Subcontracting, Procurement Performance and Workplace Safety

Abstract:

Subcontracting in public procurement may alleviate execution frictions, by expanding the firm boundaries or by insuring it against unforeseen circumstances that obstacle timely and complete project delivery. However, the delegation of tasks to external firms may generate uncertainty over ultimate accountability and weaken incentives to safeguard workplace safety. To investigate this trade-off, we draw on comprehensive data covering the universe of public works tenders in Italy, enriched with information on contractors, subcontractors, and workplace accidents. Leveraging a difference-in-differences design that exploits a 2021 reform easing restrictions on subcontracting, we show that increased access to subcontracting improved project execution by reducing public works' completion time and cost overruns, despite the apparently lower competition at the tender stage. On the downside, within-firm estimates indicate that the incidence of work-related accidents may be higher when a firm operates as a subcontractor, illustrating a policy-relevant tension between effective execution and work-place safety.