Saving Millions in Government Procurement Through Data Science and Market Design

Marcelo Olivares (), Daniela Saban (), Gabriel Y. Weintraub (), Eduardo Lara (), Piero Zanocco () and Paula Moreno ()
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Marcelo Olivares: Facultad de Economia y Negocios, Universidad de Chile, Santiago 8330015, Chile; and Instituto Sistemas Complejos de Ingenieria, Santiago 8370398, Chile
Daniela Saban: Graduate School of Business, Stanford University, Stanford, California 94304
Gabriel Y. Weintraub: Graduate School of Business, Stanford University, Stanford, California 94304
Eduardo Lara: Instituto Sistemas Complejos de Ingenieria, Santiago 8370398, Chile; and Ingenieria Industrial, Universidad de Chile, Santiago 8330015, Chile
Piero Zanocco: Haas School of Business, Berkeley, California 94720
Paula Moreno: ChileCompra, Santiago 8320113, Chile

Interfaces, 2025, vol. 55, issue 2, 101-120

Abstract: Framework agreements (FAs) are procurement mechanisms used in private and public organizations by which a central procurement agency selects an assortment of products, typically through auctions, and then affiliated organizations can purchase from the selected assortment as needs arise. In Chile’s central procurement agency (ChileCompra), FAs accounted for 23% of the procurement expenditures during 2018–2019. However, descriptive analysis of purchase transaction data suggests that some FAs exhibited low levels of competition in the auctions used to select the suppliers, which could potentially result in larger government expenditures. We collaborated with ChileCompra to redesign FAs to enhance competition introducing two important changes: (i) standardize the product catalog using natural language processing algorithms and (ii) use this product standardization to induce more competition in the auctions to select suppliers. These changes were implemented through an experimental approach in a redesigned food FA to measure its impact, showing that inducing more intense competition in the auction stage reduced transaction prices by 8%. This pilot study ultimately led ChileCompra to implement a similar design in all its FAs, and many of the improvements in the design of the FAs were included in the new regulation on government purchases. If we were to extrapolate the savings from our pilot redesign to all these FAs, the total savings would amount to around $74 million in 2022.

Keywords: economics; econometrics; government; services; procurement; market design; data science (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:inm:orinte:v:55:y:2025:i:2:p:101-120

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