Determinants of adaptation costs in procurement: an empirical estimation on Italian public works contracts

It is widely agreed that rules governing public procurement should be designed to achieve value for money. However, in the public works sector, ‘… the good being procured is usually complex and hard to be exactly specified <italic>ex ante</italic>, … [and] alterations to the original project might be needed after the contract is awarded. This may result in considerable discrepancies between the lowest winning bid and the actual costs that are incurred by the buyer’ (Bajari <italic>et al</italic>., 2006). There is now a wide body of literature focusing on cost escalation during the execution of contracts and their estimates reveal that it can be often quite large. This article is aimed at offering an empirical test of the determinants of adaptation costs in the public works procurement. Using a detailed data set on Italian public works contracts, we run an empirical analysis, grounded on the main conclusions reached in the literature, to test for the main drivers of adaptation costs.