On the Separation of Award and Contract in Public Procurement

In public procurement, a temporal separation of award and actual contracting can frequently be observed. In this paper, we give an explanation for this institutional setting. For imperfect procurement contracts such a separation may increase efficiency. Efficiency can be increased by postaward, pre-contract negotiations between the award-winning firm and one of the losing firms. Surprisingly, the efficiency gains can be higher if the award is given to a seller with a lower reputation for quality instead of to a seller with higher reputation.