 to 2020 ............. 22
CHAPTER III: QUANTITATIVE ANALYSIS ON FACTORS INFLUENCING
PRICE REDUCTION IN PUBLIC PROCUREMENT OF GOODS IN VIETNAM
FROM 2015-2020 ......................................................................................................... 24
3.1. Introduction ............................................................................................................24
3.2. Sampling .................................................................................................................24
3.3. Software ..................................................................................................................24
3.4. Analytical method ..................................................................................................24
3.5. Descriptive statistic of the data set .........................................................................27
3.6. Regression and findings ......................................................................................... 29
3.6.1.Regression with all independent variables and with all observations ........................ 29
3.6.2. Correlation between independent variables ........................................................... 32
3.6.3. Regression with either ebid or compt ..................................................................... 34
3.6.4. Overall findings about the influence of factors on price reduction ........................... 37
CHAPTER 4: CONCLUSIONS AND PUBLIC POLICY RECOMMENDATIONS.. 44
4.1.Conclusions .............................................................................................................44
4.2. Public policy recommendations .............................................................................44


REFERENCES .............................................................................................................. 47


LIST OF TABLES
Table 2.1: Application of bidder selection form…………………………………… .11
Table 2.2: Bidder selection form: Vietnam’s regulation and the World Bank’s
guidelines……………………………………………………………………………. 13
Table 2.3: Procurement legal documents……………………………………………..18
Table 2.4: Application of online bidding…………………………………………… 20
Table 2.5: The scale of public procurement market ………………………………….22

Table 2.6: Price reduction by year…………………………………………………… 22
Table 3.1: Variables in regression model……………………………………………..25
Table 3.2: Descriptive statistic on variables…………………………………………..27
Table 3.3: Descriptive statistic of 759 observations…………………………………. 28
Table 3.4: Regression with all independent variables………………………………...29
Table 3.5: Regression with all observations…………………………………………..31
Table 3.6. Correlation between independent variables……………………………….33
Table 3.7: Regression without ebid…………………………………………………...34
Table 3.8: Regression without compt……………………………………………… ...36
Table 3.9: Findings of regressions…………………………………………………….38
Table 3.10. Regression with nobid from 1 to 4……………………………………….40
Table 3.11: Regression with nobid from 4……………………………………………42

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LIST OF DIAGRAMS
Diagram 2.1: Types of public procurement package…………………………………...9
Diagram 2.2: Types of bidding selection…………………………………………..…10
Diagram 2.3: Critical bidding process…………………………………………...……15

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CHAPTER I. INTRODUCTION
1.1. Necessity of research
Government spending is indispensable for every country. The government, like every
other entity, needs expenses to maintain its existence and perform its role in society in
society.
In macroeconomics, we know that:

AD = C + Ig + Ip + G + NX
In which:
AD is aggregate demand;
C is consumption
Ig, Ip are government investment and private investment
G is government expenditure
NX is net export
Following this idea, when it comes to the economy from the perspective of aggregate
demand, we talk about the presence of government expenditure and government
investment.
In addition, many studies mention importance of public procurement. According to
Nigel Caldwell, Helen Walker and associates (2005), public procurement promotes
competitive markets. Max Rolfs-tam (2009), considers public procurement as a tool
for innovation. Carla Roberta Pereira, Martin Christopher, Andrea La-go Da Silva
(2014), point out the role of public procurement in supply chain recovery.
Louise Knight, Christine Harland and associates (2007) state “The public sector
represents about 40 to 45 per cent of many economies in the developed world in terms
of spend on providing services and procuring from the private sector.... However, it is
astonishing for such a vital, significant part of all nations’ economies that so little

1


research has been conducted on public procurement across nations and even within
nations to improve procurement to deliver these benefits”.
When reviewing the developments of public procurement in the last two decades of
the twentieth century, Khi V Thai (2001) wrote that: “Although public procurement is
considered is a major function of government [….] Public procurement has been a
neglected area of academic education and research”
In Vietnam, according to the ministerial-level research in 2012 of the Public

Procurement Agency - Ministry of Planning and Investment, public procurement plays
an important role in promoting the development of the economy. Public procurement
performs its role in the following aspects:
-

Firstly, establishment of public procurement market with the connection
between buyers who is government and sellers who are bidders, thereby
promoting the development of industries and fields; and

-

Secondly, promotion of technology transfer, experience and opportunity sharing
among public procurement market participants; and

-

Thirdly, encouragement of economic renovation from the centralizing and
“asking & giving” mechanism to market mechanisms; and

-

The fourth, promotion of international economic integration, by opening the
public procurement market.

