Chapter 15: Government as a Market

Government in the U.S. - federal, state, and local - constitute large and often very special customers for a wide variety of private business. but it is far more than a mere matter of size.
Federal civilian procurement typically relies on the selection of the offerer of the lowest price based on sealed bids submitted by "responsible bidders". The Federal Supply Service in the U.S. General Services Administration is the agency in charge of buying most of the civilian procurements of the federal government.

For companies that conduct substantial amounts of business with the federal government, the very act of signing a procurement contract forces them to agree to perform a wide variety of socially responsible actions
Privatization can expand or contract the amount of goods and services that government purchases form the pricate sector. The federal government requires that firms doing business with it maintain fair employment practices, provide safe and healthful working cinditions, pay "prevailing" wages, refrain from polluting the air and water, give preference to American products in their puchases, and promote the rehabilitation of prisoners.
There is indeed a range of pricatization actions that governments take, and the effects on the private enterprise vary substantially. Contracting out is the most popular form of privatization. Monopsonistic-completely subject to the changing needs of this one purchaser. Long-term impacts of military procurement, the perverse offect that being a DOD contractor has on firms
Just as commercial markets are far from uniform, the government market consists of a conplex array of changing requirements. Moreover, the manner of production and distribution is not immune from political pressures. On the other hand, the activities of government agencies do not usually generate the economic incentives for good performance to which private enterprises routinely respond.

Source: Business and Government in the Global Marketplace (7 edition, Murray L. Weidenbaum)