While public procurement (or government procurement) refers to “the purchase by governments and state-owned enterprises of goods, services and works,” procurement (or private procurement) stands for “the process of purchasing goods and services from suppliers in a private sector setting.” Read this blog and discover the differences between both concepts, which seem similar but differ significantly.
What is Procurement?
The Procurement ClassRoom said that procurement, or private procurement, is “the process of acquiring goods and services to satisfy the needs of a particular private entity (usually a business, for profit or not)”
In other words, procurement is a fundamental aspect of business operations for companies and organizations of all sizes. As mentioned, it involves the process of acquiring goods and services from external suppliers to meet the needs of the organization. While it may seem complex at first, understanding the basics of private procurement can empower businesses to make informed decisions and optimize their procurement processes.
This is how the process of procurement goes:
1. Identifying Needs:
The first step in private procurement is identifying the needs of the organization. This involves determining what goods or services are required to support the business operations effectively. Whether it's office supplies, machinery, or professional services, a clear understanding of the organization's requirements is essential.
2. Supplier Identification:
Once the needs have been identified, the next step is to find suitable suppliers or vendors who can fulfill those requirements. This can be done through various means, such as online research, attending industry events and trade shows, or seeking recommendations from peers and colleagues.
3. Supplier Evaluation and Selection:
With a list of potential suppliers in hand, the organization then evaluates each option based on criteria such as quality, price, reliability, and reputation. This process may involve conducting background checks, reviewing past performance, and obtaining quotes or proposals from suppliers.
4. Negotiation:
Negotiating with suppliers is a crucial aspect of private procurement. This involves discussing terms and conditions, including pricing, payment terms, delivery schedules, and any other relevant factors. The goal is to reach an agreement that satisfies both parties and ensures a mutually beneficial relationship.
5. Purchase Order and Contracting:
Once the negotiations are complete and a supplier has been selected, the organization issues a purchase order or enters into a contract outlining the terms of the agreement. This document formalizes the transaction and provides clarity on expectations, responsibilities, and deliverables.
6. Order Fulfillment:
After the purchase order has been issued, the supplier proceeds to fulfill the order by delivering the goods or providing the services as specified. This may involve manufacturing products, sourcing materials, or deploying resources to meet the organization's requirements.
7. Receipt and Inspection:
Upon receipt of the goods or services, the organization conducts inspections to ensure that they meet the specified requirements and standards. Any discrepancies or issues are addressed promptly to resolve any concerns and maintain quality standards.
What is Government Procurement?
Following the Procurement ClassRoom’s definition, government procurement stands for “the process of acquiring goods and services for the operation of government and to provide public services.” One main aspect that we need to consider is that government procurement “is carried out within a specific legal framework based on certain principles aimed at making the fulfillment of public procurement requirements competitively available to qualified firms and individuals in a transparent and nondiscriminatory manner based on pre-established selection criteria.”
It’s important to understand the fundamentals of government procurement as it is essential for both suppliers looking to do business with the government and government officials responsible for purchasing decisions.
The process is similar to that of private procurement, but it has some important distinctive characteristics. Let's take a look and identify them:
1. Identifying Needs:
As private procurement, government procurement begins with identifying the needs of the public sector entities, such as government departments, agencies, and municipalities. These needs can range from infrastructure projects and construction works to purchasing goods and services necessary for public services.
2. Solicitation of Bids:
The way that the public sector has to search for suppliers is, mainly, solicitations or requests for proposals (RFPs) to invite bids from potential suppliers. These solicitations outline the requirements, specifications, and evaluation criteria for the procurement opportunity.
3. Supplier Evaluation and Selection:
Government agencies evaluate bids from suppliers based on predetermined criteria, which may include factors such as price, quality, past performance, and compliance with regulations. The selection process aims to ensure that the chosen supplier can deliver the required goods or services effectively and efficiently.
4. Contract Award:
After evaluating bids, the government agency awards the contract to the selected supplier, formalizing the agreement through a contract or purchase order, a document that outlines the terms and conditions of the procurement, including pricing, delivery schedules, and performance expectations.
5. Compliance and Oversight:
Throughout the procurement process, government agencies must adhere to legal and regulatory requirements, including procurement laws, ethics guidelines, and budgetary constraints. Additionally, oversight bodies, such as procurement offices or audit agencies, may monitor procurement activities to ensure compliance and accountability.
6. Delivery and Acceptance:
Upon awarding the contract, the supplier proceeds to fulfill the order by delivering the goods or performing the services as specified in the contract. Government agencies inspect the delivered goods or services to ensure they meet the required standards and specifications before accepting them.
7. Payment and Evaluation:
After acceptance, the government agency makes payment to the supplier according to the terms outlined in the contract. Additionally, the agency may conduct post-award evaluations to assess supplier performance and identify areas for improvement in future procurements.
What About The Differences?
Procurement and government procurement are two distinct processes with notable differences, each tailored to the unique needs and requirements of their respective sectors.
Perhaps the primary distinction lies in the parties involved in the processes. Procurement predominantly comprises businesses and organizations acquiring goods and services from external suppliers to meet their operational needs and objectives. On the other hand, government procurement involves government entities fulfilling public sector needs and providing essential services to citizens.
Another key difference lies in the regulatory framework governing each process. While procurement operates within the parameters of commercial law and industry standards, government procurement is governed by a complex web of legal and regulatory requirements, including procurement laws, ethics guidelines, and fiscal regulations. These regulations aim to promote competition, prevent corruption, and ensure that government agencies obtain value for money in their purchasing activities. Additionally, government procurement often involves a more formalized and structured approach, with extensive documentation, bidding procedures, and evaluation criteria to facilitate transparency and fairness in the procurement process.
Furthermore, we identified another significant difference: the decision-making processes and criteria used to select suppliers. In procurement, businesses often have more flexibility in their decision-making, with the primary focus being on factors such as cost-effectiveness and efficiency. Suppliers are typically selected based on their ability to deliver quality products or services in a timely manner, while also meeting the budgetary constraints of the organization. In contrast, government procurement tends to place greater emphasis on compliance with regulatory requirements, such as environmental standards, labor laws, and diversity initiatives. Government agencies must adhere to strict evaluation criteria and procurement procedures to ensure transparency, fairness, and accountability in supplier selection.
Finally, one last difference lies in the level of transparency and accountability. In procurement, businesses may have more discretion in negotiating contracts and managing supplier relationships, often without the same level of public scrutiny as government agencies. While private companies are still accountable to their stakeholders, such as shareholders and customers, the level of transparency in procurement decisions may vary depending on the organization's internal policies and practices. On the other hand, government procurement is subject to public oversight and scrutiny, with stringent reporting requirements and mechanisms in place to ensure transparency and accountability in the expenditure of public funds. This means that government agencies must justify their procurement decisions and provide detailed documentation to demonstrate compliance with regulations and ethical standards.
Both processes have their peculiarities and challenges, but it's important to understand the difference between them. They are similar, but they differ in key aspects. For many, these concepts are very familiar, but for a large portion of the population, government procurement is an enigma. They may know of its importance, but they may not know much about the topic. For us, it will always be a matter of utmost relevance, and we believe that everyone should learn about this process, especially considering that it's the taxpayers' money that is at stake.
This blog was written by Gisela Montes, GovTech Community Lead at Glass.