Th3.6: ^^ Competitive Tendering Flashcards
Why does the government have to provide certain goods and services?
because they are merit or public goods but this does not mean that the state has to be the producer of all these goods and services
Goods, such as the sheets in NHS hospitals, are produced by…
produced by the private sector and then bought by the public sector
A similar thing can be done with services:
the government can contract out the provision of a good or service to private companies e.g private firms could be employed to run hospitals
How can competition be introduced into the market?
as the government will request competitive tenders by drawing up a specification for the good or service and inviting private firms to bid for the contract to deliver it - the firm offering the lowest price wins the contract, subject to quality guarantees
How does this help the government?
helps to minimise costs for the government and ensures efficiency by allowing for competition in the market
How does this help the private sector?
the private sector will have more experience running the projects, so it is likely they will be better managed
However what are the problems with competitive tendering?
it may not always be the most cost-effective way and the process of collecting bids is costly and time-consuming. the private sector may not aim to maximise social welfare in the same way the government would and could use cost-cutting methods that reduce quality
It is important they prevent firms…
prevent firms undertaking anti-competitive practices, such as collusion and predatory pricing. the problem is that it is very difficult to prove overt collusion and almost impossible to prove tacit collusion