Similarities and Differences 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.
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 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.
Concerning governing rules, private sector procurement complies primarily with contract or commercial law with respect to the formation of contracts, but their methods of procurement are governed by company policy. The entire public sector procurement process, however, is governed by the public procurement legal and institutional frameworks (procurement rules), and practitioners are obliged to adhere to them.
Private sector procurement is also governed by company policy. Such policies are not necessarily dictated by law, but by the objectives of the company. A private company can engage in a contract with another private company or individual, and the procurement method is dictated entirely by the internal policies of the company.
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 while using public funds.