THE EXTENDED ANTI-CORRUPTION EXPERTISE:

PUBLIC PROCUREMENT AND PUBLIC-PRIVATE

PARTNERSHIP CASES
Andrei Ivanov and Irina Berezinets
ABSTRACT. From the point of view of the agency model,
anti-corruption expertise () is based on the
assumptions of bona fides of the principal and mala fides
of the agent. In Russia, the restoration of public
procurement and PPP takes place in time of development
of the regulatory impact assessment institute, and the
quality of the proposed regulation is in question. The
paper suggests to complete the traditional ACE aimed at
the identification and elimination of the regulations
provisions, which opens up opportunities for corruption or,
more broadly, mala fide behavior of law enforcer with
preliminary assessment of the quality of the proposed
regulation (or principal bona fides identification). The
algorithm of the extended ACE is developed and applied
to the Highest bid Lowest bid and Linear scoring rules.
Some necessary conditions of applying the rules are
defined. The case of procurement of St. Petersburg
healthcare organizations after the introduction the Linear
scoring rules without threshold are discussed.
Keywords:
public
procurement;
corruption;
anticorruption expertise; the Principal-agent model; scoring
rules.
1. INTRODUCTION
The functions of a State involve the provision of
various services to the population in areas such as health,
education, utilities, etc. In this case, any society, first and
foremost, democratic, in varying degrees, exerts pressure
on the State, demanding higher quality, range and
quantity of such services and/or reducing the cost of their
provision.
Around since the early 80-ies of the last century,
countries, where such pressure was in a greater degree,
began to implement a variety of tools improving the
efficiency and quality of provided services, including:
decentralization, performance auditing, contracting out,
and so on (Gruening, 2001, p. 2).
By the mid-1990s this kind of policy was formed under
the name of New Public Management (hereafter NPM)
(Dunsire, 1995, 21). It is considered that the new public
management grew from the practice of public sector

reform a number of English-speaking countries (New Zealand, Australia, Great Britain), in

the 1980s., has gained wide popularity in the United States after the publication of the
book D. Osborne and T. Gaebler (Osborne & Gaebler, 1993), and then became a common
way to solve the problems of public governance in most OECD countries (OECD, 1995).
On the one hand, NPM tools have focused on the introduction of competition in the
provision of public services, and on the other, gave rise to various forms of collaboration
between the public and the private sector in the creation of infrastructure and the
provision of services on its basis to the population. For this kind of collaboration
gradually, beginning from the Great Britain, stuck title public-private partnership (English
& Skellern, 2005, 7).
In the Russian Federation (hereafter RF), like other countries with emerging
economics, market reforms have created such political and economic conditions in which
the tools of NPM had become in demand. In particular, great efforts have been directed at
the restoration of institutions which were not used in the Soviet time (1917 1991): 1
public procurement and public-private partnership (hereafter PPP).
The introduction of NPM tools occurred in the context of intense economic reforms,
and was objectively accompanied by growth of corruption (Huntington, 1968, 59). In the
public procurement area the government was concerned about the increasing level of
corruption and it was reflected, in particular, in the title of Presidential Decree # 826,
which was the basis of the public procurement regulation system of the RF in the period
1997-2006: On urgent arrangements to prevent corruption and budget cuts in the
organization of purchasing goods for public needs. 2 However, the content of the decree
was in line with the main recommendations of the Model Law on Procurement of Goods,
Construction and Services (hereafter Model Law).
On the other hand, the development of public procurement had created a new area for
corrupt behavior, and formed specific public procurement corruption practice of
kickbacks: public buyer3 bounded competition in the tender, after that paid to the preselected winner the inflated price, and, finally, shared with the latter his surplus.
In those time the modern public procurement policy, in which the emphasis is on
combating the corrupt behavior, has been formed. According the policy the Legislator
developed the Law on Placement of Orders for Supplying Goods, Executing Works, and
Providing Services for State and Municipal Needs (Federal Law #94-FL or PPL-1), which
came into force on 01.01.2006. The Law was aimed at limiting the discretionary power of
contracting authorities, preventing them from rent-seeking behavior and strengthening
the institutions or, other words, was aimed at preventing the necessary conditions for
corrupt behavior (Aidt, 2003, F633).
In order to limit the discretionary power of the contracting authorities the Law
introduced auction as the primary procurement method. There is an essential difference
between Russian and foreign interpretation of term auction. There are no scoring
auctions in Russia; all auctions have the single awarding criterion the price. From four
common types of auctions (McAfee & McMillan, 1987, 702) the Russian legislator
prescribed the applying of the English auction for any contracts, and first-price sealed-bid
auction for small ones. The auctions had been originally introduced in the live outcry
form, but later, when the buyers faced with a lot of cases of mala fides of suppliers, the
live auctions were substituted with e-auctions. In turn, the sealed-bid procurement