According to 2020 data of the Ministry of Planning and Investment, with a scale of
48% of total budget revenue and 15.34% of GDP, the public procurement market
promotes and creates business opportunities for 650,000 domestic enterprises. This
figure is consistent with the description of UNICITRAL, 2011, where procurement
spending can account for 10-20% of GDP and up to 50% or even more of total
government spending.

In Vietnam, when it comes to the term “efficiency” of public procurement, the price
reduction is an indispensable indicator. A public procurement package that fascinates
many bidders and ends up with a high price reduction considered an effective public
procurement package. According to inspection reports and annual reports on public
procurement of the Ministry of Planning and Investment, the price reduction varies
among ministries, sectors, and localities.

2


1.2. Research objective and research question
The research objective is to find out the relationship between price reduction, which is
a crucial indicator of the efficiency issue of public procurement and relating factors.
To clarify this object, the following questions shall be mentioned:
-

What is public procurement and price reduction in public procurement?

-

How is the current implementation of public procurement in Vietnam with price
reduction issue?

-

Which factors influencing price reduction in public procurement, and how they
influence?

Finally, from the relationship between price reduction and relating factors, policy
implications are recommended.

1.3. Research’s scope and methodology
Research period: From 2015 to the end of 2020
Research object: Bidding packages in the field of goods with information on the
bidding process is public on the national e-procurement system.
Research method: Quantitative study based on secondary data collected from the
national e-procurement system.
1.4. Contributions
In this research:
- An overview of implementation of public procurement in Vietnam from 2015
to 2020 that consists of the system of governing policies, application of online bidding,
and information disclosure on the national e-procurement system, will be provided;
- Within the scope of research, judgment and evidence on the relationship
between price reduction, and factors such as the size of bidding package, sector,
procuring entity, region, number of participated bidders, and number of envelopes in
the bidding process, the form of bidder selection, application online bidding and time
for conduction, will be provided;
- From analysis results, policies to improve the price reduction and efficiency of
public procurement shall-be recommended.

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1.5. Research’s structure
This research consists of four chapters as follows:
Chapter 1: Introduction
This chapter introduces the necessity of research with background regarding public
procurement, research’s question, research’s scope and methodology, and significance
of the research.
Chapter 2: Theoretical basis
This chapter focuses on the theoretical issue, including concepts with literature review

on public procurement, price reduction and factors inside. In addition, an overview of
the implementation of public procurement in Vietnam in the period of study is written
to demonstrate the current statement and provide preliminary expectations.
Chapter 3: Quantitative analysis
This chapter emphasizes quantitative analysis with sampling, analytical method,
various regressions and findings.
Chapter 4: Conclusion and policy recommendations
This

chapter

indicates

conclusions

from

recommendations on the link with findings.

4

quantitative

analysis

and

policy

CHAPTER II: THEORETICAL BASIS
2. 1. Overview of public procurement
2.1.1 Concept of public procurement
According to the Vietnamese Encyclopedia (1995): “Procurement is a special
transaction method whereby the person who wants a work (procurer) announce in
advance the requirements and conditions for the construction of works so that
participated bidders inform the prices they want to receive. The procurer will choose a
bidder who accepts his condition at lower price. The procurement method applies
commonly in purchasing assets and construction of private and public works. In this
sense, procurement seems to focus on civil works than other sectors.
The Model Law on Public Procurement of the United Nations Commission on
International Trade Law (UNCITRAL) states that public procurement is purchasing of
goods, civil works, and services by a public procurement agency. In which, public
procurement is an overall process for the acquisition of goods, civil works, and
services, including all tasks from determining demand, attracting and selecting
resources, and the phase of contract to the successful bidder.
In the book "Public Procurement: Principles, Categories and Methods", Jorge Lynch
(2013) argues public procurement as a process that includes all actions from the stage
of identifying and planning for procurement request until the contract is awarded.
In the book “Public procurement regulation: an introduction” (2011), Arrow-smith
Sue, Treumer Steen and associates define public procurement is the action of the
government in purchasing necessary goods and services to perform governmental
functions. The authors consider that public procurement is a process, consisting of
three stages: (i) determining the goods or services to be procured as well as time for
procurement; (ii) Bidder selection, including contract award; and (iii) contract
management. In addition, they view that other systems use different terminology to
cover the same concept of public procurement – for example, the World Trade
Organization system refers to “government procurement” and the US system,
generally, to “government contracts” or “public contracts”.

