One of the issues with the lowest bidder approach is that the organization writing the bid must completely understand its needs before writing the actual bid.

One of the issues with the lowest bidder approach is that the organization writing the bid must completely understand its needs before writing the actual bid. For physical infrastructure that's often the case but with software you get 2-3x cost overruns simply because the project is effectively re-done 3 times. Because often what the buyer is asking for is simply not what he needs. Of course, bidding laws makes it illegal to contact the bid writer and if you try to anticipate anything not explicitly written, you'll end up with a more expensive proposition than your competitor. The IBM Phenix payroll system is a prime example of that, but there are many more.