What Are the Differences Between Public and Private Sector Procurement?

We wrote this article in 2013 on the differences between public and private sector procurement, and it still comes top of the list on our “popular posts” ranking. It is a collection of comments from a survey we ran, so it seems about time we gave more of our own views on the topic, and also try to move that old post away from the top of the charts!

So today let’s revisit the basic question, then we will explore the specifics in more detail in two further articles.

Our analysis suggests that there are four fundamental differences between the sectors, and these then drive all the other issues we see.

  1. The public sector is constrained by regulations

This is perhaps the most obvious, although we might argue it is not actually the most significant. In virtually every country, public procurement is defined and constrained in some sense by legislation. That may be at local, regional, national or international level, or some combination of those. In the UK, we are bound by the UK regulations, which are taken from the EU directives.

Even beyond that, wider regulations such as the World Trade Organisation can come into play as well. Clearly, this restricts how procurement is executed to a considerable degree. The private sector is still constrained to some extent – for example, laws on equality or bribery might come into play in procurement activities – but generally, there is much more freedom from legislation.

 

  1. The public sector has more complex motivations and objectives

The public sector now expects procurement to address several issues beyond simple value for money or basic supply. For example, “social value” is now enshrined in legislation in the UK, and there are policy goals such as supporting smaller firms, or minority owned firms (e.g. in the US and South Africa), driving employment or education, supporting equalities … the list seems almost endless today. Now while some private sector firms might decide to look at similar areas (particularly if the firm wants to win government contracts itself), it is unusual to find the same focus on these wider issues in a private sector organisation.

 

  1. The public-sector stakeholder base is wider and includes those outside the buying organisation

If we consider the largest and most significant public sector expenditure areas, many are of great interest, significance and importance to those beyond the organisation doing the buying itself. So, whether that is construction of new railway lines, buying expensive drugs or hospital equipment, providing social care, waste disposal or employment services, many citizens outside the public body itself have a great interest in what is being bought and the supplier performance. Even in an area like defence, where the citizen is less involved, the stakeholder picture for major defence equipment is incredibly complex, ranging through many technical experts, foreign allies, defence analysts and politicians. Now there are complex spend categories in many private sector firms, but few that have 10 million stakeholders.

 

  1. The public sector faces more transparency

We suspect there are just as many major IT project disasters or other failures in the private sector as the public, but we just don’t tend to hear about them. The public sector faces both legislation that promotes transparency, and the general desire of the public and media to understand how “their” money is being spent. The same simply does not apply to procurement activities in Unilever, Shell or Ford.

So, our hypothesis is that all the practical and operational differences we observe between the two sectors flow from these four fundamentals. For instance, if someone argues that the biggest difference is “you can’t negotiate in the public sector” (not really true, we should stress), you can trace any difference back to that legislative issue, plus a touch of the “transparency” point.

In our next two articles, we will go into how these fundamentals manifest themselves in more day-to-day terms, and just for fun, we will position those pieces as why the public sector is better than the private – and vice versa of course!

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