CONTRACT CLAUSE DYNAMIC BARGAINING AND PROCUREMENT DESIGN 1 Alessandro Avenali 2, Giorgio Matteucci and Fabio Nonino

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1 CONTRACT CLAUSE DYNAMIC BARGAINING AND PROCUREMENT DESIGN 1 Aleandro Avenali 2, Giorgio Matteucci and Fabio Nonino Aleandro Avenali (avenali@di.uniroma1.it), Ph.D., i an Aitant Profeor in Engineering Management at the Department of Computer and Sytem Science Antonio Ruberti, Sapienza Univerity of Rome, via Arioto 25, Roma, Italy. Hi teaching and reearch interet are in Economic and Regulation of Telecommunication, Mechanim Deign, Operation Reearch. Giorgio Matteucci (matteucci@di.uniroma1.it), Ph.D., i an Aitant Profeor in Engineering Management at the Department of Computer and Sytem Science Antonio Ruberti, Sapienza Univerity of Rome, via Arioto 25, Roma, Italy. Hi teaching and reearch interet are in Indutrial Organization, Intellectual Property Right, Economic and Regulation of Telecommunication, Regulation and Competition in the Pharmaceutical Indutry. Fabio Nonino (f.nonino@uninettunouniverity.net), Ph.D., i an Aitant Profeor in Engineering Management at the International Telematic Univerity UNINETTUNO, Coro Vittorio Emanuele II 39, Roma, Italy. Hi teaching and reearch interet are in Operation and Supply Management, and in Facility Management. International Telematic Univerity UNINETTUNO, ABSTRACT We introduce a multi-attribute combinatorial auction-baed mechanim, called contract claue mechanim (CCM), a a mean to innovate procurement deign related to outourcing of facility management activitie in public ector. The CCM allow a procurer and eller to dynamically and imultaneouly bargain the characteritic of ditinct procurement contract. The procurer doe not directly call for good and/or ervice; in fact, firtly he involve eller in defining a collection of contract claue related to different feature of the upply of good/ervice; econdly he requet bid on uch claue. The procurer alo aign core to claue to ignal their relevance to the eller. Submitted offer concern bundle of et of claue and define detailed procurement contract. CCM allow public adminitration to mitigate the relevant problem concerning the lac of competence on the non-core activitie, ince CCM can partially extract from eller their private nowledge a well a information on the upply cot. 1

2 1. INTRODUCTION Facility management (FM) i a multidiciplinary approach for deigning, planning and managing the non-core ervice in an integrated and coordinated way; thee ervice upport the trategic core activitie and are eential for the effective and efficient functioning of an organization (De Toni and Nonino 2009, De Toni et alii 2007). In particular FM concern the management of employee-related ervice, building, pace, utilitie, property, portfolio, aet management, ICT management, adminitration and legal advice. The premie of outourcing i that the contractor own uperior competencie on the procee outourced, and can reduce cot due to it capacity to reach economie of cale leading to better quality of the ervice. In the lat year, the FM dicipline ha been mainly developed by central public adminitration 3 and large private companie, with the purpoe of integrating and coordinating many activitie, and at the ame time achieving efficiency, effectivene and reduction of ervice cot. Neverthele, witching cot incurred by the tranition to an external provider, uch a thoe aociated with upplier election, negotiation, reorganization and control, are high. The externalization of FM activitie i certainly the right olution, but only if the organization clearly identifie it own need, coherently to it own trategy, define the proper ervice condition, and ubequently identifie the poible bet contractor and reduce the cot of purchaing proce. Moreover, following recent trend in FM, the public adminitration i trying to adopt the global ervice (GS), namely, a contract where the regular maintenance activitie are ubtituted by a plurality of ervice and the contractor i fully reponible on the reult. Thi type of contract move the ervice objective from a pecific activity implementation proce to the effective achievement of atifying reult (target ervice level) and aim at identifying a ingle contractor for a multiplicity of ervice. Neverthele, in the European and, in particular, in the Italian context, partnerhip practice are not frequent and contract implying a ingle provider for many ervice are unuual. A a matter of fact, thi olution give more reponibility to the upplier but alo more power. The procedure that a public adminitration can ue to announce a FM global ervice call for tender are the open procedure, the retricted procedure, the competitive dialogue and, exceptionally, the negotiated procedure (Brugnoletti and Fogli 2009). Two crucial tep in a FM outourcing contract are (i) the undertanding, the prioritization and the communication to potential upplier of what the organization require, and (ii) the development 2

