We empirically investigate the effect of procurement oversight on contract outcomes. In particular, we stress a distinction between public and private oversight: the former is a set of bureaucratic checks enacted by contracting offices, while the latter is carried out by private insurance companies whose money is at stake through the so-called performance bonding. By focusing on the U.S. federal service contracts in the period 2005-2015, we exploit an exogenous variation in the threshold for the application of both sources of oversight in order to separately estimate their causal e effects on execution costs and time. We find that: (i) private oversight has a positive effect on outcomes through the screening of bidders that alters the pool of winning firms; (ii) public oversight negatively affects outcomes, due to excessive red tape induced by low-competence buyers.
oversight procurement screening red tape moral hazard