Public procurement

From REBAG

Public procurement is subject to a set of constraints that private enterprises do not face in securing for themselves goods or services. In particular, the public sector is almost always forced to use public bids for its procurement, while private negotiations prevail within the private sector. Public bids and auctions have optimal characteristics when the goods or services required can be specified in all their details and, in general, when the transaction is described by a complete contract. Complete contracts, however, are just an abstracion. In most real life cases, it would be beneficial to consider the past reputation of potential contractors, so as to constrain their actions by the thought that if they underperform in the fulfillment of their current obligations, they will find it more difficult to secure future contracts. Rebag provides the appropriate framework to obtain such results, and its adoption, by introducing a higher degree of accountability both of firms and of the public officials interacting with them, would allow for a shift towards more flexible private negotiations and away from auctions, at least for those projects that are complex and risky (see Picci, 2006).