Forecasting Savings from Repetitive Competition with Multiple Awards

Previous research has shown that competition usually results in lower unit prices. The literature, however, only addresses the case in which a single winner receives one contract for the total quantity required. The present study generalizes the above work by allowing for the possibility of multiple winners and also the case in which a sequence of competitive awards are made for the same item over a period of several years. A sample of 22 acquisitions was selected and contact cost data was collected. Data were adjusted to separate the effects of inflation, nonrecurring costs, and contractor learning. The savings attributable to competition were estimated. A sensitivity analysis was performed using learning curve slopes of 90, 95 and 100 percent. The sample showed an average competitive savings of 7.1 percent, based on a slope of 95 percent. The effect of competition varied widely, and in some situations competition may not be advisable. The advantages of competition could be lost if the production base were reduced to a single contractor. (Author)