3 of a contracting mechanim that reflect the area of concern and encourage the upplier to fulfill the organization expectation (Jone 1995). Both thee two critical apect originate from the five main ri of outourcing, a identified by Bertrand and Franc (2003): dependence on the upplier, hidden cot, ervice provider lac of neceary capabilitie, ocial ri and the lo of now-how. However, the latter play a crucial role. A a matter of thi fact, there are evidence that outourcing involve high ri in term of lo of competencie on the non-core procee (Alexander and Young 1996, Betti et alii 1992, Doig et alii 2001), and alo on related technologybaed competencie (Hoecht and Trott 2006). Thi fact mae the definition of proper ervice condition (level) and the ubequent identification of the bet contractor by the cutomer organization extremely difficult, and, in the long run, hift the power aymmetry in favor of ervice provider. Moreover, how the outourcing organization can be really ure of the FM ervice provider competence and ability to fulfill all the contractual obligation? On the contrary the contractor mut identify the client expectation and real need, a facilitie ervice outourcing require an high degree of interaction and ervice cutomization. FM companie offer field-baed ervice baed on a high client interaction at a high cutomization and pecialization level and a high impact on the client performance ince they wor inide the client tructure. Uually the expectation in ervice outourcing are imprecie and the objective i ubjective (becaue not o eaily meaurable a in manufacturing outourcing). So the failure in atifying the cutomer expectation, carcely clarified in the contract claue due to a lac of nowledge on the procee, i ground of conflict, contract cancellation and penaltie. In recent pat, many cholar and practitioner partnering arrangement have become popular in FM (Robert 2001), in order to tranform the adverarial relationhip into cooperative one. FM contract have uually long duration. Even if the relationhip among client and contractor cannot be baed only on the contract (due to it incompletene), the contract i the eytone on which all the relationhip are baed and cannot be eaily modified. So, before creating a partnerhip a careful contractual definition of claue and ervice level and of upplier obligation i neceary; clearly, the upplier will provide ervice a pecified in the contract but, a a rule, there i growing neceity for the cutomer organization to change ome ervice characteritic. In fact, after the bargaining and the contract ignature, the flexibility of adding new feature or enhancing or reducing ervice i reduced (Belcourt 2006). In ynthei, the real challenge in the outourcing of facility management activitie i writing a contract that i pecific enough to 3

4 protect the cutomer and flexible enough to accommodate unplanned event (Johnon 1999) by, at the ame time, reducing the cot of negotiation, reducing the power aymmetry in favour of ervice provider, defining the proper claue and ervice level. To thi purpoe, Harri et alii (1998) ugget to introduce flexible option in the outourcing contract claue, uch a, for example, claue that lin vendor payment to the performance of the uer organization, claue permitting early termination of the contract. A partial olution i provided by the European Directive 18/2004, which approved the collaborative relationhip between client and potential contractor before the call for tender in the o-called technical dialogue. Thi activity allow the public adminitration to collaborate with the private companie, the nowledge owner, with the objective to identify the bet management model and particularly to prepare the contract term. But thi practice can not overcome the criticality of power aymmetry in ervice provider and enhance the cot of negotiation. Another form of flexibility in FM contract i repreented by the Service Level Agreement (SLA), an appendix of outourcing contract in which the target ervice level are clarified and, in ome cae, can be periodically changed. But a firt challenge and benefit of uing SLA i that the organization mut etablih exactly what the core buine i, while a econd one i the definition of what level of ervice hould be provided. A highlighted by Pratt (2003), the level at which ervice are pitched hould reflect and be lined to bet practice; hence, benchmaring i the right way to add upplier propoal credibility in term of quality and cot. However, the practical reality appear very different and benchmaring bet practice i quite impoible (above all during the phae of call of tender definition). In thi wor we propoe an auction-baed mechanim that allow public adminitration and upplier to dynamically bargain the feature of multiple procurement contract within boundarie fixed ex ante both by public adminitration and by upplier. The mechanim doe not require a high effort to the adminitration in term of providing detailed expectation; in fact, the mechanim aim at extracting thee information directly from upplier by inducing them to compete both in term of price and nowledge revealed (e.g. the right duration of the contract, plauible ervice level and upplier obligation). Moreover, the mechanim allow the procurer to control the number of winning upplier, and thu to reduce the overhead cot due to the management of upplier and/or to promote a tronger competition among eller. 4

