Contract Splitting in Public Procurement

Abstract

This paper studies contract splitting - the act of splitting contracts into multiple smaller ones - as a mechanism of manipulation in public procurement. Leveraging the procurement administrative registry in Portugal and exploiting a reform that lowered discretion thresholds, we find that contract splitting is the main mechanism of manipulation. Buyers split to circumvent competitive requirements, more so for goods and services than for less divisible construction works. We discuss the implications of contract splitting for commonly used bunching estimators, documenting the existence of a splitting-induced bias. Discretion-seeking manipulation is motivated by favoritism rather than efficiency promotion.