A multiattribute sealed-bid procurement auction with multiple budgets for governments' vendor selection

Abstract

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