Public vs. Private Sector Procurement

Written by: Markus (Mark) Lenarczyk , Director Innovation & Value-Added Sourcing at Mohawk Medbuy Corporation

In the public and private sectors, goods and services must be acquired with the common goal of an outcome that maximizes value to the buying organization. While public sector procurement has some unique dynamics, both sectors have many things in common and can share best practices and learn from each other.

When comparing sectors, the demands of public procurement are greater and more varied than those of the private sector. In a series of articles, we’ll explore these demands – beginning with government procurement policy.

All levels of government are balancing three objectives when they procure:

1) Value-for-Money:

Government has an obligation to ensure that monies are managed prudently in support of the public interest. Judicious money management also applies in the private sector, but the primary focus is profitability. Government seeks more than simple value for its spending. Increasingly, public procurement is expected to account for other issues, such as environmental sustainability, supporting smaller or minority-owned firms, indigenous reconciliation, driving employment or education, supporting equalities, etc. The open tendering process – the act of obtaining competitive bids / proposals from potential proponents (suppliers, providers, contractors) – is used to achieve this. Although tendering is also used in the private sector, it’s a dominant methodology of public sector procurement for two main reasons:

a) It is commonly believed that if the competitive procurement process is transparent, fair, and open to all qualified suppliers, the public gets value for money, and all parties are satisfied with the result.

b) Canadian and International Trade Agreements (including Regulations & Directives) apply to publicly funded organizations and prescribe a competitive approach to procurement. In other words, tendering is the law.

The private sector is also constrained to some extent but, in general, there is much more freedom from legislation.

2) Transparency:

An open competitive process utilizing free market forces allows public institutions to achieve a procurement outcome tailored to their needs, on their terms. If the process is not open and fair, it’s believed that value for money is seldom achieved. In the private sector, there is more latitude overall; e.g. who is given the opportunity to bid, spend thresholds, the process to follow, and other issues to be addressed in the outcome. These are determined by the firm’s internal policies.

3) Trade Liberalization:

This is also referred to as reciprocal non-discrimination. Public institutions are to provide equal access to suppliers from any jurisdiction. This counteracts the protectionist pressures faced by governments to favour suppliers from their own jurisdictions.

The principles behind trade agreements (where governments are signatories) include these three objectives, as well as the elimination / reduction of tariffs and other barriers that prevent goods and services from one jurisdiction being sold in another. If implemented correctly, this allows access to new markets and increases economic growth for all parties.

In summary, the public sector is open to more scrutiny (fishbowl environment), has more prescribed steps to follow, and must adhere to comprehensive record-keeping requirements.

However, in today’s changing business landscape, for-profit companies are facing an ever-increasing need for transparency and accountability. As a result, compliance and risk management are becoming a greater part of the private sector’s procurement mandate. Public sector processes can provide valuable guidance on protocols that can be adopted to maintain pertinent records and reduce risk. After all, procurement is not without its perils. Both public and private sectors are bound by the same case law rules or precedent; an unsuccessful procurement can lead to a dispute that ends up in court to determine fault.

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