Contrasting Procurement Practices between the Private and Public Sector

Written by Tiffany Lau, MSIPMM

by Tiffany Lau, MSIPMM

Contrasting Procurement Practices between the Private and Public Sector

Written by Tiffany Lau, MSIPMM

by Tiffany Lau, MSIPMM

by Tiffany Lau, MSIPMM

Procurement involves a list of activities and processes that are necessary for an organization to acquire necessary products or services from the best suppliers at the best price. In commercial procurement terms is the act of obtaining something for business purposes and can cover a whole range of things including assets, supplies, skills and services for the business to continue its smooth operation for procurement.

Large public and corporate organisations like to promote choice and greater competition with procurement and acquisition programs. Choice and quality go a long way in business, which everyone can benefit.

The most basic distinction between private and public entities is ownership. The public sector is controlled by the government, while the private sector is headed by individuals that lead and manage corporations. The private sector encompasses all for-profit companies that are not owned or operated by the government. Because of this distinction of ownership, there comes many different practices and policies regarding on the procurement process.

Transparency Differences

Public sector organizations are run by a higher government entity. Everything that they do must be easily visible to the public. There must be a distinct audit trail, and all information should be open and accessible.

Information such as a contract opportunity, contract award, pricing, and timing are all included in reports made as a standard procedure. There must be equal opportunity provided by the government to each entity that wish to do business with them that meets the requirements. Bid openings and public events.

Private sector transparency is not as clear cut. While private entities do have complete visibility requirements placed upon them, private entities do not need to provide equal opportunities, and will often withhold information that is not necessary to the bidding suppliers. They do not reach out to every company, and also do not need to publish their contract awards in the same way that public entities do.

Public Procurement Practices

Public procurement refers to the purchase by governments and state-owned enterprises of goods, services and works. Their main funding comes from tax revenue, fines and tariffs. Governments are expected to carry it out efficiently with high standards to ensure high quality of service delivery and safeguard the public interest.

This means that public organizations don’t have as much control over the procurement process. They must wait until the funding institution has collected the required revenue and then disbursed it properly before engaging in procurement activities. If the disbursement is overdue, the organization may need to delay payment or further procurement practices.

Other common delays in the process include the use of background checks on potential suppliers, contract negotiation practices, and various other investigations and research which add a minimum of 30 days to the procurement process. Moreover, public organizations may belong to multiple jurisdictions, and their procurement practices must be approved by multiple governmental entities.

Public entities are permitted to use “preferred suppliers,” or suppliers who have a reputation with the government. These suppliers may cost more money on the surface, but they save time in the investigations portion of the procurement process. Saving time and money on background checks and various other things can counterbalance the extra cost of the vendor.

Private Procurement Practices

Private organizations draw their revenue from sales, investments, and other business-related areas. Their money is more centralized, and this speeds the procurement process along. Privately owned businesses can seek out different suppliers to find the best deal because they have more time and resources to do so. Their focus is more on saving the most money and getting things done quickly.

Private organizations will still often use preferred vendors, for similar reasons to those utilized by the public organizations. While private entities do not take nearly so much time in research, they do a thorough job of understanding their suppliers before signing a contract (by conducting simple reference and credit checks, site visits, and sample reviews, for example). Using preferred vendors and simply renewing contracts is an easy way to decrease time spent in the procurement process.

Other private sector practices include supply chain management, supplier relationship management, inventory management, segmenting suppliers, and others. These practices help the private sector to be more self-motivated, but it is also a more unstable place.

Because of the high risk, high return nature of private procurement practices, there is a lot more risk analysis that should be done. Public entities are more secure economically, and more stable, but private organizations often generate more growth than public ones do.

The Contrasting Interests

Private organizations are profit-oriented and mainly focus on increasing returns for company owners or shareholders. Their procurement activities are confidential and they operate in a competitive business environment, where sharing trading intelligence with competitors is not advisable.

On the other hand, public organizations must assure citizens that public money is spent wisely and transparently. To achieve this, public organizations must spend more funds conducting regular internal audits to enhance regulatory compliance. Public organizations in the same industry also commonly share procurement information, such as suppliers with reliable services. Additionally, the public sector sometimes outplays the private sector when it comes to employee compensation.

Comparison chart between the public and private sector

The diagram above shows a comparison chart between the public and private sector. (Extracted from Surbhi, 2015)

Conclusion

Public sector comprises of various business enterprises that are owned and managed by government. Such organizations are either fully or partly owned by the centre or state and come under the separate ministry. Some of the public-sector organizations are set up by a special act of Parliament.

Private sector is generally established with the sole objective of making profit and building brand reputation. They provide quality services to the community to win the trust and goodwill from people to survive in the long run and compete with the enemies. These enterprises also should follow the government law and order. It is the largest sector in terms of employees. The private sector is generally more concerned with ‘what’ rather than ‘how’; whereas the public sector has been traditionally equally concerned with both.

In the Public Procurement context, there is consequently more emphasis on reducing the risk of behaviour being influenced by (non-political) practitioner self-interest. Such practitioners are spending ‘tax payer’ money. While those in the Private Sector are spending Shareholders’ money, those Shareholders generally have a much greater or more direct ‘say’ in who the practitioners are and how they should go about their jobs than ‘we’ do in respect of the public-sector practitioners.

It is for these reasons that the public-sector procurement has to be regulated by Law. Shareholders have the authority and at least collectively – the power to Regulate Private Sector procurement as far as value for money aspects (in the widest sense) are concerned.


References:

Fleshman, Benjamin. (2016) ‘Private vs. Public Sector Procurement Practices’. Retrieved from http://www.concordnow.com/private-vs-public-sector-procurement-practices/, accessed 01/09/2017.

Green, Alison. (2017) ‘Difference in Public Vs Private Procurement’ http://work.chron.com/difference-public-vs-private-procurement-28985.html , accessed 01/09/2017.

Surbhi S (2015) ‘Difference Between Public Sector and Private Sector’ http://keydifferences.com/difference-between-public-sector-and-private-sector.html, accessed 02/09/2017.

About the Author: Tiffany Lau has several years of experience specifically in the food manufacturing industry. She is a qualified member of the Singapore Institute of Purchasing and Materials Management (MSIPMM).

She is currently completing a course on Diploma in Procurement and Supply Management (DPSM) at SIPMM Academy.

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