5


In the publication “Strengthening Procurement Capacity in Developing Countries”
(2012), Development Assistance Committee of the Organization for Economic
Cooperation and Development provides a framework for evaluating the public
procurement system including four pillars. They are: (i) Legislative and regulatory
framework; (ii)Institutional framework and management capacity; (iii)Procurement
practices and market practices, and (iv)Integrity and transparency of the public
procurement system.
Similarly, according to the approach of World Bank in “Country Procurement
Assessment Review” (2019), the public procurement framework includes four
elements: (i) Legal framework; (ii) Institutional framework and capacity, (iii)
procurement activities and practices (iv) Integrity of the procurement system. This
framework provides basic guidelines and benchmarking tools for assessing the
performance of the national procurement system.
In Vietnam, definition of public procurement is regulated in Article 4 of the Law on
Public procurement No. 43/2013/QH13. In which, public procurement is the process of
selecting bidder to sign and perform a contract of consulting, non-consulting service,
goods or civil works, selection of investors to sign and perform public–private
partnership contracts, land-using project contract based on ensuring competition and
fairness, transparency and economic efficiency. To distinguish with the concept of
public procurement from bidding of the private sector under the Commercial Law, this
concept be used in conjunction with the scope of Law on Public Procurement.
Accordingly, public procurement includes activities of related parties (including
procuring entities, project owners, which are mainly state agencies and state-owned
enterprises) in the process of selecting bidder or investor.
Recently, the selection of investors comes into the Law on Public-private partnership.
Therefore, the scope of this study does not focus on investor selection but bidder
selection.

2.1.2. The role of Public Procurement
According to the public procurement curriculum prepared by the Academy of
Development Policy, public procurement has the following roles:

6


(i) For procuring entity – the buyer
Public procurement helps buyers to buy needed goods and services in the best way.
The procuring entity saves cost for finding information about products and suppliers
through posting their requirements on mass media. In addition, public procurement
creates favorable conditions for sellers to compete fairly and transparently. The
principle of publicity and transparency helps to avoid colluding and gives peace of
mind to the project owners when choosing a bidder.
For buyers, through public procurement, they get more consultation regarding goods,
services. This creates the opportunity for procuring entities to discover and to use new
products from potential suppliers at a reasonable cost. For a two-stage bidding process,
the procuring shall provide general requirements on the technical and financial issues
and asking comments of bidders for the final bidding document. In this case, the
procuring entity is entitled to free consultation service on the preparation of the
bidding document.
(ii) For bidder - the seller
In the public procurement process, while procuring entities try to buy the products that
meet the requirements at the most reasonable price, bidders aim to sell their products
or service at a desired price as much as possible. This process motivates suppliers to
maximize their competitiveness by improving quality of their goods or services, and
creating new products with lowering prices.
For new or unknown suppliers in the market, participating public procurement process
and then becoming successful bidders is good way for them to grow up and create
their brand name as well as build up trust for other customers.

Another benefit of public procurement for the bidders is the opportunity to know
others and establish commercial relationships in the future.
(iii) For socio – economic aspect
In addition to the perspective of sellers and buyers, public procurement plays an
important role socio-economic aspect.

7


- As mentioned, public procurement promotes economic renovation from the
centralized and "asking - giving" mechanism to the market mechanism.
- Secondly, it creates motion for development by enhancing equality,
transparency and competition in the public procurement process.
- Thirdly, through the public procurement process, compliance of entities with
provisions of the law promotes transparent relationships in the society.
2.1.3. Bidder selection in public procurement
2.1.3.1. Type of public procurement package
According to the nature of work, there are five types of public procurement packages:
civil works, consulting, non-consulting, goods, and mixed packages.
a. Civil works package
Civil works package requires the bidder to perform jobs in the construction of civil
works, civil work items and installation of equipment for civil works, and civil work
items. The public procurement process takes place after the design approval.
b. Goods package
Goods package requires bidder to supply machinery, equipment, fuel, materials,
components, spare parts, consumer products; medicines, medical supplies for
healthcare facilities, industrial property copyright, intellectual property copyright
c. Consulting package
Consulting package requires the consultant to provide knowledge, expertise,
experience, skills, advice and the like to the procuring entity. Examples for consulting

services are development of master plans, architectural designs, project management,
financial management, preparation of cost estimation, preparation of bidding
document, evaluation of bids, supervision, auditing, training and so on.
d. Non-consulting service package
Non-consulting service package requires the bidder to perform one or several activities
including logistics, insurance, advertising or an installation that is not part of the

