Boom in Construction Makes Public Construction Projects More Expensive

03.09.2019

Current Article in WIFO-Monatsberichte

In a current article the two WIFO economists Michael Klien and Werner Hölzl have investigated how strongly public sector clients experience the effects of the construction boom in Austria. The result: less competition for public contracts leads to increased bid prices, which makes cost excesses more likely.

"In the study, we show that the current construction boom is reflected almost in mirror image in less competition for public contracts. This also has an effect on prices – for example, the original cost estimate is often exceeded", Klien explained to the Austria Press Agency (APA).

Accordingly, the number of bids per invitation to tender has fallen noticeably since 2015. On average, the number of bids fell by 25 percent between 2015 and 2018 – from 6 to 4.5. In individual construction segments such as underground pipeline construction and civil engineering, the number of bids per tender has even halved since 2015. In order to avoid high construction costs, public-sector clients should therefore keep an eye on construction activity.

The WIFO researchers used unconventional data for the study. They evaluated the EU database Tenders Electronic Daily (TED), in which public works contracts worth 5.5 million € or more tendered publicly. "To make this data usable, we have searched and filtered several hundred thousand individual tenders and extracted the relevant information", says Klien. Statistical smoothing procedures were then used to create time series for the development of bids and award prices.

A comparison of the years 2006 to 2018 shows, according to the study, that the participation of construction companies in public tenders is influenced by the economic situation. Conversely, the data can also be used as a timely economic indicator for the construction industry. With the increasing availability of public procurement data – since 1 March 2019, Austrian public procurement authorities have also had to publish sub-threshold contracts starting at 50,000 € – new possibilities for economists are opening up for analysis.
 

Publications

Öffentliche Ausschreibungen und Konjunktur. Eine Analyse mit unkonventionellen Daten für die österreichische Bauwirtschaft (Public Procurement and the Economic Cycle. An Analysis of Unconventional Data for the Austrian Construction Industry)
WIFO-Monatsberichte, 2019, 92(8), pp.609-618
Online since: 23.08.2019 0:00
 
Die österreichische Bauwirtschaft befand sich 2018 in einer Hochkonjunkturphase. Die ausgezeichnete Konjunkturlage schlug sich in einer überdurchschnittlichen Kapazitätsauslastung nieder, die sich auch zunehmend in einem Anstieg der Baupreise spiegelte. Vor diesem Hintergrund ist der Einfluss der Baukonjunktur auf Zahl und Preise von Angeboten bei öffentlichen Ausschreibungen von erheblichem Interesse. Für die Untersuchung wurden mit Web Scraping und Text Parsing verarbeitete Ausschreibungsdaten zu einem reichhaltigen Mikrodatensatz zu öffentlichen Bauvergaben in den Jahren 2006 bis 2018 in Österreich zusammengestellt, der eine zusätzliche zeitnah verfügbare Datenquelle für die Analyse ökonomische Zusammenhänge bietet. Wie die Ergebnisse zeigen, geht in Phasen der Hochkonjunktur eine Abnahme der durchschnittlichen Zahl der Angebote pro Ausschreibung mit höheren Vergabepreisen einher.
Please contact

Michael Klien

Research groups: Macroeconomics and European Economic PolicyStructural Change and Regional Development

Werner Hölzl

Research groups: Industrial Economics, Innovation and International Competition
© Michele Bitetto/Unsplash
© Michele Bitetto/Unsplash