5 The paper i organized a follow. Section 2 introduce the contract model and Section 3 preent the auctioned-baed mechanim to negotiate contract claue. Section 4 delineate conideration for future wor. 2. THE CONTRACT MODEL Let u conider a cenario where a local/central public adminitration, the procurer 4, ha to acquire everal good and ervice aimed at upporting a bunch of hi core activitie (in the following, good and ervice will be generically referred to a item) 5. In order to buy the neceary item, the procurer define a et of ditinct formal propoal where detailed upply rule are provided. For intance, the procurer might pecify the quantity demanded, the required quality, the term of delivery, of warranty and of payment, claue to afeguard poible intellectual property right and excluive condition; moreover, in order to elect reliable upplier both in term of owned now-how and economic performance, the formal propoal could provide for a et of penaltie for not fulfilling the related undertaing and a et of characteritic that the upplier mut have (pecific certification, target for ey financial ratio, etc.). In uch cae, on the eller ide, complementarity relationhip could exit between two or more of the item required by the procurer, namely, the upply of a particular item i valued by a eller more when it i obtained in combination with the upply of another pecific item (for intance, they could be aociated with cot aving due to cale and cope economie). In fact, a ingle eller could be able to provide different good/ervice among thoe needed to the procurer, and therefore he could be intereted in formulating a ingle economic propoal in order to upply all thee item to the procurer 6. Conequently, to organize a olution to acquire imultaneouly all the item which could preent complementaritie for eller could induce a large aving for the procurer 7 (e.g., a eller could apply larger dicount when providing two complementary item than jut one). Similarly, on the procurer ide, acquiring eparately all good/ervice ri to induce a raie of the number of upplier and relative procurer overhead cot. Moreover, a eller with a high maret power could defeat opponent with no maret power much more eaily when item are acquired eparately, ince they cannot coordinate their bid to diplace the bid of the trong eller (loo at the divide et impera trategy, in the ene that if the item are requeted eparately by the procurer, then the competitor of the incumbent eller are prevented from collaborating and thu they get 5

6 weaer); in uch a context, opponent are dicouraged from participating and thu competition i jeopardized. Therefore, in the cae whereby everal item ha to be acquired and different eller could be intereted in providing more than one item, the procurement procedure hould be deigned in uch a way to allow the procurer to exploit the opportunitie and mitigate the ri both on the eller ide and on the procurer one. An effective olution to planning procurement in uch cae conit of applying combinatorial auction, which allow the eller to ubmit bid on bundle of item and to communicate poible incompatibilitie among their bid to the procurer, where two incompatible bid cannot be both imultaneouly elected a winning by the procurer (ee e.g. Fujihima, Leyton-Brown and Shoham 1999, Lehmann, O Callaghan and Shoham 1999, Leyton-Brown, Pearon and Shoham 2000, Sandholm 2000, Auubel and Milgrom 2002, Peeč and Rothopf 2003, Xia, Koehler and Whinton 2004, Kwanica et alii 2005, Conitzer and Sandholm 2006, Avenali and Baanini 2007, Avenali 2009). In uch a way, the eller are able to model and manage poible complementarity relationhip among item, and therefore to offer higher dicount to upply two or more complementary item, without running the ri of undergoing irrational allocation. Moreover, the procurer can control the number of winning upplier. However, even with combinatorial auction, the procurer ha to completely pecify the characteritic of the upply of every item when call for bid on the item (the deired quality, delivery term, etc.). From now on, we refer to uch information a contract feature. Providing all thee information for all good and ervice could require a big effort for the procurer both in term of money and dedicated human reource. Moreover, everal contract feature decided by the procurer could be inappropriate or even harmful to the procurer himelf, a he could not have the neceary ill to perform the right analye. On the other hand, eller have the uitable nowhow to determine thee contract feature in uch a way that they are effective for the procurer; however, thi nowledge i private, in the ene that if the procurer aed the eller for it then the eller might trategically lie when anwering. Therefore, in order to cheaply acquire the neceary now-how to effectively formulate all contract feature, the procurer hould deign a mechanim to extract the neceary nowledge directly from the eller. To do thi, the procurer could define a combinatorial auction where for any item a correponding contract i auctioned off, contract feature are partially negotiable, the number of winning eller can be controlled by the procurer, and the eller can ubmit offer which report their propoal for the negotiable contract feature and the price they 6

