should be encouraged, settlement in the procurement context may be socially undesirable (Marshall et al., 1994a and 1994b). There are two types of settlements: one between the procurement official and a dissatisfied firm, and the other between the successful firm and other firms. The first type of settlement circumvents the enforcement role of the protester. The second type of settlement is shown to produce outcomes that are equivalent to those that would be attained through explicit collusion between firms.
While interfirm settlements are unambiguously welfare-reducing and should be banned,28 this is not the case with settlements involving the procurement official and unsuccessful firms.29 In the latter case, there are again two kinds of settlements. First, the procurement official may have made an appropriate decision but still faces a protest from a less well-informed firm. The official may settle to avoid delay in acquiring the commodity and the expense of preparing a defense. Second, the official may have made an inappropriate decision, and may settle to avoid a negative decision from the court or review body. Taxpayers, unable to distinguish ex ante between the two cases, will prefer to leave small abuses by procurement officials unaltered rather than incur the frictional costs of protest litigation. Thus, it would seem desirable to tighten the GPA provisions to ban interfirm settlements (though in some countries existing competition policy provisions may already do so) but it would not be necessarily welfare-improving to insist on judicial review of the procurer's actions without scope for settlement.
Design and implementation of procurement contracts: discriminatory consequences of bail-outs
(Marshall, et al. (1994b) show that settlement of postaward protests by favoured firms can induce bidding behaviour in the first stage of the game that is indistinguishable from the bidding behaviour of firms that are engaging in explicit collusion.
(Most jurisdictions do not seem to prohibit settlements. Thus, the only difficulty for private parties is actually negotiating a settlement. However, there are likely to be administrative difficulties for a government official in making a settlement since this could be seen as an acknowledgement of an error.