This Section describes the relevance of the GPA to the agency problems that arise in procurement. Informational asymmetries lie at the heart of any analysis of procurement policies. A central feature of procurement problem is that the government cannot observe the current and expected costs of any particular firm. If it did, then there would often be no need to organise tenders, since the government, if it wished, could simply purchase the item from the lowest-cost supplier. However, there is a possibly more significant agency problem in procurement: the procuring officials themselves are agents for other parties which include politicians and their constituency. The goals of the procurer and the constituency may differ, and the former must be given incentives to implement the goals of the latter.22
The literature on government procurement in the international context, in focusing on the tension between minimization of procurement cost and protection of domestic firms, has paid relatively less attention to the problem of moral hazard on part of the procurer. Furthermore, the welfare costs of the abuse of discretion by the procurer, or collusion between the procurer and a supplier, domestic or foreign, may well be as significant as those arising from the failure to devise cost-minimizing procurement mechanisms or from protectionist procurement. This Section discusses the relevance of the GPA to each of the principal-agent problems that arise in procurement: the constituency vis-a-vis the procurer and the procurer vis-a-vis supplying firms.
Disciplines on the procurer: transparency and challenge provisions
(McLachlan (1985) in a study on Canada, the EC and the United states finds that a discrepancy is likely to arise between the degree of discrimination designated by government (sometimes zero as a result of international agreements) and that which is actually implemented by bureaucrats. He provides evidence, for instance, from the statements of the Auditor General of Canada, of how purchasing departments have devised means of retaining their discretion and avoiding the scrutiny of the Treasury Board or the Department of Supply and Services. He concludes that "In general, many of the Reports of the of the Auditor General combine to give the impression of rather inadequate control of federal public expenditure in Canada, and hence to confirm implicitly the existence of scope for discretionary behaviour" (p. 364). Benson (1981) finds that even though Congressional Review Committees in the United States play an important monitoring role, their effect is to reduce rather than eliminate bureaucratic discretion in purchasing.