Why Businesses are Reluctant to Sell to Governments

Abstract

responses varied by type ofproduct or service being provided. Contracting out is one of the most popular forms of cost containment utilized by governments at all levels (David, 1988; Morley, 1989; Chi, 1988; Butler, 1985; MacManus, 1990a). Ironically, at the very time when governments are most actively and aggressively seeking more opportunities to rely on the private sector, news media accounts indicate that the business community has become more cautious about selling to government (Goldstein, 1989). It is estimated that less than 2 percent of all U.S. businesses sell to the federal government (Holtz, 1980: xii) in spite of the fact that the U.S. government spent $195 billion on goods, services, and research and development in 1988 alone. Although the proportion of businesses selling to state and local governments is probably somewhat higher, it is evident that businesses are skeptical about selling to government in spite of the size of the public-sector market. Yet for governments to get the most benefit from contracting out, genuine competition for government contracts must exist. If a significant proportion of the business community does not perceive that government procurement is competitive, or that the competition is fair and equitable and produces costs savings, then government procurement experts must devise strategies to broaden the vendor pools.