PRIVATE SECTOR PROCUREMENT

Private sector procurement, on the other hand, is the process of acquiring goods and services to satisfy the needs of a particular private entity (usually a business, for profit or not). These are goods and services needed for (i) the operation of the business or (ii) the business to use in the process of production of goods and/or services they provide to their customers. Respecting the former, a primary example are goods such as stationary, furniture, office equipment, etc. needed for a business to operate, and respecting the latter, are all the goods and services needed to satisfy customer demands.

Similarities between Public and Private Sector Procurement

  • Public sector and private sector procurement organizations are designed to acquire goods and services. The main difference between these two types of organizations is the purpose for acquiring those goods and services. One is focused primarily on a social benefit, the other is profit centric
  • Getting Value – Private and public organizations share a similar objective in getting value for money in all procurement activities. They focus on purchasing goods and services at the right prices and often engage in cost-reduction negotiations with suppliers. Secondly, organizations in the public and private sectors serve the public — but differently. Public entities serve the public through provision of free or low-cost services, while private organizations do so by selling products and services at higher rates based on competition, which can lead to superior service.

Differences between public and private procurements

  • Private sector procurement activities are for supporting the principal business objective of a company, which is to make a profit. This does not rule out the fact that private entities may also seek social benefit; however, it is not their primary business objective. In the public sector, the two main reasons for acquiring goods and services are: (i) for supporting government operations, and (ii) to provide public services.
  • Source of funding – Source of funding is another fundamental difference between private sector and public sector procurement. While private sector procurement is funded by owners or shareholders of the company, funds used in public procurement are primarily from taxes and/or grants and loans obtained by the government on behalf of the country.
  • Bureaucracy – Working for a government organization or public enterprise entails dealing with an increased level of red tape or rules which must be adhered to in order to complete a task. Procurement professionals working in the public sector have to place greater emphasis on following policy and acting transparently. As they are acting on behalf of the government they must be seen to be acting ethically.
  • Public sector procurement is governed by the public procurement rules. In most countries, there is a law that governs the procurement of goods, services and works with public funds. These rules set the basis for managing procurement and the various methods permitted under different circumstances. Public procurement must also adhere to certain principles. The process should be open to public scrutiny, depending on the procurement method used, and any confidentiality agreement stemming from the particular procurement method used. Sometimes, the procurement law is comprehensive, with high level of detail; sometimes it covers only the fundamentals, leaving the details for further development in procurement regulations, guidelines and manuals (institutional frameworks), which should expand on but not contravene the public procurement law.
  • With respect to oversight, the private sector procurement process is mostly closed to public scrutiny, Shareholders may, however, require reviews of the procurement process. Public sector procurement, in contrast, is open to public scrutiny, and public procurement practitioners are accountable for their actions, and need to ensure public procurement is managed in accordance with the objectives, principles and procedures defined in the public procurement rules.
  • Public procurement management, requirement identification and budget allocation, procurement planning and strategy development, procurement method selection, solicitation documents preparation and advertisement, bid and proposal submission, evaluation and selection, and contract award to closeout, are all addressed in the procurement rules. Public
    procurement practitioners are not at liberty to use a procurement method not stipulated in the procurement rules or not identified for a specific type of procurement requirement. Any deviation from public procurement rules requires justification and clearance from a designated approving authority, sometimes a Tender Board, before the action is carried out.
  • Under private sector procurement, procurement practitioners answer only to management, and are responsible for their actions; public sector procurement practitioners are public servants and are accountable for what they do or fail to do when managing public funds.
  • The ultimate aim of public sector procurement is to provide public services and support government operations at all levels within a country. ―Private sector is more flexible and open to innovations; they are profit and people driven. Public sector is highly regulated and sometime can be seen as inflexible.‖
  • Procurement in the public sector (local government) is mechanically driven to meet procedures/regulations and often interfered with politically. Risk of challenge is not seen as a serious concern.
  • Because of the Public Contracts Regulations most of the public sector is too risk averse to procure effectively.
  • One other significant difference is that the public sector seems frightened to talk to suppliers, relying too much on the use of formal processes &arm‘s length negotiations.‖
  • Public sector procurement is too rules based (for very understandable reasons) to allow for much innovative procurement and to take advantage of shifts in the market.
  •  Procurement in the public sector is more bureaucratic than in the private sector. It is much slower and more constrained by rules and regulations, for European, national and even local levels.
  • Agility – Procurement professionals working in the private sector often must be more agile and able to respond to change quickly.
  • A focus on the bottom line – As private enterprises focus on generating profit, procurement professionals often are constrained by meeting cost reduction targets.
  • Participation of Stakeholders – Public sector procurement professionals have a larger group of stakeholders to report to including tax payers, members of parliament, clients and vendors.
  • Finding Suppliers – Private organizations operate under institutional policies that are often tailored to meet their business goals. They can source suppliers at will and award direct contracts without a bidding process. For example, if a private hospital wants to purchase insulin pumps, it can contact various medical device manufacturers to inquire about product quality and pricing and negotiate a potential supply deal. If private organizations choose to invite vendors to submit bid proposals, they naturally focus on awarding contracts to suppliers with favorable terms and conditions.
  • Additionally, the public sector sometimes outplays the private sector when it comes to employee compensation.
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