Supplier selection and contract enforcement: Evidence from performance bonding

Leonardo M. Giuffrida and Gabriele Rovigatti

Journal of Economics & Management Strategy, 2022, vol. 31, issue 4, 980-1019

Abstract: We analyze an important but little‐studied institution for balancing supply risk in the management of procurement operations: performance bonding. By adding the surety as a third party that guarantees contract fulfillment between supplier and buyer, performance bonding aims to streamline the purchasing process by influencing both contractor selection in the bidding phase and contract enforcement during project execution. Using the data on US government procurement from 2005 to 2015 and exploiting an exogenous variation in the threshold for its application to construction contracts, we find that performance bonding improves contract outcomes by 10.5% and 3.7% in terms of delays and extra costs, respectively. Net of bond premia, which by law are included in the award amounts, this effect translates into savings of about 4% in the budget for federal construction projects and 16% for mid‐size projects. We provide suggestive evidence on the effectiveness of selection and monitoring by sureties as driving channels.

Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://doi.org/10.1111/jems.12492

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jemstr:v:31:y:2022:i:4:p:980-1019

Ordering information: This journal article can be ordered from
http://www.blackwell ... ref=1058-6407&site=1

Access Statistics for this article

More articles in Journal of Economics & Management Strategy from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().