15.1 INTRODUCTION: CONTROVERSY AND THE CHOICE SET Government purchasing is big business and represents a signiﬁcant proportion of economic activity in most countries. It involves governments at various levels (national, state, local, city) buying goods and services from private ﬁrms. In some markets, governments are major or even monopsony buyers. Public procurement policy involves governments in a set of choices about what to buy, who to buy it from, and how. In other words, decisions are required on the type of goods and services to be purchased, the choice of contractor, and the form of contract. Uncertainty increases the problem of choice. Questions arise about the most appropriate market, institutional and contractual arrangements for coping with uncertainty. At one extreme, uncertainty is absent and the competitive model is applicable. The government as a buyer knows what it wants; the products exist and are being bought and sold in something resembling a competitive market (for example, oﬃce furniture, buildings, houses, vehicles). In such circumstances, the state simply acts as a competitive buyer, speciﬁes its requirements, and invites competitive tenders. The lowest bid is selected and a ﬁxed-price contract is awarded. At the other extreme, governments are not always certain about the type of product that they wish to buy, as with high technology goods (for example, weapons, electronics, nuclear power and telecommunications). Moreover, within the domestic market, there might be relatively few potential suppliers and no other buyers (for example, defence, UK Post Oﬃce). In this case,...
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