This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
There’s no question that the public sector does things differently. While some say that government should be run more like a business, there are significant factors that inform the distinctiveness of public sector purchasing. To help ensure compliance with prevailing due diligence standards, there should be a broader organizational awareness of the distinct challenges faced by the public sector in its purchasing activities. This discussion explains why doing deals in government can be so different from deal-making in the private sector.
Impact of Purchasing Policies
Public administration is about more than just the bottom line. While value-for-money is of prime importance, financial considerations must be balanced with the policy objectives of transparency and non-discriminatory purchasing.
Public institutions typically seek to achieve both value-for-money and transparency through the use of open public tendering. By harnessing free market forces in a controlled competitive environment, public tendering can provide greater control over deal details and can potentially lower costs.
Non-discriminatory purchasing requires the removal of unnecessary barriers to competition. This tends to open the field of competition to the broadest possible range of potential suppliers.
The public sector’s open approach to contracting stands in marked contrast to the traditional behind-closed-doors private sector approach. While the private sector approach may be more about maintaining existing business relationships, the public sector approach is about repeatedly wiping the slate clean and opening opportunities to new suppliers.
Institutional Rules
Like all large institutions, public institutions are subject to a broad body of institutional rules. These rules can have a significant impact on the legal relationship created between the purchaser and supplier and can vary considerably between and even within different levels of government. Public sector institutional rules are largely drawn from statutory sources (such as treaties, statutes, regulations, and bylaws) and from internal governance frameworks (such as directives, guidelines, policies, and practices).
While they may not always be referred to in the purchasing documentation, these institutional rules can significantly impact the legal relationship between the parties during both bidding competitions and contract performance.
Unwritten Rules
In addition to the broad body of institutional rules described above, public purchasers are also subject to a vast and highly developed body of case law that applies unwritten implied rules to purchasing activities. With literally hundreds of reported cases over recent decades covering almost every conceivable aspect of the spending cycle, case law places public institutions and their private sector suppliers within a complex web of reciprocal legal obligations. Most of these cases deal with public purchasers and the decision-making that leads to contract awards, thereby presenting hidden dangers to the uninitiated.
Scrutiny and Legal Risks
The law can impose serious risks and remedies when purchasers fail to follow their procurement rules and when suppliers fail to honour their legal commitments. The threat of legal sanction inevitably informs the manner in which both public purchasers and their suppliers govern themselves. Stated simply, the public purchasing terrain is fraught with legal risks. The double-barrel deterrent of high public scrutiny and high legal risk tends to foster a risk-averse culture in public purchasing circles. This can compromise innovation and flexibility.
Impact on Purchasing Practices
Public institutions are facing increasing pressure to empower their procurement practices. They can build winning conditions for their purchasing professionals by implementing the following measures:
- adopting values-based ethical procurement practices;
- defining clear roles and responsibilities within their procurement cycle;
- entrenching internal checks and balances;
- establishing independent external oversight; and
- empowering innovation by creating a range of flexible procurement tools.
These measures can assist purchasing institutions in meeting the challenges of an increasingly complex marketplace.
Final Considerations
Just as no two suppliers are the same, no two purchasing institutions are ever identical. There is a great deal of diversity in the thousands of public institutions that are running purchasing operations across multiple jurisdictions around the world. Building an institutional awareness of the global challenges faced by public institutions in the procurement cycle should form part of your strategy for improving your organization’s procurement practices.