8


construction and installation process commissioning, training, maintenance, mapping,
and services other than consulting services.
e. Mixed package
Mixed package includes engineering and procurement of equipment (EP), engineering
and construction (EC), procurement of equipment and construction (PC), engineering,
procurement of equipment and construction (EPC), or project development,
engineering, procurement of equipment and construction (turn-key contract).
Procurement of mixed packages is useful if the project owner has an idea for a project
but encounters limitations and cannot conduct the preparation and implementation of
the whole project. A public procurement process takes place to select a performance
partner. The object of the public procurement process is the entire project, including
the works of project formulation, design, supplying of goods, equipment, materials,
and conducting civil works.

Types of public procurement
package

Goods
package

Civil
works
package

consulting
service
package

Nonconsulting
service
package

Mixed
package

Diagram 2.1: Types of public procurement package
2.1.3.2. Form and method of bidding selection
In Vietnam, according to the Law on Public Procurement, the form of bidding
selection includes open bidding, limited bidding, shopping, appointment, direct
contracting, force-account, bidding with the participation of the community and
special bidding according to the Decision of the Prime Minister under Article 26 of the

9


Law on Public Procurement. Procurement of medical equipment and vaccine in time
of COVID 19 are examples for special cases of bidding according to the Decision of
the Prime Minister.
The application of different forms of bidding selection in detail is as follows:
-

Open bidding applies to the majority of procurement packages and no
restriction to any bidder;

-

Limited bidding applies to some bidding packages where there are few potential
bidders;

-

Shopping applies to purchase goods which are available in the market with
standard specifications, and package value is not higher than a certain
threshold;

-

Appointment applies in procurement regarding natural disasters, defense and
security and the like. In addition, appointment also applies applied when the
package value is too small and the bidding process is inefficient.

By scope and method of bidding selection, there are six types and three groups of
bidding selection as follows:

Types of bidding selection
(by scope and method of bidding selection)

National
bidding

International
bidding

Offline
bidding

Online
bidding

Dispearse
d bidding

Centralized
bidding

Diagram 2.2: Types of bidding selection
By method of bid evaluation, the bidder selection process for goods, civil works, nonconsulting service consists of three methods: lowest cost, lowest evaluated cost (or
lowest cost in the whole cycle of the project), technical and cost-based. The bidder

10


selection process for consulting service consists of four methods: least cost, fixed
budget, quality and cost-based, and quality-based.
In addition, when it comes to details of the bidding documents, the bidding process (or
bidder selection process) is divided into one-stage and two-stage bidding. In one –
stage bidding, the procuring entity is well aware of requirements in the bidding
documents. In contrast, in two-stage bidding, the procuring entity is not well aware of
requirements in the bidding documents, they barely provide general requirements on
the technical and financial issue and then ask comments of bidders for final bidding

document, bidding document shall be amended after comment of bidders for the final
version for bidding process in the second stage. Two – stage bidding rarely applies and
to a large, complicated or first - time appearing package.
Among the number of envelopes in a bid, the bidding process includes one -envelope
bidding and two - envelop bidding. In which, a one-envelope bidding requires bidders
to submit their technical proposal and financial proposal at the same envelope. In
contrast, a two - envelope bidding requires bidders to submit their technical and
financial proposal separately, and the procuring entity shall open financial proposals of
bidders who satisfy the technical requirements.
Application of bidder selection form is as follows:
Table 2.1: Application of bidder selection form
Form of
bidder
selection
Open bidding

Limited
bidding

Shopping

Description
- Is the basic method of bidder selection;
- Invitation to bid is public so that all
bidders can attend.
- Be applied to packages that consist of
high technical requirements or special
specification so that only few bidders can
satisfy;
- Bidders in the short list (usually 3-5

bidders) are eligible to bid.
- Be applied to bidding packages which
under the threshold specified by the
Government and belong to one of the