procedure with two or more awarding criteria, including price, is called contest in RF. It is
a terminology trap because the same method can be called auction in the papers of
foreign authors (Che, 1993, 669; Asker & Cantillon, 2008, 69-70).
In contrary to Model Law recommendations, Russian public procurement policy
promotes auctions and tries to limit contests application. The auction is mandatory for
purchasing of homogeneous goods every time and for differentiated ones sometimes,
the contests can be used for purchasing of differentiated goods, which have not been
included into the special Auction list.
Despite the fact that the issue of the effectiveness of the PPL-1 has been on the
political agenda since its enactment, and even earlier, a number of new corruption cases
made it impossible to change public procurement policy towards the empowerment of
contracting authorities. Accordingly, the next Russian public procurement Law Federal
Law "On the contract system in the procurement of goods, works and services for state
and municipal needs" (Federal Law #44-FL or PPL-2), which came into force on
01.01.2014, still considers auction as the main procurement method.
Despite the fact that, as it was mentioned above, rapid economic changes are always
accompanied by the growth of corruption, there is a question about the quality of anticorruption expertise of legal acts in the RF.
In the hierarchy of legal acts, the effect of which is aimed at combating corruption, the
highest level document is the United Nations Convention against Corruption, adopted by
the resolution 58/4 of the General Assembly on 31 October 2003. Article 5, paragraph 3
of this document lays the international legal framework for anti-corruption expertise:
Each State Party shall endeavour to periodically evaluate relevant legal instruments and
administrative measures with a view to determining their adequacy to prevent and fight
corruption.
At the level of RF, the cornerstone documents regulating the conduct of this kind of
expertise are the Federal Law #172-FL On anti-corruption expertise of legal acts and
drafts of normative legal acts (hereafter 172-FL) and the Decree of the Government of
the RF 96 with the same title, which approved the rules and techniques of anticorruption expertise (hereafter ACE).
In accordance with Federal law, the ACE of normative legal acts and drafts of
normative legal acts carried out in order to identify factors, which favor the corrupt
behavior of agents, and their subsequent elimination. These factors are the provisions of
normative acts (draft laws and regulations), which establish for the law enforcer
unreasonably wide margin of appreciation, or the possibility of unjustified use of
exceptions to the general rule, as well as provisions dealing with uncertain, intractable,
and (or) the onerous requirements for citizens and organizations and those thus creating
conditions for corruption (Article 1). This approach to the ACE we will call traditional anticorruption expertise or TACE.
From the cited above article, it follows that the subject of TACE is the identification and
elimination of the regulations provisions, which opens up opportunities for corruption or,
more broadly, mala fide behavior of law enforcer (we will provide an exact definition in
the Section 2). Thus, the problem of assessing the quality of the proposed regulation (or,
other words, the regulators bona fides identification), in the sense that whether the

regulation really enables the agents to choose the best alternative for society, currently
remains outside the scope of TACE.
On the other hand, if we consider the Regulatory Impact Assessment (hereafter RIA)
definition: RIA is a method of policy analysis, which is intended to assist policy-makers in
the design, implementation and monitoring of improvements to regulatory systems, by
providing a methodology for assessing the likely consequences of proposed regulation
and the actual consequences of existing regulations (Regulatory Impact Assessment,
2007, 1), we can conclude that the ACE is the partial case of RIA. However, in contrary to
the ACE, the RIA, which is tightly connected with the Caldor-Hicks conception, is aimed at
evaluation of the proposed regulation quality in general (Smith, 2006, 733-734) and,
correspondingly, at the assessment whether the regulation developer is bona fide or not.
In the paper, we combine the approaches of RIA and TACE to develop a new algorithm
of, so to speak, extended anti-corruption expertise. To do that, we attract the principalagent model and modify it for the examination of public sector issues. In the model the
principal (government, legislators), who is responsible for developing of regulation policy
and rules, is seen as an agent hired by the basic principal (Society) for achieving of
socially significant goals. Accordingly, the regulation quality is determined by the
affordability for agents the alternatives, which are optimal for the society, and the
existence of the system of incentives for that choice.
Thus, the paper suggests extended ACE (EACE), which starts from the identification of
principal's bona fides and, in the case of his mala fides, moves on to TACE only after the
necessary amendments into the regulation rules or regulation policy. In the paper, we will
test the constructed algorithm by performing the anti-corruption expertise of different
scoring rules, which have been applied in the Russian public procurement and publicprivate partnership contests.
At the modern stage of Russian public procurement system development (2006
current) three scoring rules have been applied to award contracts in three time periods:
Highest bid Lowest bid scoring (Dini, at al., 2006, 309) and Lowest/Highest Bid Scoring
(Ibid) (2006 October of 2009), Linear scoring (Ibid, 305) (November of 2009 2013),
and Lowest/Highest Bid scoring (2014 current).
In contrary to the public procurement, the auctions at the procurement stage of PPP
project are prohibited. To determine the private partner, the public partner applies
contests with Highest bid Lowest bid scoring rule, which had been prescribed by the
Federal law from of 21 July 2005 # 115-FZ "On Concession Agreements" (art. 32-5) and,
ten years later, transferred exactly into the Federal Law of 13 July 2015 # 224-FZ "On
public-private partnership, municipal-private partnership in the Russian Federation and
the Amendments to Certain Legislative Acts of the Russian Federation" (art. 28-5).
In the paper, we will perform first part of EACE of the Highest bid Lowest bid and
Linear scoring rules in the conditions of Russian institutional environment. The latter has
three attributes: relatively high level of corruption, lack of experience in the area of public
procurement regulation, which leads to the use of inadequate tools against corruption,
and strong administrative resource, allowing the implementation of these tools for some
time. As a result, the mala fide public buyers limit the competition in the tenders for
bribes, the bona fide public buyers limit the competition in the tenders to avoid risks

