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The Process of Procurement
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The Differences Between Public and Private Procurement
As well as the public approach, there’s also a means of obtaining goods and services which provides privately-run organisations with the flexibility to meet their internal and external needs. Such companies exist largely to make a profit, and though there are similarities between the respective processes of public and private businesses, there are differences which remain distinct.
We’ve already touched on the process of public procurement itself but how exactly does the approach vary in the private sectors?
WHAT ARE THE DIFFERENCES BETWEEN PUBLIC AND PRIVATE FUNDING?
Many of the differences between public and private procurement lie in the different methods of funding:
– Private companies can easily transfer money from one department to another if business conditions end up changing. In the event that prices increase, or another supplier reduces prices, public organisations face a much longer process to change their budgets.
– If a government department decides to reduce funding to a certain area of the public sector then things can change overnight, putting undue pressure on procurement teams in a short amount of time.
– Likewise, if the disbursement of funds is delayed, then public companies have to suspend any activities which relate to procurement, which can negatively impact both them and their suppliers. With private organisations, this is much less likely to happen due to the streamlined nature of their own funding processes.
Many of the differences between public and private procurement lie in the differing methods of funding. For one, private companies can easily transfer money from one department to another if business conditions end up changing, a flexibility that’s not afforded by government budgets. In the event that prices increase, or another supplier reduces prices, public organisations face a much longer process to change their budgets.
HOW DO REGULATIONS AND LEGISLATION DIFFER?
For the vast majority of the world, public procurement is defined and constrained by some form of legislation, whether at the local, regional, national or international level, or a combination of these.
Additionally, wider regulations enforced by bodies such as The World Trade Organisation can come into play too, further tightening the restrictions on executing public procurement. While the private sector is still subject to some degree of constraint, particularly in regard to laws on equality and bribery, broadly speaking there tends to be much more freedom from legislation in comparison.
FINDING SUPPLIERS IN THE PUBLIC SPHERE
The institutional policies that private companies operate under are tailored in a way to optimise meeting their business goals. This means they can source suppliers quickly and enter into contracts without the need for a bidding process.
For instance, if a private hospital wants to purchase certain kinds of equipment, it can get in touch with various medical device manufacturers to inquire about product quality and pricing before negotiating a supply deal. When private organisations choose to invite vendors to submit bid proposals, they tend to focus on entering into contracts with suppliers who have favourable terms and conditions.
OPPOSING INTERESTS AND MOTIVATIONS
Since private organisations are more profit-minded and focus largely on returns for company owners or shareholders, their procurement activities stay confidential. In such a competitive business environment, sharing information on saving money would be a somewhat bad idea.
This isn’t the case with public companies, who are required to assure that public money is being spent wisely and transparently. This means they must spend more money conducting regular internal audits in order to maintain regulatory compliance, whilst also sharing procurement information, such as reliable services, with others in the same industry.
Compared to private businesses, who constantly reassess their methods to increase margins, public organisations are required to carry out procedures that will reduce expenditure over time.
Additionally, the public sector tends to have more complex motivations and objectives. Their procurement usually addresses issues beyond value for money or basic supply. There’s an inherent “social value” in public procurement thanks to UK legislation; policy goals that supper smaller firms, improve employment or education, or foster equality are commonly weaved into procurement’s outcomes.
While private sector firms can focus on these areas too, it’s largely uncommon to find them dedicating themselves to these wider issues in the same way.
THE DIFFERENCES BETWEEN PUBLIC AND PRIVATE MANAGEMENT STYLES
The supply chain of procurement varies when filtered through differing management styles.
In public sector management, which tends to be heavy on procedure and bureaucracy, procurement is less efficient when compared with the private sector. In this sector, the procurement manager answers to the CEO and a board of directors who then have the final say on what choices should be made. Not so in the public sector, where a legislative body, sometimes numbering in the hundreds, is responsible for overseeing the process of procurement.
As a result, there is less transparency in the private sector, but the public sector is still bound in certain situations because iron-clad legal regulations prevent them from making large changes.
THE EFFECT OF PUBLIC SECTOR STAKEHOLDERS
Public sector companies, by their nature, have an inherent interest from the public. The larger the sector, the greater inclination towards knowing what is being bought and how the supplier is performing.
Since the public sector involves everything from rail transport, social care, employment, waste disposal and healthcare, the interest of the public increases accordingly. Though there will still be interest from the public as it relates to the private sector, it isn’t anywhere on the level of the public sector.