A mechanism to derive optimal contractor-type and action combinations of a single-source procurement contract

In sole-source procurement contracting for government goods and services, the buyer (government) needs to derive the optimal actions from the contractor so the buyer can obtain the maximum utility and the contractor, or single-source supplier, is guaranteed the equivalent of a minimum level of profit. Under the assumption of risk-neutrality for both the buyer and the contractor and the buyer's unobservability of the contractor's action, it is necessary for the buyer to design a (mathematical) model to achieve the above objective. This paper considers the mathematical formulation in which two problems – moral hazard and adverse selection – are present simultaneously; furthermore, from the formulation, a General Algebraic Modeling System program is used for a possible buyer to obtain the optimal actions.