which stem from the above mentioned inadequate tools, and, correspondingly, the public
procurement system is characterized by the lack of competition (Table 1).
TABLE 1
Tenders Performance in RF (for Federal Contracting Authorities)

Competition in the
tenders
(bids/tender)

2010

2011

2012

2013

2014

2.18

2.07

2.04

2.24

2.27

Source:
Federal
State
Statistic
connect/rosstat_main/rosstat/en/main).

Service

(www.gks.ru/wps/wcm/

The rest of paper is structured as follows.

In the Section 2, the Principal Agent model are modified to serve the issues of public
sector regulation. Here the dramatis personae of public sector agency model are
presented: basic principal (Society), principal (government, legislators) and agent
(contracting authority) and their preferences, defined on the corresponding set of
alternatives, are introduced.
We will separate the bona fide principal (agent) from the mala fide one depending on
match or differ his preference order from the societys one. Then we will define the
extended anti-corruption expertise (hereafter EACE) as anti-corruption expertise that
starts from the principals bona fides identification.
The content of the Section 3 is the cases of EACE applied to the two regulation tools.
In the subsection 3.1, we discuss variants of the Highest bid Lowest bid scoring rule
(Dini, at al., 2006, 309), which is applied in the Russian Federation in the procurement
tenders and at the procurement stage of the PPP projects, and the Linear scoring without
thresholds (Ibid, 305) that has substituted the previous rule in the evaluation of the price
criterion.
In the subsections 3.2, we model the preferences of the basic principal, putting
forward some reasonable assumptions about societys preferences.
In the subsections 3.3.1, we, assuming weak competition in the tender, prove that the
principal, who prescribes to compare bids by the Highest bid Lowest bid scoring rule in
the case of two criteria, is mala fide.
In the subsections 3.3.2, we prove that Linear scoring rule without threshold
generates two contrary incentives for suppliers: to bid aggressively on price or to do not
decrease price at all. The case that is considered in the subsections 3.3.2.1 has revealed
both these strategies in the procurement of St. Petersburg healthcare organizations after
the introduction of the Linear scoring rules without threshold. Finally, Conclusion gives
some policy implications of papers finding.
2. METHODOLOGY, MODELS, ALGORITHM

Let us come back to the cited above definition of the Regulatory Impact Assessment
(RIA, 2007, 1). If we designate policy-makers, legislators and other people and bodies,
who are responsible for the regulation rules development, as a Principal, and another
people and bodies, who are authorized to act in the framework of these regulation rules,
as an Agent, we have naturally come to the idea of applying the principal-agent theory
for the RIA.
The theory was formed in the 70s of the last century in the process of modelling
relationships between different principals and agents: insurer and insured, shareholders
and management, employer and employee (Spence, Zeckhauser, 1971; Stiglitz, 1975;
Shavell, 1979; Jensen and Meckling, 1976, and so on), and, originally, was serving for
consideration of private sector issues.
G. Miller pointed out to the six attributes of principal-agent theory or six core
assumptions of principal-agent model (Miller, 2005, 205): agent impact, information
asymmetry, asymmetry in preferences, initiative that lies with a unified principal,
backward induction based on common knowledge, principals ultimatum bargaining.
Some later the model had been accepted for consideration of public sector issues:
Pathologies in the agency/principal relation are at the heart of the corrupt transaction
(Rose-Ackerman, 2008, 330). However, in the process of applying model in the political
science the researchers have often to relax one or more above-mentioned assumptions
(Miller, 2005, 206).
If we consider the interaction of principal and agent in the public procurement area,
we can see that all core assumptions of principal-agent model are true or can be redefined very closely to original ones. Actually, the agent takes an actions that determines
a payoff to the principal (agent impact), the principal can readily observe the outcome
but not the actions of the agent (information asymmetry), the agents preferences can be
assumed to differ from the principals (asymmetry in preferences), the principal acts
rationally according to set of preferences, based solely on the interests of society, and is
able to move first by offering a regulation (initiative that lies with a unified principal) and
so on.
However, on the other hand, we can look at the principal as an agent hired by the
society (Grossman and Helpman, 1994, 48). In this case, there are three dramatis
personae in the model and this property can be considered as an attribute of public
sector principal-agent model. Thus, the ideal preferences in the model are not the
preferences of principal but societys preferences and we have some reasons to denote
the society as a basic principal.
According to this approach, we will develop the modification of public sector principalagent model. Assume that on the set of alternatives the basic principal, the principal,
and the agent (hereafter BP, P, and A, respectively) preference orders BP (BPPO), P
(PPO), A (APO), accordingly, are defined.

