Procurement Mechanisms when Signals about Quality are Observable

I compare an auction and a tournament in a procurement setting where a noncontractible signal about the quality that each firm is able to supply is observed by the procurer and all competing firms. Signals are affected by firms noncontractibleinvestments in R&D and the procurers precision of quality measurement. Although investments are always higher in the auction, the procurer may prefer the tournament to the auction if marginal costs of quality measurement are high or the production technology for quality is highly random.