Bid evaluation with distortionary scaling in multidimensional procurement auctions

Construction projects are often procured through multidimensional auctions, in which suppliers bid on both price and non-price attributes such as quality. In Korea, a unique scaling method is employed to differentiate bids, adjusting scores to ensure a sufficient point difference between adjacent quality bids. This scaling method aims to enhance the discriminating power of the scoring system and attract more sophisticated project designs. However, it may distort overall bid rankings and lead to inefficient contract allocation. The added uncertainty may incentivize suppliers to inflate their prices, as the effect of price on winning probability decreases with the scaling factor. Using Korean procurement data, I analyse cases of rank reversal, and I reveal a tendency among suppliers to bid less aggressively on price when quality differences are magnified, with the effect varying with the level of uncertainty in bid evaluation. This highlights the preference of buyers for a less distortionary scoring system to enhance the value of procurement.