Definition 1. We call that the principal (agent) is mala fide (MF) if its preference order is
different from the basic principal's preference order: P BP ( BP), and bona
fide (BF) if otherwise.

Consider the problem of anti-corruption expertise of a legal act, enacting a new

regulatory tool for which there is no law enforcement practice. It appears that in this case
the first step of ACE is to determine the bona fides of the principal. Indeed, if the principal
is bona fide, the vesting of agent with principal's preference order will inevitably lead to
the achievement of public objectives, and otherwise, generally speaking, will not allow of
achieving them.
To determine the bona fides of the principal is necessary, at first, put forward
assumptions about the properties of societys preferences (build a model of BPPO), then,
based on the proposed regulation, model the PPO, and, finally, find out whether they
match or differ.
In the first case, traditional anti-corruption expertise (TACE) aimed at the identification
and elimination of corruptive factors is further applied, and in the second one it is
necessary to preliminary develop appropriate amendments to the legal document in
question.
Definition 2. Anti-corruption expertise, which includes in its algorithm the identification
of the principals bona fides, is called the extended anti-corruption expertise (EACE).
Thus, we can depict the algorithm of extended anti-corruption expertise.

Fig. 1. The algorithm of the extended anti-corruption expertise

3. THE EXTENDED ANTI-CORRUPTION EXPERTISE OF HIGHEST BID LOWEST

BID AND LINEAR SCORING RULES

In this section, we apply the algorithm of EACE to two legal instruments regulating the
determining of a winner in the tender (hereafter terms tender and contest are
synonyms).
3.1. The Scoring Rules Applied in Russian Federation
Let us consider a contracting authority seeking to procure an indivisible differentiated
good by means a contest. We suppose that there are m+1 awarding criteria (m of them
for the quality assessment and price) and any scoring rule attributes to each suppliers
bid a=(q1, q2, , qm, p) the following score:
(1)

U a wq i Qi w p P,
i 1

where:

wq i

and wp the weights of awarding criteria defined by the agent under some
m

qi

w p 1;

restrictions established by the principal, and i 1

Qi and P the scores of the same scale, assigned to the values of criteria according to
the corresponding scoring rule (we assume that quality is an increasing criterion: the
higher value of quality the higher score).
To explain the applied scoring rules we assume that there are two awarding criteria
(quality and price) and any scoring rule attributes to each suppliers bid a=(q, p) the
following score:
U a wq Q w p P.

(1.1)

Suppose that selecting stage of the tender have passed N (N > 1) suppliers with bids
(q1, p1), , (qN, pN). We designate

qmin min qi , qmax max qi ,

1 i N

pmin min pi ,
1 i N

1 i N

pmax max pi .
1 i N

First, let us consider the Highest bid Lowest bid scoring rule which gives maximum
score to the best bid and minimum one to the worst bid, and scores all other bids
proportionally their distance from the worst bid (Dini at al., 2006, p. 309). In the RF the
rule had been applied in public procurement tenders until the end of 2009 and has
currently applied in contests for concessions and PPP.
Let us start from the variant of the rule, which applied in RF for public procurement
tenders (Rule 1). In this case, the scoring rule takes the following expression:

Qi 1

(2
qi qmin
10 1 1 qi qmin 9, Pi 1 pmax pi 9),
q max q min
qmax qmin
pmax pmin

where: qi and pi the i-th suppliers quality and price bids, Qi and Pi the i-th suppliers
quality and price score, 1 i N (Fig. 2a-2b).

Fig. 2a. Rule 1 for the increasing

criterion

Fig. 2b. Rule 1 for the decreasing

criterion

Let us consider the variant of scoring rule that is applied in RF for concession tenders
(Rule 2). In this case, the rule takes the following expression:

Qi

qi qmin
p pi
, Pi max
.
qmax qmin
pmax pmin

(3)

Fig. 3a. Rule 2 for the increasing Fig. 3b. Rule 2 for the decreasing
criterion
criterion
Until the end of 2009, Russian contracting authorities could choose which scoring rule
to apply: the rule, described above, or the Lowest (Highest) bid scoring (Dini at al., 2006,
p. 309). The Highest bid rule (Rule 3) (the Lowest bid rule (Rule 4)) assigns to values of
quality (price) criterion following scores:

Qi

(4)

qi
p
100, Pi min 100.
qmax
pi

From the 2010 the regulator prescribed to contracting authorities to apply Linear
scoring rule, evaluating the price score (and delivering time score, if any), and Highest
bid rule, evaluating the quality score. The Linear scoring rule (Dini at al., 2006, p. 305) is
described by the following expression:

0,
P p
i
Pi r
100,
P

P
r thr
100,

pi Pr ,
Pthr pi Pr ,
pi Pthr ,

where: Pr the reserve price, Pthr the price threshold.

