Tóth, Bence; (2025) Favouritism in public contracting: Informal practices in a formalised world. Doctoral thesis (Ph.D), UCL (University College London).

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Abstract

Favouritism in public procurement is widespread. Most studies interpret it as a form of corruption. However, public buyers might favour certain suppliers not in exchange for personal benefits (e.g. kickbacks), but simply to mitigate contracting risks. Open competition can sometimes result in contracts being awarded to companies with no proven track record, which may increase the chances of project delays or costly legal disputes. To avoid these risks, buyers may tailor their tenders to familiar and reliable companies – particularly local governments that are accountable to voters, hence are more incentivised to manage contracts well. This thesis uses mixed methods to show that favouritism can indeed be driven by buyers` incentives to reduce contracting risks. Chapter 1 develops theoretical models of risk-mitigating and corrupt favouritism based on the literature on corruption, contracting and political accountability. In Chapter 2, based on qualitative interviews and local source material from Hungary, I discuss the incentives of local governments and suppliers in public contracting. In Chapter 3, using European public procurement data between 2011-2021, I show that trust in the courts and interpersonal trust are associated with a significantly lower likelihood of favouritism as measured by single bidding. For example, the likelihood of favouritism halves as trust increases from the bottom to the top 10%. In Chapter 4, by analysing Hungarian, Czech and Swedish municipal procurement, I show that favoured contracts – measured as single bidding and awarding contracts to local suppliers – are awarded to suppliers with a lower corruption risk, such as extreme profitability or high-risk management. The cross-country differences indicate that favouritism is used most to reduce risks where contracting risks are highest (Hungary), and least where contract enforcement is expected to be least costly (Sweden). My findings suggest that informal practices are not always used for corruption, but to mitigate contracting risks.

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