Case Study: Road Maintenance

The case

The Swedish Road Administration yearly renegotiates road maintenance in seven regions, i.e., contracts for bitumen-bound layer.

In 2003, Trade Extensions assisted in the negotiation over 51 contracts in one region at a value of some 25,000,000 Euros.

The approach

The negotiation scheme was a combinatorial sealed bid auction. Firms were allowed to submit bids on every possible combination of contracts.

In an attempt to increase the competition from small firms, it was decided to split some of the conventional contracts in two separate contracts: one contract for producing the asphalt mix and one contract for placing the mix.

In order to extract firms' potential synergies of winning both types of contracts, firms were also allowed to submit bids on bundles of contracts.

Firms were also allowed to express capacity constraints, that is, in their bids declare how many contracts of either type they could fulfil given that they won too many contracts.

9 qualified suppliers submitted bids. 6 suppliers submitted 1 to 19 bids on combinations.

The result

The new negotiation approach substantially reduced cost and promoted competition from small suppliers. The savings were estimated to 1,000,000 Euros and, as desired by the buyer, the number of firms awarded at least one contract doubled.

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