Thus, the bidding above the reserve price does not give to the bidder any points; any
bid below the price threshold gives to the bidder 100 points (Fig. 4).
In the RF the regulator put the Pthr=0 and, correspondingly, introduced the Linear
scoring rule without threshold (Rule 5):

Pi

P0 pi
100,
P0

(5)

0 pi P0 .

In the formula (5), the role of the reserve price plays P0 the initial contract price, which
has to be announced by the public buyer in the procurement notice, and P0 cannot be
exceeded in the bids.
The Rule 5 gives 100 points only to the zero price bid and assigns other bids the score,
which is equal to the bidders discounts to the initial contract price. The Fig. 4 illustrates
the Linear scoring rules with and without threshold (the thick dotted and solid lines,
correspondingly) and the main difference between them: to obtain the same score P the
second rule demands significantly more discounts.

10

Fig. 4. Linear Scoring Rule with and without threshold

3.2. Mathematical Modelling of Basic Principals Preference Order
Let us move on to the basic principals preference order modelling and assume that
the basic principal is able:
1) to formalize the supplied good as a bundle of finite number of its specifications (for
the simplicity reasons only, let us include into the bundle the time of delivery, volume
and duration of the warranty, operation and, may be, utilization costs and so on)

q q1 , q2 , , qn , qi Di , i 1, 2, , n, q D D1 D2 Dn , twhere

the
Cartesian product A B of sets A and B is the set of all ordered pairs (a,
b), where aA and bB;
2)

to point out the feasible sets

~
Di for every specification:

~
~ ~ ~
~
qi Di Di , i 1, 2, , n, q D D1 D2 Dn .
A q, p q D, p 0, ,

The set of outcomes of the tender

where q is a
formalized description of the supplied good and p is the price by which a contract is
awarded, and its elements (q, p) we will call, correspondingly, set of contracts and
contracts.
If we assume that all specifications q are quantifiable then, without loss of generality,
we can consider them as selecting and awarding criteria at the same time, and treat
them as characteristics of bids quality. Let us introduce into consideration the set

~ ~
A D [0, P0 ]

, each point of which a = (q, p) is acceptable contract for the basic principal.
~
Suppose that on a set X A X a preference order BP of the basic principal, is defined.

To specify the form of feasible set D , we assume that qi varies in the set [qi0, +),

~
D q10 , q20 , qn0 , , and the contract, which ceteris paribus

thereafter
corresponds to the larger value of characteristic qi, is strictly more preferred for the basic
principal.
We will put forward the following assumptions about properties of the basic principal's
preference order BP (we will omit the index BP if there is no possibility for
misunderstanding).

1. BPPO is reflexive (Varian, 1992, p. 95): the basic principal is indifferent between every
two identical contracts.
Since above we assumed that the bundle of goods specifications contains all
specifications essential to the buyer, it is natural to assume that, by comparing the two
contracts that match the content, terms and cost of delivery, he considers them as
indifferent to each other.

11

2. BPPO is complete and transitive (Ibid.).

The Russian public procurement legislation demands that contracting authority must
be able to rank the received bids on the base of tender documentation. Hence, agents
preferences are supposed to be complete and transitive, and, a fortiori, basic principals
preferences must possess these properties.
Given assumptions, we can represent the BPPO by his indifference sets that do not
intersect each other.
Where are Definitions 3 & 4?
Definition 5. We call that contract a1= (q1, p1) dominates contract a2= (q2, p2) (a1 a2), if
both inequalities q1 q2 and p1 p2 are true.
Definition 6. We call that the preference order is strictly monotonic, 4 if for any contracts
a1 and a2 such that a1 dominates a2 then a1 a2.
3. BPPO is strictly monotonic.
This assumption is obviously true. Since, according the monotonicity assumption, an
arbitrarily small increase (decrease) of the contract price (ceteris paribus) gives to the
basic principal a strictly less (more) preferable contract, the each set of indifference,
representing his preference order, does not contain interior points, and the term
"indifference set" may be replaced by the term "indifference surface" or "indifference
curve" in the case n=1.
Finally, assuming that the small variations of the contract do not change its
preferability according to other contracts, we put forward following assumption.
4. BPPO is continuous (Varian, 1992, p. 95).
3.3.1. The Identification of Principal Bona Fides: the Case of the Highest Bid
Lowest Bid Scoring Rule
Let us move on the modelling of the principals preference order if he prescribes to
apply the highest bid Lowest bid scoring rule when the competition in the tenders, as a
rule, is weak. Below we consider this scoring rule in the form of Rule 2 (formulae (3)).
It is worth to note that formulas (2) and (3) cannot be applied if for the criterion all
bids do not differ each other. Hence, in contrary to the preference order of the basic
principal, preferences of the principal, defined on the set X by means formulas (1)-(2) (or
(1)-(3)), are incomplete. Thus, Def. 1 gives us a reason to treat the principal as mala fide.
To exclude this problem, we suggest that if all suppliers submit the same bid on the
criterion they will obtain the same score (for example, 0).
Proposition 1. If:

