As noted above, in markets for differentiated goods, discrimination need not always be through price preferences. It could also take the form of choice of inferior domestic goods, or choice of domestic goods which are more distant from the preferences of domestic consumers than foreign alternatives. How far does the GPA address this problem? Article XIII:4(b) of the GPA stipulates that the entity shall make the award to the tenderer whose tender is either the lowest tender or the tender which in terms of the specific evaluation criteria set forth in the tender documentation is determined to be the most advantageous. The procurer thus retains the freedom to take non-price factors, such as quality, into account in the award of the contract but is required to ex ante specify the criteria that will be taken into account.
The procurer has much greater discretion in the award of a contract when quality or other non-price criteria are taken into account than in the case of a strictly price-based decision. But is it desirable or possible to prevent this? Firm-specific favouritism has been studied in the context of a model in which incentive contracts are auctioned off to a pair of bidders with differing quality (Laffont and Tirole, 1993). The procuring official can bias the award toward a favoured bidder. The tax-payer or government cannot control the abuse of discretion because they cannot easily observe quality. It is shown that it may be desirable in this situation for the government to respond to possible favouritism by manipulation of the procurement mechanism, for example, by prohibiting the use of quality attributes as a basis for award. However, even if this is possible in the national context, it is doubtful that an international agreement could significantly restrict such discretion even though it is clearly open to abuse. But the enforcement procedures of the GPA may offer some defence to foreign bidders as well as help alleviate the agency problems in procurement, as is discussed in Section IV.
III. Procurement and trade policies