11

Level of
completion

Frequency

High

Usually

Medium

Rarely

High

Usually


Form of
bidder
selection

Description

following cases:
(i) Package of simple and common nonconsulting services;
(ii) Package of common goods and
available in the market with standard
specifications;
(iii) Simple civil works with the approval
of construction drawing design.
- Be applied in procurement regarding
natural disasters, force majeure, security,
national
defense,
research,
and
Appointment testing...or,
- Package value is small (under the
threshold specified by the Government)
so that advertising is unnecessary.
- Be applied based on the original
package that was conducted efficiently
and transparently and the contract was
signed;
Direct contract
- Based on the original package and
signed contract, procuring entity is
allowed to purchase additional goods
through direct contract.
- Be applied when the procurement unit
is fully capable of implementing whole
package.

Force-account
Example: A construction company can
build its own house instead of selecting a
construction bidder.
May be used for procurement of package
belongs to the national target program,
Bidding
poverty
reduction
program
at
with the
mountainous, remote area. In which,
participation
small-scale packages shall be awarded to
of community
local communities, groups of local
workers if they can undertake.

Level of
completion

Frequency

No
competition

Not usually

No

competition

Not usually

No
competition

Rarely

No
competition

Rarely

Resource: Author’s compilation

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The World Bank’s guidelines for procurement of goods and services and for the
selection of consultants mention similar procurement as listed in the Law on Public
procurement. Some differences are in the following table:
Table 2.2: Bidder selection form: Vietnam’s regulation and the World
Bank’s guidelines
Procurement
method
National competitive
bidding and
international
competitive bidding

Limited bidding
Shopping

Direct contract

Vietnam’s regulations
National bidding is the default.
International bidding applies
under
certain
conditions
regulated in the Law on Public
Procurement.
Refer to national limited
bidding.
- The threshold for shopping
under normal process is 05
billion VND (about 210,000
USD)
- The thresholds for shopping
under shortened process is 500
million VND (about 21,000
USD) for goods and nonconsulting service; 1 billion
VND for civil works; 200
million VND (about 8,400 USD)
procurement serving regular
activity of state agency.
Is different from appointment

The World Bank’s

guidelines
International bidding is the
default. National bidding only
applies
under
certain
conditions.
Refer to international limited
bidding.
The threshold is 100,000 USD
for goods and is 200,000 USD
for simple civil works.

Be considered as one case of
appointment.
Resource: Author’s compilation

2.2. Public procurement process
According to Professor Khi V Thai (2001), the public procurement process includes
the following issues: (i) Procurement planning, (ii) Prepare and process requests for
procurement, (iii) Development and review bidding documents, (iv) Planning for
evaluation of bids, (vi) Contract awarding, (vi) Contract preparation and signing. In

13


this section, the author does not mention the procedure of reviewing and approving for
each step in the public procurement process.
Although the use of terminology varies, procurement guidelines of both World Bank
and ADB include contents as described by Khi V Thai, these are: (i) Procurement

planning; (ii) Preparation and issuance of bidding documents, (iii) Preparation of Bids,
(iv) Evaluation of Bids and (v) Contract Award. Procedure on reviewing of WB and
ADB include prior reviewing and post reviewing. Accordingly, for prior reviewing,
each content (for example, public procurement plan, bidding documents, contractor
selection results, the draft of contracts, etc.) must receive no objection from WB/ADB
before approval of the Project Management Unit. For post-approval, PMU is not
responsible to obtain no objection from WB/ADB before its approval, and instead,
these items are subject to inspection of WB/ADB upon completion.
For Vietnam's procurement process, according to Peter Trepte and Tran Hung (2012),
in National Public Procurement System Assessment Report under OECD/DAC
Baseline Indicators - Pillar I, many aspects of procurement regulation of Vietnam are
consistent with the OECD indicators. According to the Law on Public Procurement,
public procurement process includes: (i) Planning for bidder selection, (ii)Preparation
for bidder selection, including formulation of bidding documents or request for
proposals, (iii) Performance of bidder selection, including advertising, issuing bidding
documents, bids or proposals receipt, (iv) Evaluation of bids or and proposals, (v)
Approval of contractor selection results and contract signing.
A critical process for bidder selection demonstrated in the following diagram:

14


Selection of short list
Step1:
Preparation

Procuring entity

Preparation of bidding document

Procuring entity

Bidding document appraisal

Appraisal team

Bidding document approval

Project owner

Bidding invitation
Issuance, revision and clarification of
bidding document
Step 2:
Performance of
bidder selection

