The Korean government implemented the Average Price Auction with Screening (APAS) in 2016 for construction contracts of a certain size or larger that are ordered by the public sector, including central government offices and public enterprises. The APAS takes into account both price and non-price scores which are tallied using the Average Price Auction (APA), and not the more common First Price Auction (FPA) method. The FPA awards the highest score to the lowest bidder while the APA calculates the average price, and awards the highest score to the closet bid. As such, the APA regulates the bidding competition, and forces bidders to place similar offers. Before being replaced by the APA in 2016, the FPA received harsh backlash for inciting aggressive competition, and awarding contracts to incapable bidders which resulted in frequent contract changes and cost overruns.

This study empirically analyzes whether the APAS produces meaningful effects that achieve the intended goals in regard to price and non-price scores. The outline of the major findings are as follows. Firstly, the bid-hit ratio increased by a statistically significant 6% after the adoption of the APAS. This is in line with expectations that the transition from the FPA to APA keeps competitions in check and raises the bidding ratio. Secondly, no improvements were observed in the resolution of fallouts such as contract changes and cost overruns. In sum, these results indicate that the APAS is not effective, and could place a bigger fiscal burden on the government authorities awarding the contracts.

Preface
Executive Summary

Chapter 1 Introduction

Chapter 2 Economic Issues of First Price Auction (FPA): "Too-Good-To-Be-True"
　Section 1 Baseline Model
　Section 2 Renegotiation
　Section 3 Performance Bond
　Section 4 Reputation Effect
　Section 5 Summary and Importance of Screening
　Section 6 Average Price Auction (APA)

Chapter 3 International Responses: First Price Auction with Screening (FPAS) vs. Average Price Auction (APA)

Chapter 4 Korea's Response: Focusing on the Average Price Auction with Screening (APAS)
　Section 1 Overview of Public Sector Contracting Systems
　Section 2 Existing First Price Auction with Screening
　Section 3 Comparison of Screening Intensity on Non-Price Factors

Chapter 5 Empirical Analysis: Effectiveness of the Average Price Auction with Screening (APAS)
　Section 1 Price Effects of APAS
　Section 2 Non-Price Effects of APAS

Chapter 6 Conclusion and Policy Implications
　Section 1 Need for Transition to ‘First Price Auction with Enhanced Screening’
　Section 2 Strengthening Screening for Non-Price Factors
　Section 3 Preventing Predatory Pricing if Transitioning to First Price Auction with Screening
　Section 4 Alternative Measures if APA Is Maintained

References
Appendix
ABSTRACT