Public Sector vs. Private Industry procurement

Public Sector vs. Private Industry procurement
Posted on July 23, 2015 | Allan Cutler | Written on July 23, 2015
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Author's Note:

Author's Note:

With over 30 years of professional experience, Allan Cutler consults with and assists firms in all aspects of public procurement from understanding bids, preparing proposals in response to competitive RFPs to negotiating resulting contracts. He teaches public sector procurement at Algonquin College. Knowing what it takes to create winning teams and built long-term partnerships that drive success, he also teaches and consults in professional and organizational ethics. 

There is less difference between public sector procurement and private industry procurement than most people think.

Not only have I have worked in both private industry and public sector procurement, I have also taught sustainable procurement to purchasing officers from both the private industry and the public sector. This has been done from coast to coast to coast. An enormous advantage has been that both groups have been in the same room at the same time receiving the same training. Listening to the discussions that have ensued, I appreciate both the similarities and the differences between the two. 

With an understanding of both viewpoints, I can state the following, “It is obvious that the perceived gap between the two types of procurement is much less than the actual gap.”  In other words, procurement is procurement. 

The most noticeable is the difference between transparency and accountability. In the private sector, transparency is limited if it exists at all. From the viewpoint of an outsider, why a decision was made is unobtainable or unknowable. There are no rights or obligations (accountability) to inform the public. Any obligations exist with management and/or the firms’ ownership or shareholders.  Suffice to say decisions made are related to ‘profitability’ and ‘efficiency’ in order to that the firm may continue to exist. The procurement office generally has more authority, more autonomy and less oversight. The emphasis is on getting the job done well and on streamlining the process.   

In the public sector, transparency and accountability are both considered ‘critical’. In theory, the money used in public sector procurement comes from the taxpayer. This means that people have the right to know how the funds are being spent.  Firms are taxpayers too. This means that every firm has the right to bid on and potentially win contracts. They also have the right to know why they did not win the bid. After all, they pay taxes so should have an opportunity for reimbursement of taxes paid. As for accountability, there are many checks and balances – less authority, more oversight. Many more people are involved – management, politicians, taxpayer representatives, etc. When a question regarding procurement is raised, there must be an explanation to justify a decision. This requires written documentation of every decision. The public sector is not concerned with existence. If there is a problem, taxes can be raised.

Consider this scenario; one which I actually witnessed while in the public sector. A firm (loser of the procurement) walks into the procurement office, challenges the procurement officer and yells demanding an explanation of why they lost the bid and stating that the bid must have been rigged. In the public sector, the goal is to calm the individual down but, if necessary, escort him/her off the premises. Regardless his/her firm would still be allowed to bid in the future without any penalty. In private industry, the reaction would probably be different. The end result could be that the firm would not be allowed to bid on any future requirement.

These illustrate two significant differences between public sector and private industry procurement.

Having worked in both and taught procurement officers from both, I have come to the conclusion that the divide that is greater is the difference between services and goods. ‘Goods’ are dealing with tangibles while ‘Services’ is with intangibles. In other words, they are the difference between ‘black and white’ and shades of ‘grey’. Private industry officers by the nature of their work and normally smaller organization size more often deal with different commodities (goods) and services. They learn to work in the world where nothing is ever certain. Due to the different accountabilities, they are called upon to make more decisions alone than in the public sector.

In the public sector, there is more a divide between goods and services. Due to the larger size, many officers spend their career in one area or the other. However, it is generally easier to buy goods as there are specifications that predominate. Automobiles, refrigerators, desks, machine tools, etc. are all examples of this. The technical specifications are prepared elsewhere and officers buy mainly on price. Officers specializing in goods are more used to ‘black and white’ than shades of ‘grey’. Grey requires decisions on how best to buy or evaluate. ‘Black and white’ means that the decisions are clear with little judgment. 

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With over 35 years of procurement experience, Allan Cutler consults with and assists firms in preparing proposals in response to competitive RFP. He understands procurement documents and negotiating with the public... More