7 require to upply the related item according to their contract propoal. Thi approach belong to the literature trand of multi-attribute auction (ee e.g. Che 1993, Branco 1997, Teich et alii 2004, Avenali, Leporelli and Matteucci 2006) with particular reference to the combinatorial cae (ee Schnizler et alii 2008). In particular, in the propoed mechanim the multiple dimenion of the negotiation proce can even concern the rewriting of whole part of a contract, and the number of the elected upplier can be managed by the procurer. Before introducing the combinatorial mechanim that allow the procurer and the eller to imultaneouly negotiate multiple contract, by controlling the number of winning eller, we need a few notation. Let u now conider a ingle procurement contract. It i a voluntary and legally enforceable agreement between the eller and the procurer, that document the payment rule which the procurer i ubjected to, and the mode and the penaltie which the eller i ubjected to in providing pecific good/ervice that the procurer pay for. In particular, the information underlying the agreement i tructured along ection of a document, which define or explain the ubject matter. Therefore, any contract can be decompoed in a et of ditinct part, each one repreenting a pecific informative content. We refer to any ditinct part of the agreement a contract claue. We refer to the number of claue which a document i eparable a contract cardinality. We now introduce the notation and definition to formally repreent contract and model the formation proce of a contract in a dynamic bargaining framewor. Let u aume a procurer p and let S h, 1,K, S h, r be r et of claue defined by procurer p which could be applied to formulate a multitude of poible verion of a generic procurement contract h of cardinality r. In particular, two claue i, j Sh, a with a { 1, K,r h } are defined a ubtitute for p with repect to contract h, in the ene that they cannot be part of a ame contract verion; in other word, ubtitute claue repreent alternative mode to define or explain the matter underlying a pecific part of a contract. On the contrary, two claue and j S h, b with a, b { 1, K, } r h i S h, a and a b are defined a complementary for p with repect to contract h, namely, they can be ditinct part of a ame contract document. Therefore, any verion of the contract h can be repreented by an ordered equence of 7