1) there are two suppliers who can deliver the goods from the set D ,
2) the suppliers have the strictly monotonically increasing costs functions:

u v u v Ci u Ci v , i 1, 2;

12

3) both suppliers are rational, risk-neutral and never bid lower their costs;
4) the above stated assumptions on BPPO are true;
5) there is an awarding criterion which weight is more than 0.5;
then the principal, who prescribes to compare bids by the highest bid lowest bid scoring
rule, is mala fide.
Proof. We consider contest as a game and introduce bidders (or suppliers) strategies:

S 1 q1 , p1 , S 2 q 2 , p2 .

c pi P0 .
0
i

Thus,

q i q 0 , q 0 q10 , q20 , , qn0 ,

Since

the

vector

of

all

bidders

0
1

0
1

0
2

0
2

Ci q i Ci q 0 ci0 ,

strategies

S S1 , S 2 q , p1 , q , p2 q , c , P0 q , c , P0 .
1

then

is

as

and

follows:

We assume that the weight of the price criterion is more than 0.5 (the other cases are
considered the same way). In this case, the sum of all weights of quality criteria is less
than 0.5.

1
0
Let us consider the strategy S q , p1 of the first supplier and arbitrary strategy of

the second supplier S q , p2 ( S S ).

2

If p1< p2, then, from the formulas (1) and (3), we have:

U q 0 , p1 wq i Qi1 w p 0.5,
m

0
2
q , p1 p q , p2 ,
U q , p2 wq i Q w p 0 wq i 0.5,

i 1
i 1
and contract goes to the first
2

i 1
m

2
i

supplier.

q , p q , p ,
2

If p1>p2, we have:

and contract goes to the second supplier. In the

2
0
2
0
case p1=p2 the contract goes to the second supplier too, since q q , q q .
2

Now we can calculate the payoff function of the first supplier:

p1 c10 , p1 p2 ,

1 q 0 , p1 , q 2 , p2

p1 p2 .

0,

0
2
According to condition 3 of the proposition, 1 q , p1 , q , p2 0, what gives to the riskneutral supplier an opportunity to take part in the tender.

1
1
In turn, for any other strategy S q , p1

q 0 , q1 q 0 we have

p C1 q1 , p1 p2 , C1 q c1
1 q , p1 , q , p2 1
1 q 0 , p1 , q 2 , p2 .
0
,
p

p
.

1
2

13

1
0
Thus the strategy S q , p1

dominates all other strategies of the first supplier

S 1 q1 , p1 , q1 q 0 q1 q 0 (similar results are also valid for another bidder), and contract
p* P0 p* P0
q 0 , p *

goes to the bid

and besides
quality and maximum price).

if both suppliers suggest minimum

Let us consider the contract q , p * . From the properties of continuity and

monotonicity of BPPO it follows that small increase in quality q q0 basic principal can
compensate by the corresponding price increase p p* such a way that

q , p * ~ q, p , q q q q , p p *.
other hand, q , p * q , p q, p . Hence,
0

BP

However, on the
the principal is mala fide.

according the Def. 1,

Corollary. If the conditions 1-4 of the Proposition 1 are true, and there are two awarding
criteria of different weights, then the principal, who prescribes to compare bids by the
highest bid Lowest bid scoring rule, is mala fide.
The proof is trivial: one of weights is automatically more than 0.5. Thus, if there are
only two bidders then, generally speaking, the agent by means Highest bid Lowest bid
scoring rule cannot award the contract which is the most preferable to the society.
Thereby the amendments in the regulation tool are necessary. It is clear that in the case
of two awarding criteria the applying of the Highest bid Lowest bid scoring rule is very
risky if it is likely to receive two bids (or less).
Thus, the principal may demand from contracting authority to designate in the tender
documentation

weights of awarding criteria less than 0.5;

the minimum number of suppliers bids for the tender to be performed (Model Law,
53-j);

that in the case of two bidders, who passed the selection stage, the other scoring rule
has to be applied.

There is a special recommendation for the case of PPP. As it mentioned above, the
Laws on concession and PPP (# 115-FZ "On Concession Agreements" and # 224-FZ "On
public-private partnership) directly prescribe to apply the highest bid lowest bid
scoring rule in the form (3). Because there is a very long way to correct the law, it would
be better to give some discretion power to change the scoring rules to the executive
power (in RF, Ministry of Economic Development).
3.3.2. The Identification of Principal Bona Fides: the Case of the Linear Scoring
Rule without Threshold
Let us move on the modelling of the principals preference order if he prescribes to
apply the Linear scoring rule without threshold. We assume that the competition in the
tender is weak (N=2), and both suppliers are bona fide in the sense that they never bid
below the threshold of abnormal bids. In the modern Russian legislation the bids with

14

price discounts more than 30% are considered as abnormal ones and supplier who bid
such a way must give some explanations, provide additional insurance and, hence, takes
some transaction costs.
For the sake of simplicity, we restrict ourselves to the case, which considers all
qualitative characteristics beginning from the second exclusively as selection criteria.

