Public procurement failure: The role of transaction costs and government capacity in procurement cancellations

Abstract

Public management research contains little analysis on procurement cancellations – i.e. when contracts fail to make it through procurement, resulting in termination during the pre-award tender phase. Combining theoretical perspectives on administrative capacity and transaction costs, we investigate both the propensity and reasons for public procurement cancellations. Drawing on a unique dataset of 5,558 local government contracts in Denmark, we find the likelihood of cancellation is greater for highly asset-specific investments and lower when governments have more administrative capacity. Since lack of competition is the main reason for these cancellations, public buyers should focus on capacity building and engaging market suppliers.