8 complementary claue, that i, h = ( h, 1, K, h, r ) S h h,1 K Sh, r h. From now on, for ae of notation, a contract h can be alo repreented by the et of it claue, that i, = (, K, ) =, K. Moreover, ome claue in { } h h, 1 h, r h h,1, h, r h S h Sh, 1 Sh, r = K could be aociated with quantitative data which could not be completely pecified by the procurer. In thi cae, the procurer only et a range where the value can be elected. We define uch a claue a open while any claue completely pecified i called cloe. In particular, given an open claue S, let d 1 be the number of unpecified quantitative data and let [ u ] h l j, j,, for j = 1, K,d be the range where the j-th unpecified quantitative datum of claue can be elected. An open claue allow the eller to pecify the quantitative data of the claue on the bai of their internal ill. By applying complementary/ubtitute and open/cloe claue a procurer can define a flexible contract model where different level of negotiation among procurer and eller can be implemented. In fact, the procure can freeze ome part of the procurement contract by preventing the correponding claue from being ubtituted and/or negotiated. For intance, if S h, a = 1 for a given a { 1, K,r h } and the claue in S h, a i cloe, then the informative content decribed in thi claue cannot be changed anyhow. If intead S h, a = 1 and the claue in S h, a i open then the tructure of the claue cannot be modified (there i no ubtitute claue) but a part of the aociated quantitative data can be pecified. Alo, if S 1 and the claue in h, a > S a are all cloe then it i poible to entirely ubtitute a claue of S h, a with another one in S h, a. A more negotiable cenario i the one where S 1 and all the claue in S h, a are open. h, a > 3. THE CONTRACT CLAUSE DYNAMIC BARGAINING MECHANISM We now propoe an auction-baed mechanim, contractual claue mechanim (CCM), that allow the procurer and the eller to imultaneouly bargain the feature of multiple procurement 8

9 contract, by applying the contract model introduced in the previou ection. CCM i characterized by two main phae. The goal of the firt phae conit of defining all the potential claue which could define poible verion of the conidered contract. Let T be the et of n 2 eller and H be the et of m 1 contract imultaneouly auctioned off by the procurer. Note that, although ome of the contract on ale could be aociated to the ame item (the upply of an item could be divided in lot), each contract i uniquely determined a the contract feature and the required price could be differently et by the eller a the mechanim goe on. At the beginning of thi phae, for every contract h H the procurer propoe a et of claue S h = Sh, 1 K Sh, r h which allow eller to repreent any poible verion of the contract. Moreover, procurer indicate the range aociated with any open claue Sh. For brevity of notation and with no lo of generality, from now on we aume that all contract have ame cardinality ( r h = r for any contract h H ); moreover, we aume that for any poible open claue the number of unpecified quantitative data i exactly one ( d = 1 for any claue ). Therefore, if Sh i an open claue then we denote by [ l, u ] the range aociated with the only unpecified datum of. Furthermore, the procurer allow any eller t T to propoe a limited number q 0 of new claue for any contract h H. In particular, the eller have to pecify which et Sh, i Sh a new claue hould be inerted in; moreover, if it i needed, the eller may encloe a document aimed at clarifying why he ha ubmitted the new claue. The procurer collect all thee new claue and decide which one can be accepted and which one have to be rejected. Succeively, the procurer aociate with each claue Sh (both open and cloe) a value g 0 which i a higher a the claue i relevant for the procurer with repect to the whole contract h; we refer to thi value g 0 a the claue relevancy. Moreover, he aociate with each open claue Sh a function f : v [ l, u ] f () v [ a,1] (where 0 < a 1 ), which i applied to tune the relevancy of once the miing datum of i pecified: when the unpecified datum i et to v [ l, u ], then f () v g meaure the net relevancy of open claue Sh. In particular, function f mut be defined in uch a way that f ( v) = 1 for at leat 9

10 l u. Note that, depending on a, function f can induce large ditance between the minimum and the maximum value which the net relevancy can get. one v [, ] At the end of the firt phae, the procurer declare the reerve price of every contract and etablihe that the reerve price for any bundle of contract i the um of the reerve price of the component contract. In particular, for any contract h the reerve price i determined by conidering the verion ( h, 1, K, h, r ) of the contract characterized by claue with the highet relevancy, that i, h, i = arg max S { g h } h, i, for any i = 1, K, r. In the cae that the procurer do not want to et any upper bound on the price he i willing to pay, he imply et the erve price of each contract to a ufficiently large amount. Moreover, in order to avoid an exceive raie of the overhead cot upported to manage a high number of upplier, the procurer can impoe a maximum number W of winning eller. On the other hand, in the cae whereby eller are very different in term of maret power (e.g. a cenario where an incumbent compete againt new entrant), the procurer can promote participation and a a conequence a fiercer competition among eller by impoing a minimum number w of winning upplier. In the econd phae of CCM, a firt-price multi-round decending combinatorial auction i performed. The auction i characterized by memory, in the ene that, at each round, all offer are tored (both winning and non-winning) and can ubequently be ued by eller to complete their offer and form a winning configuration. At any round, each eller t can ubmit one or more bid, where every bid conit of: (i) a bundle B of contract; (i) the claue elected for any contract any contract uitable range [ ] u h B : h = ( h, 1, K, h, r ) Sh,1 K Sh, r ; (ii) for h B and any open claue h, a value v in the l, ; (iii) the price u, h for any contract h B given that thee ingle price will be binding only in the cae that bid i elected a winning (i.e. the whole bundle B of contract i aigned to eller t) 8. Given a eller t bid, if every required price u, h i lower than or equal to the reerve price, then the bid i admitted, otherwie it i dicarded. In the cae the offer i admitted the procurer compute the whole price u required for the bundle and a core c ( 0,1] for 10