This assumption means that any two acceptable contracts q, p A that differ by values
of characteristics qi (i = 2, 3, ..., n) are, ceteris paribus, indifferent to each other. Thus,
the quality of purchased goods may be described by a single numerical characteristic
q1=q and, respectively, any contract can be represented as an ordered pair of numbers: a
= (q, p). We assume that q varies in the set [q0, +) and the contract, which ceteris
paribus corresponds to the larger value of characteristic q, is strictly more preferred for
the basic principal. Thus, formula (1) takes the expression (1.1):

U a wq Q w p P.

(1.1)

Besides this, we assume that

A1) the public buyer declares the initial (maximum) contract price P0, and there are N
suppliers with economic cost of performing contract not more than P0:

~
Ci qi P0 , qi D, i 1, , N ;

A2) the set of suppliers S is a union M (1 M N) of disjoint sets (classes of suppliers):5

S S1 S2 SM , Si S j i j , Si ni ,
and suppliers of each class draw their qualities qi from the famous probability
distributions Fi(i, i), i=1, 2, , M, defined on the intervals

li , Li , i 1, 2, , M ,
where

Li l j , i 1, 2, , M 1, j i 1, , M , l1 q0;

A3) the higher quality of goods implies the higher costs of supplier;
A4) the bid with price discount more than 100% is considered abnormal one and
suppliers are never bidding such a way that

P0 pi
, i 1, 2, , N .
P0
Proposition 2. If the above stated assumptions on BPPO and assumptions A1-A4 are
true, and principal prescribes to compare bids by the Linear scoring rule without
threshold, then the principal is mala fide.
Proof. Without loss of generality, we can confine the analysis by the case of two
suppliers of different classes (M=2, n1= n2=1). We begin from two contracts which basic
principal

considers

indifferent

each

p p2 P0 .
monotonicity condition, 1

1
2
2
1
other: q , p1 ~ BP q , p2 , q q ,

15

and,

due

to

Let us compare these contracts from the principals point of view, whose preferences
are defined by the formulas (1.1), (4), (5):

U q1 , p1 wq
Since

U q 2 , p2 wq ,

q1
P p1
P p2
wp 0
, U q 2 , p2 wq w p 0
.
2
q
P0
P0

the

indifference

of

the

contracts

is

possible

if

P p1
q
wp 0
wq ,
2
q
P0
or
1

wq

P0 p1 wq

P0
wp

w
q1
q
2
q
wp

(6)

L1
.
l2

wq
L
1 1 ,
w
l2
Hence, if p
then the supplier of worse quality goods cannot compensate
difference in quality by means the price discount. Hence, according the Def. 1, the
principal is mala fide.
Thereby the amendments in the regulation tool are necessary. It is clear that Rule 5
generates two contrary incentives for suppliers: to bid aggressively on price or to bid
aggressively on quality (and do not decrease price). The first strategy does not fit well
with the antidumping mechanism of the regulation, the second one demands the
mechanism of rejecting abnormal quality bids. The latter tool is not easy to implement:
mala fide agents usually can justify that the selected awarding criterion, which gives any
necessary advantage to preselected supplier, is objective and does not limit the
competition.
Thus, the Linear scoring rule without threshold cannot be recommended at all, it is
natural to introduce threshold and put it equal to abnormal bid threshold. As the second

wq
wp

best, we suggest to designate in the tender documentation condition

since mala
fide public buyer, in the framework of efficient corruption or quasi-corruption models

L1
(Ivanov, 2015, 118), can provide

l2 to be sufficiently small.

3.3.2.1. The case of St. Petersburg healthcare organizations: zero discounts vs.
dumping.
In this section, we consider how the introduction of Linear scoring rule without
threshold had influenced the effectiveness of the tender procedure. Given the fact that
the Rule 5 was introduced in late 2009, we have compared the average price reduction at
the contests, which took place in RF in 2008 and 2010 (with exception of purchases of
municipal customers).
TABLE 2

16

Average Price Reduction before and after the Introduction the Linear Scoring
Rule without Threshold
Index
The total initial price
contests (lots) (rub.)

of

declared

2008

2010

822,254,756

627,195,639

The total initial price of declared

contests (lots), which had not led to
signing a contract (rub.)
The total price of signed contracts (rub.)

37,400,645

759,524,196

564,129,377

7,.63

4,.09

Average price reduction (%)

Source:
Federal
State
Statistic
connect/rosstat_main/rosstat/en/main).

