Optimal framing of scores in procurement auctions

In many procurement projects buyers face suppliers who differ with regard to the nonprice attributes of the goods and services they offer. In order to make the offers of different suppliers comparable to each other, buyers can use so called scores that assign a monetary value to the non-price attributes. These scores are often framed as bonuses or handicaps and are part of most procurement auctions. In this paper, we examine how the framing of these scores as bonuses or handicaps influences suppliers’ beliefs about the strength of their competitors and thereby affects their bidding behavior in first-price reverse auctions. Our main finding is that suppliers who receive a bonus (handicap) underestimate (overestimate) the strength of their competitors. As a consequence, procurement auctions with non-price differences framed as handicaps result in lower prices than auctions in which scores are expressed as bonuses.