This paper offers a new approach to government’s vendor selection decisions in major publicprocurements. A key challenge is for government purchasing agents to select vendors thatdeliver the best combination of desired non-price attributes at realistic funding levels. Themechanism proposed in this paper is a multiattribute first price, sealed bid procurementauction. It extends traditional price-only auctions to one in which competition takes placeexclusively over attribute bundles. The model is a multiattribute auction in which a set ofpossible budget levels is specified. This model reveals the benefits of defining aprocurement alternative in terms of its value to the buyer over a range of possibleexpenditures, rather than as a single point in budget-value space. This new approach leads tosome interesting results. In particular, it suggests that in a fiscally constrained environment,the traditional approach of eliminating dominated alternatives could lead to sub-optimaldecisions. Finally, an extension of the model explicitly examines the buyer’s decisionproblem under budget uncertainty by applying a utility function assessed over the valuemeasure.
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