Service

(www.gks.ru/wps/wcm/

The results give evidence that the introduction of the Linear scoring rule without
threshold reduced the attractiveness of price reduction for the public buyers. On the
other hand, as noted above, the Rule 5 creates incentives to the decrease of price
discounts, as well to the dumping. To study the reaction of the public procurement system
on these incentives a statistical analysis of the results of contests, declared by the health
care organizations of Saint-Petersburg city subordination level in 2013, the last year of
the rule line, has been performed. That year 143 contests were declared 6 with the level of
competition that reflected in the following table.
TABLE 3
The Level Of Competition In The Contest Of St. Petersburg Healthcare
Organizations
Total number of contests (lots), from them

143

All bids were rejected

16

The selection stage passed single supplier

93

The selection stage passed two suppliers

18

The selection stage passed more than two

suppliers

16

Descriptive statistics of the indicator "Price discount" for 127 contests (lots), which
led to the signing of contracts (variable downpr2013), is given in the following table.

17

TABLE 4
The Price Discounts In The Contest Of St. Petersburg Healthcare Organizations
downpr2013
Percentiles

Smallest

1%

5%

10%

Obs

127

25%

Sum of Wgt.

127

50%

0.0056
Largest

Mean

0.0527654

Std. Dev.

0.1166666
0.0136111

75%

0,05

0.5009

90%

0.1389

0.5119

Variance

95%

0.3176

0.5279

Skewness

3.011476

99%

0.5279

0.5579

Kurtosis

11.41086

As can be seen from the results, the average price reduction was 5.28%, while in the
50% of contests the price was reduced by less than 0.5%, and 75% less than 5%. In
turn, 5% of contests gave the price reduction more than 31.76%.
Thus, we can conclude that in the more than 50% of contests there were practically no
price discounts; the winners of more than 5% of contests submitted dumping bid; and,
correspondingly, on the market in question public buyers are more inclined to refuse to
reduce prices than to the dumping.
CONCLUSION
Let us consider the typology of models of corrupt behavior, based on combination of
assumptions about bona/mala fides of principal and agent (Def. 1). There are five
possible combinations of assumptions: BM (principal is Bona fide, agent is Mala fide),
M1M2 (M1 M2), M1M2 (M1 = M2), MB, and BB, and. correspondingly, five different models
of corrupt behavior (Ivanov, 2015, 118).
TABLE 5
The Typology Of Models Of Corrupt Behavior Based On The Methodology Of The
Agency Relationships
Principal

Agent

Model Title

18

Bona Fide

Conflict-free model

Bona Fide

= BP

A = P

P = BP

Mala Fide

Bureaucratic corruption

BP

P
Efficient Corruption

Mala Fide

Mala Fide

BP

Totalitarian Corruption

P BP

= P
Bona Fide

Quasi-Corruption

A = BP

Let us suppose that we have implemented the algorithm of the extended anticorruption expertise (Fig. 1). In this case (P = BP), we close the room for:
- efficient corruption (Aidt, 2003, p. F633), since there is no need to give bribes for
overcoming of government failures,
- totalitarian corruption (Ivanov, 2015, 117), since the agent is endowed with the basic
principal preferences and acts corresponding way,
- quasi-corruption (Ivanov, 2015, 118), since there is no need to limit competition for
overcoming of government failures.
Thus, in the framework of traditional anti-corruption expertise we come back to the
problem of combating bureaucratic (Jain, 2011, p. 3) or administrative (in the terminology
of World Bank) corruption.
Let us move on the lessons that other countries could extract from the Russian
experience of applying scoring rules. There are some traps in applying Highest bid
Lowest bid scoring rule on the duopoly markets: weights of the criteria cannot exceed 0.5
and respectively the total number of criteria must be three or more. Thus, the mala fide
agent, for example, cannot to put wp>0.5, and award contract to preselected low cost
supplier for kickbacks.
In turn, the Linear scoring rule without threshold to deprives the suppliers of incentive
to price discounts, or forced them to dumping. In the framework of this rule, mala fide

19

public buyer can easy award contract to preselected low supplier for kickbacks or other
reasons, establishing the specific quality criterion adjusted for him (my personal
experience involves: the number of technical training tools in the tender for retraining
program in the area of public procurement, the number of business schools strategic
partners from the Financial Times ranking in the tender for retraining program for regional
public administration, and so on).
Thus, applying the Highest bid Lowest bid scoring rule or Linear scoring rule without
threshold the principal should track the implementation of stated in the subsections 3.3.1
and 3.3.2 recommendations.
ACKNOLWEDGEMENTS
Research has been conducted with financial support as part of the project Support of
Research Projects of Graduate School of Management SPbU Academic Staff (project No.
16.23.1844.2015).
NOTES
1. With the exception of short period of the New Economic Policy (1921-1928).
2. The development of the Russian public procurement system was described in (Ivanov,
2015, 118-120).
3. In the paper terms contracting authority and public buyer are synonyms.
4. This definition differs from the traditional definition of strong monotonic preference
order (Varian, 1992, p. 96); however, since it does not lead to confusion, the name of
the property has not changed.
M

N.

5. Here |X| stands for the number of elements of finite set X. It is clear that
6. The number of contests is relatively small because contracting authorities must
purchase the majority of drugs through the auction obligatorily.
i 1

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