11 the whole bundle B. Thi core get one when every contract in the bundle i characterized by claue with maximum relevancy: u c = h B = u h B, h h: i open r f h B i= 1 ( v ) max g + S h, i h: i cloe { g } g Then the procurer define an equivalent overall price u for every bid in order to mae homogeneou the price required by eller for bid related to different contract feature. In particular, the eller et u u =, in uch a way that the overall price propoed by the eller c i not altered in the cae that the contract in the bundle have claue with the highet relevancy, while the price i increaed when there are low-relevancy contract claue (the lower the relevancy, the higher the equivalent price). Summing up, at each round, eller ubmit their new bid, the procurer dicard the one which do not atify the reerve price, then he compute u, c and u for every bid which i admitted and finally tore it. In uch a way, any tored bid (both new and previou) i related to bundle of contract which atify the requirement of the procurer both in term of required price and contract feature (ubtitute open/cloe claue and range aociated with open claue are approved by the procurer, reerve price are et by the procurer). Therefore, by conidering all tored bid, the procurer elect the et of bid which minimize the um of the required equivalent price, ubject to the contraint on the number of eller which can win. After finding the winning bid, the procurer dicloe to the eller all tored bid and alo indicate the winning one. The identity of the eller who have placed uch bid are not dicloed, hence each eller neither now how many other eller are in the auction nor who ubmitted what; thi hould prevent eller from colluding or in any cae mitigate the colluion phenomenon. In particular, each eller only ee a lit of bid announced by the procurer and i privately informed by the procurer about her own offer. A eller quit the auction when he doe not ubmit new bid. The auction end when all eller have quit. A the mechanim i over, the contract propoed in the winning bid become binding. 11

12 Let u now face the problem of finding the optimal contract, that i, the contract aociated with the bid which minimize the um of the required equivalent price, ubject to the contraint on the number of the winning upplier. Let O t be the et of bid which eller t T ha bid for (from the beginning till now). We et O = O1 K On. To implify the notation, from now on we write that index belong to a given et of bid to mean that index i uch that bid belong to thi et (e.g., with O we intend that index i uch that bid i in O). Two bid which hare a contract are incompatible, that i, they cannot be both imultaneouly elected a winning by the procurer. Incompatibilitie among bid are repreented by the et I = {(, j) O O : j, B B j }. The problem of determining the winning bid can be formulated through the following integer linear problem (with a polynomial number both of variable and of contraint): min u x O Π ubject to x + x j 1 x 1 O: h B x yt Ot, t = 1, K, n n w yt W ( 4) t= 1 x { 0,1} O yt { 0,1} t = 1, K, n (, j) I :, j O ( 1) h H ( 2) () 3 where every binary variable x i 1 if and only if bid i elected a winning and every binary variable y t i 1 if and only if at leat one &, & be an optimal olution to Π. The optimal contract are &, while the n number of winning upplier i y& t. Π i traightforwardly bid of eller t i elected a winning. In particular, let y { 0, 1} n x { 0, 1} O thoe propoed in the winning bid { O : x = 1} derived from the formulation of the Combinatorial Auction Problem (ee De Vrie and Vohra 2003), where: t= 1 12

