Procurement auctions with the option of post-auction renegotiation have caused some serious doubts about its effectiveness especially when there exists limited and endogenous liability due to wealth constraints. Prior literature examines this exercise assuming those parameters are exogenous. This project relaxes that assumption and studies the choice of the wealth constraint through spinning off when renegotiation is allowed in procurement auctions. The results show that creating a spin-off does not have a significant effect on the probability of winning, but does have positive influence on the earnings. On buyer’s side, strong sellers yields the highest possible profit for the buyer, while weak sellers are more detrimental than spin-offs for the buyer’s profit. In addition, the worst environment for the buyers is when there are asymmetric sellers and at the same time, spinning off is allowed.

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