Bids receipt

Procuring
entity

Establishment of specialist team, appraisal
team
Bid closing and bid opening

Bid evaluation
Step 3: Bids
evaluation
andnegotiation

Step 4: Bidder
selection result

Procurement
specialist
team

Bidder ranking

Contract negotiation
(first-ranked bidder get first invitation)

Procuring
entity and
bidder

Submission of bidder selection result

Procuring entity

Appraisal of bidder selection result

Appraisal team

Approval of bidder selection result

Project owner

Publication of bidder selection result

Procuring entity

Finalization of contract
Step 5: Contract
Finalization and
signing

Procuring entity
Contract signing and contract management

Diagram 2.3: Critical bidding process

15

Project owner
and bidder


2.3. Factors influencing price reduction in public procurement
2.3.1 Concept of price reduction in public procurement
The issue of price reduction in public procurement mentioned in many studies on
public procurement, but the way of wording is different. Khi V Thai (2001) argues that
the primary benefit of competition in public procurement is demonstrated in reducing
contract prices.
Jeffrey M. Keisler and William A. Buehring (2005) show that with budget constraints,
government agencies are increasing pressure to reduce prices without affecting their
work. An important mechanism for cutting costs is procurement activities that
facilitate competition between suppliers and from that government agencies benefit
from the inherent capacity of the private sector. In this study, estimation of cost

savings was determined according to competitive conditions in the research context.
Marcos Singer, Garo - Konstantinidis and associates (2009) argue that one of the goals
of e-procurement is to reduce public procurement costs, through performing effective
bidding and increasing the number of bidders.
Although the wording may be different, it is understood that price reduction is the
difference between the price of the most competitive bidder and the original estimation
or ceiling budget. One of the objectives of the public procurement process is to keep
the price offered by the winning bidder as far from the ceiling budget as possible.
In the annual public procurement report and inspection report of the Ministry of
Planning and Investment, price reduction in public procurement is calculated as
follows:
Price reduction rate (%) = 100 – price of successful bidder/estimated budget*100
2.3.2. Price reduction and efficiency issue in public procurement
According to research of Bea-ta Gavur-ova, David Tucek and associates (2018), and of
Jan Pavel (2013), efficiency and price reduction in public procurement are the same.
Qi Wang, Renjie Zhang, Junqi Liu (2020) point out three aspects of efficiency in
public procurement, namely time, price, and perception.

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Kishor Vaidya & John Campbell (2016) argue that efficiency in public procurement
consists of getting a lower price, lower expenditure for the bidding process, saving
time and personnel for procurement.
In Vietnam, when it comes to efficiency in public procurement, the price reduction is
an indispensable element. Besides, efficiency also includes another issue: quality of
goods and services, compliance with the procurement process, time of procurement,
and contract performance of the successful bidder.
2.3.3. Factors influencing price reduction and effectiveness of public procurement
Jeffrey M. Keisler and William A. Buehring (2005) research on the relation between

the number of participated bidders and the price reduction. From a quantitative
analysis with four variables including the number of bidders, total bidder’s capacity,
price sensitivity, cost structure, the author argues that an increase in the number of
bidders has a significant impact until reaching 4 bidders.

Where there are few

potential bidders in the market, subsidizing for more bidders is a way to reduce cost. In
addition, AndréS GóMez-Lobo & Stefan Szymanski (2001) show a relationship
between price and number of bidders in the UK, where a higher number of bidders is
related to a lower price of the service.
Qi Wang, Renjie Zhang, Junqi Liu (2020) give similar finding about the number of
bidders. In their research, through data analysis by regression method for 838 contracts
in Chengdu city, China, these authors point out that the price reduction of public
procurement is negatively related to the implementation of green public procurement
(GPP) but is positively related to the number of bidders and the weight of the price
factor in the evaluation method.
António Aguiar Costa, Amílcar Arantes, Luís Valadares Tavares (2013), through the
interview method, determined that the impact of online bidding on the discount rate in
the bidding was not significant at 5%.
Ikumu Chimwani, Mike A. Iravo, Ondabu Ibrahim Tirimba (2014) show the
relationship between public procurement efficiency and variables of IT, procurement
process, personnel, and information storage system. In this study, a descriptive design,
which collected information by interviewing or administering questionnaires to a

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