13 - Contraint (1) enure that incompatible bid cannot be both imultaneouly elected a winning. - Contraint (2) guarantee that any contract h H i allocated to a eller. - Contraint (3) and (4) impoe that the number of winning eller cannot be neither lower than w nor greater than W. Moreover, the computation of an optimal olution to Π i NP-hard ince it i at leat a hard a the Combinatorial Auction Problem (NPhard a hown in Rothopf, Peeč and Hartad 1998). In fact, any intance of the Combinatorial Auction Problem can be polynomially tranformed into an intance of the problem of determining the bid which minimize the um of the required equivalent price, ubject to the contraint on the number of the winning upplier (it can be eaily verified by etting w = 0 and W = n ). 4. CONSIDERATIONS FOR FUTURE WORK A hown in previou ection, to find an optimal olution to the integer linear problem Π require a high computational effort (it i NP-hard). Although there exit both exact and approximate olution technique for the Combinatorial Auction Problem (ee e.g. Sandholm 2000, Jone and Koehler 2002, De Vrie and Vohra 2003, Kwon, Anandalingam and Ungar 2005, Avenali 2007), a relevant iue in the proceeding of thi wor may include the development of an ad hoc heuritic in order to empower the exact olution technique propoed for the Combinatorial Auction Problem in the exiting literature. Furthermore, the propoed mechanim could find practical implication through the implementation of a web-baed application, where public adminitration and upplier may dynamically negotiate binding procurement contract, related to the outourcing of facility management activitie. The poible negotiation carried out among public adminitration and upplier by mean of thi web platform could be applied to define and develop experimental wor on the effectivene of the propoed contract claue mechanim. 13

14 NOTES 1 Thi wor ha been carried out a part of a European reearch project COLLECTIVE - Emerging communitie for collective innovation: ICT Operational tool and upporting methodologie for SME Aociation - FP 7 - SME Contract number: For detail, ee 2 Correponding author: addre: avenali@di.uniroma1.it, tel.: , fax: The problem of outourcing activitie in public Italian facility management maret i relevant. The yearly value of the awarded contract igned by Italian public adminitration for facilitie activitie outourcing in the year 2009 ha been about 14 billion of euro, while the value of the potential maret i about 27 billion (Oervatorio Nazionale FM 2010). Since 2002, CONSIP (CONceionaria Servizi Informativi Pubblici), a company of the Minitry of Economy and Finance, carried out FM tender on behalf of central and local adminitration. In 2008 CONSIP awarded contract value ha been 12 billion; therefore CONSIP gained a prominent poition in the FM maret of the Italian public ector (Ferri and Pala 2009). Moreover, 50% of total order (87050 order) ha been contracted out through online negotiation (CONSIP 2009). 4 To prevent confuion, from now on we refer to the procurer a he and any eller a he. 5 In general, thi iue i crucial for many big organization, uch a, for intance, multinational, utilitie (electric power, water and tranportation companie), great ditribution companie. 6 For intance, the eller could be able by herelf to upply thee good/ervice or alternatively he could be the leader of a coalition of enterprie, where the eller exploit the ditinct ill of the coalition by coordinating the role of every enterprie in defining the coalition propoal for a ingle contract. The goal of the coordination i to exploit cope economie and to hare fairly the overall revenue (Raiffa 1982). 7 A relevant example i the cae of the procurement of meal for 1,300,000 tudent in the Chilean public chool ytem, which wa awarded through a ingle round ealed-bid combinatorial auction. Thi improved the pricequality ratio of the meal and obtained etimated yearly aving of around US$40 million (Eptein et alii 2002). 8 Note that ome contract could regard jut a potential demand of the procurer, in the ene that the number of the item unit that will be actually demanded by the public adminitration i not defined in the contract, while only a maximum number of item unit, which can be requeted in a pecific period, i indicated. In thi cae, the price of a ingle unit of the item i equal to the overall price u, h required by the eller for the contract h divided by the maximum number of item unit indicated in a claue of contract h. 14

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