Researchers: Possible to improve public procurement by means of a supplier rating system

The legal framework of public procurement contributes to uncertainty regarding the quality of future deliveries. One way of addressing this problem is to introduce an open system for rating suppliers, according to four researchers in a new SNS report.

SNS Research Brief 103. Enhancing the Efficiency in Public Procurement – Supplier Rating Systems 34.4 KB PDF

In public procurement, procuring authorities are typically not to take the previous performance of suppliers into consideration when allocating contracts. This situation contributes to unnecessarily low levels of quality, according to Sofia Lundberg, Malin Arve, Mats Bergman and Lars Henriksson in the SNS report Enhancing the Efficiency in Public Procurement: Supplier Rating Systems.

“Even substandard suppliers may on paper seem good and be able to meet the set criteria. If they then deliver poor products or services or perhaps even do something illegal, the buyers end up in a difficult situation. Once a contract is signed, it is complicated to terminate it or claim compensation,” according to Sofia Lundberg, professor of economics.

The researchers go on to argue that similar to how private consumers post reviews online, the public sector should be able to rate suppliers in an open system. This would encourage suppliers to maintain a high level of quality as shortcomings would impair their chances of winning new contracts.

“We highlighted this possibility already in the SNS Economic Policy Council Report 2022. We have proceeded and examined the possibilities of introducing a rating system in practice. And we cannot see any significant legal obstacles in this regard,” says Lars Henriksson, professor of law.

Rating suppliers, the researchers argue, also opens up for follow-up and feedback of a kind not possible today. They also argue that a rating system could make it easier for small and medium-sized providers to submit tenders in public procurement.

“By having good ratings from previous contracts, smaller actors could compete for public contracts without having to engage in any massive and expensive processes to demonstrate their competence,” according to Mats Bergman, professor of economics.

Furthermore, according to the researchers, having access to open information on how suppliers have behaved previously, public procurements could also attract more serious actors and discourage dishonest actors or those engaged in financial crime.

“A rating system could not only improve the level of quality but also contribute to a healthier public procurement market. We show that this is possible,” says Malin Arve, professor at the Norwegian School of Economics.

About the report

The report Enhancing the Efficiency in Public Procurement: Supplier Rating Systems constitutes a follow-up to the  , in which the researchers highlighted a number of problems with regard to how public procurement is carried out while also proposing a rating system for suppliers. They have subsequently analyzed how such a system might work and whether there are any legal obstacles in terms of introducing such a system.

About the authors

Sofia Lundberg is a professor of economics at the Umeå School of Business, Economics and Statistics, Umeå University.

Malin Arve is a professor of business and management science at the Norwegian School of Economics (NHH) in Bergen.

Mats Bergman is a professor of economics at the Umeå School of Business, Economics and Statistics, Umeå University.

Lars Henriksson is a professor of law at the Stockholm School of Economics.