Public Procurement and the Risk of Severe Weather Events

This paper studies how severe weather events (SWEs) affect the awarding procedures of public procurement contracts. We draw on a large dataset of Italian public procurement tenders for the construction and the maintenance of buildings and roads in the period 2008-2021. We find that municipalities previously hit by SWEs during the execution of procurement works are more likely to adopt procurement procedures that give them discretion in the selection of participating firms. When the firm winning the contract has already worked with the municipality in the past, such discretion reduces the likelihood of time overruns in work completion. Relational contracts aimed at overcoming the contractual incompleteness caused by SWEs can explain the previous findings. In a simple theoretical setting, we show that the public buyer can reward firms that handled past SWEs well by selecting them as participants in future tenders.