A Multiattribute Sealed-Bid Procurement Auction with Multiple Budgets for Government Vendor Selection

Authors:
Jay Simon;Francois Melese
Affiliations:
Defense Resources Management Institute, Naval Postgraduate School, Monterey, California 93943;Defense Resources Management Institute, Naval Postgraduate School, Monterey, California 93943
Venue:
Decision Analysis
Year:
2011

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Abstract

This paper offers a new approach to government 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 nonprice 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 those 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 suboptimal 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.