How Many Vendors Does It Take to Screw Down a Price? A Primer on Competition in Procurement

The goal is to transmit some lessons learned from previous modeling efforts for the benefit of future procurement managers. An important mechanism for cost-cutting is procurement practices that facilitate competition among vendors, so that government agencies benefit from efficiencies inherent in private enterprise. Realistic predictions for what will happen when the government attempts competitive procurement are hard to obtain. Experience with procurement shows that appropriate competition often cuts costs, but it does not explain how costs are lowered. In theory, competition is sometimes, but not always, feasible and beneficial in procurement. Basically, the procurement process consists of two stages: Bidding and postcontract. Data may be limited because of the long lag time between the start of a procurement test and the incorporation of its results into data sets. The lack of data makes it necessary to rely, to some extent, on theoretical models and to evaluate the reasonableness of their implications for procurement.