The Efficient Allocation of Private Contractors to Public Works

Abstract

A large, publicly owned corporation has a yearly problem of allocating work to private contractors. The current heuristic procedure used to do this economically on a minicomputer is described. This quick procedure generally does not lead to an optimal solution. The formulation and solution of the problem as an optimization model (an integer programme) is then described. It is then pointed out that this model can be regarded as a minimum cost network flow model showing the optimization problem to be much easier than it at first appeared. Regarding the problem in this manner has the advantage of (i) showing it is possible to optimize very quickly on a minicomputer; (ii) demonstrating that meaningful shadow prices can be derived.