Why transparency is good for government and its suppliers.

Why transparency is good for government and its suppliers.

https://commons.wikimedia.org/wiki/File:Lemons_(5836497465).jpg

Bear with us for a moment here, we’re going to show you why all Government procurement is prone to failure and what can be done to make it better. 
 
In 1970 the economist George Akerlof wrote a seminal paper called “The Market for Lemons” which analysed the effects of unequal information in the second hand car market. https://en.wikipedia.org/wiki/The_Market_for_Lemons
 
Akerlof along with Spence and Stieglitz won a nobel prize for their work on information asymmetry in 2001, essentially proving that markets where one party has an imbalance of information which can lead to poor contracting and sometimes market failure. https://en.wikipedia.org/wiki/Information_asymmetry
 
All government tenders suffer an imbalance by their nature, it is simply not possible for a buyer to expose all of the required information about a contract through a series of documents, the larger the contract gets, the greater the asymmetry and the greater the chance of failure.
 
The best way to overcome this asymmetry is to be the incumbent supplier, as your knowledge of the contract affords you a significant advantage in the upcoming competitive tender. The advantage afforded to incumbents is why so many large firms offer to conduct pro-bono work, and work hard to engage public sector buyers in advance of a contract. The extra knowledge they gain makes it much more likely that they will win.
 
However, transparency can go a long way to improving this situation. Better information about Governemnt contracts, what they include, when they’re due for renewal and what was paid to the supplier, goes a long way to levelling the playing field and reducing the incumbent’s advantage. 
 
Reducing that advantage has great benefits, it increases competition, which tends to drive down prices and allows more suppliers into the market, so it is good for smaller suppliers.
 
So public procurement needn’t be doomed to failure, there’s a very simple way to improve it: much, much more openness about our contracting. 




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