Determinants of Adaptation Costs in Procurement: An Empirical Estimation on Italian Public Works Contracts

It is widely agreed that rules governing public procurement should bedesigned to achieve value for money. However, in the public works sector,‘. . . the good being procured is usually complex and hard to be exactlyspecified ex ante, . . . [and] alterations to the original project might beneeded after the contract is awarded. This may result in considerablediscrepancies between the lowest winning bid and the actual costs that areincurred by the buyer’ (Bajari et al., 2006). There is now a wide body ofliterature focusing on cost escalation during the execution of contracts andtheir estimates reveal that it can be often quite large. This article is aimed atoffering an empirical test of the determinants of adaptation costs in thepublic works procurement. Using a detailed data set on Italian publicworks contracts, we run an empirical analysis, grounded on the mainconclusions reached in the literature, to test for the main drivers ofadaptation costs.