Procurement in the Public

Sector

1
 Public sector organizations
There are several different types of public sector organization in the UK:
• Government departments (Department of Defense, Health)
• Local government authorities (County Councils, District Councils)
• Quasi- Autonomous National Government Organizations (QUANGOs) (Environment
Agency)
• Public corporations (BBC)
• Municipal enterprises (Museums, parks)
All sources of public sector funding derive ultimately from the taxpayer. Funds are collected
in various different forms: direct taxes, indirect taxes and local taxes
 Objectives of public sector organizations
Primary objectives of public sector are:
• To deliver essential public services (such as housing, healthcare, sanitation, transport,
education) where the market might not otherwise provide equitably or fairly to an
acceptable level or quality
• To encourage national and community development: developing education and skilling;
stimulating economic activity and employment; developing technology and infrastructure;
maintaining public security; preserving national and community heritage; supporting
diversity and social inclusion
• To pursue socio-economic goals such as support for small and minority-owned businesses;
the legislation of minimum standards for human, civil and labor rights; environmental
protection
 Responsibilities for public sector procurement
Central government procurement in the UK
• In 1999 Gershon Efficiency Review recommended centralized co-ordination of central government
procurement, through the Office of Government Commerce (OGC), which was established in 2000.
• OGC’s three main priorities were defined as:
• Improving public services by working with departments to help them meet their efficiency targets
• Delivering savings in central government civil procurement
• Improving the success rate of mission-critical programs and projects
• For those working in public sector implications of the OGC included:
• Greater pressure to achieve efficiency savings from procurement
• Greater emphasis on aggregating requirements and collaborative contracting
• Stronger focus on the status and role of procurement
• Stronger focus on professional and career development in procurement
 Responsibilities for public sector procurement
Local government procurement in the UK
• In 2014 the Local Government Association (LGA) published a National Procurement Strategy for Local
Government in England. Its vision is focused on four key outcomes:
• Making savings by using: category management; standard specifications; supplier analysis; partnering,
collaboration and shared services; contract management and relationship management; performance
monitoring and transparency; identifying and reducing fraudulent procurement practices in pre-contract
and post-contract award
• Supporting local economies by: removing barriers to local businesses and charities bidding for council
contracts; including economic, social and environmental value criteria in all contracts
• Improving leadership by: recognizing the strategic importance of procurement; developing a
commercially focused procurement culture
• Modernizing procurement by: ensuring procurement staff are more commercially minded; encouraging
supplier innovation; adopting e-procurement and e-invoicing
 The regulation of public sector procurement
Regulators may be responsible for any or all of the following issues:
• Highlighting and advising on best practice, quality standards and service levels
• Reviewing and evaluating government strategies
• Receiving reports and returns on performance, and publishing evidence based findings
• Monitoring and auditing organizational activity for compliance to standards
• Helping customers to make informed choices and, where necessary, complaints
• Communicating and promoting the work of the sector to the public
The impact of regulations on public sector procurement is broadly:
• To ensure that bought in materials, goods and services comply with defined public standards and specs
• To ensure that all procurement exercises are complaint with public policies, standing orders and statutory
procedures – with the general aim of securing competitive supply, value for money and ethical procurement
• To ensure that all supply chain operations are compliant with law, regulation and standards in areas such as
health and safety; sustainability; employment rights; data protection and freedom of info
 Public contracts regulations 2006
Advertising
Contract Award procedures
Award criteria
Right to feedback (debrief)
Other provisions
• Subject to certain exceptions, public bodies must open tendering procedures
• Open procedures: no requirement for pre-qual of suppliers. Tenders must be issued
six days from the request. Suppliers have 52 days (min) to submit bids
• Restricted procedure: suppliers may be pre-qualified, but there must be a pre-stated
range of suppliers (5-20) to whom invitation will be sent
• Negotiated procedure: with advertisement or without
• Competitive dialogue: a process conducted in successive stages to identify potential
solutions and gradually reduce the number of tenders to be negotiated
• Contracts should be awarded on the basis of objective award criteria, ensuring
transparency and competition
• Buyers are generally obliged to award contracts on the basis of lowest price
• All tenderers must have reasonable, equal and timely info about criteria and the
weighting or ranking of non-price criteria
• The results of the tenderer must be notified to the Official Journal of EU
• Unsuccessful bidders have the right to a de-brief within 48 days of request
• Framework agreements
• Electronic purchasing and tendering/auction systems
 Key features of public sector procurement
Distinctive challenges in public sector procurement:
• Public sector buyers generally have the overall objective of achieving defined service levels
• They are responsible ultimately to the general public, represented by the State
• They have to satisfy a wider range of stakeholders: managers, customers, beneficiaries of
services, taxpayers, communities and so on
• They may have a wider range of activities, and therefore a wider range of purchasing
requirements
• They are subject to established procurement procedures and legislative directives
• They will often be subject to budgetary constraints, cash limits and/or efficiency targets
 Public accountability
Existence of multiple stakeholders objectives makes it impossible to satisfy every legitimate aspiration of
the public sector’s ‘customers’.
The level of accountability impacts strongly on public procurement. One key effect is an insistence on
detailed procedures and record keeping
Kinds of behavior which are required by public accountability are areas such as:
• The need to record the reasons for all decisions
• The need for procurement officers to declare any personal interests in procurement decisions
• The need to avoid conflicts of interest
• The need to secure proper authorizations
• The need generally to monitor and manage fraud risk
 Value for money
It is defined as the optimum combination of whole life costs and quality
• The importance of taking into account all aspects of cost over time, rather than lowest price
• The importance of defining ‘value’ from the perspective of the customer, and meeting service level and
quality requirements
• The importance of achieving efficiency and effectiveness in addition to economy
Guidelines from Treasury in 2004 of achieving VFM in public procurement
• More efficient processing of transactions and reduced processing overheads
• Getting better VFM for goods and services purchased
• Direct negotiations with suppliers
• Collaborative or consortium buyers
• Improving project, contract and asset management
• Making procurement decisions on the basis of long-term value
• Combining competition with innovative procurement methods
• Utilizing e-procurement and good practice
 Public private partnership
It is a scheme in which private sector firms and public authorities share capital and expertise, in various
structured ways, with a view to building and operating major capital and infrastructure assets. Example: channel
tunnel in UK, North Birmingham Relief Road and the London Olympics facilities.
PPP projects may take various forms:
• A design build contract – the private partner designs and builds a facility, which the public authority will
operate once it is completed
• A Build–Operate contract – the private partner builds the facility and operates it for a period, in order to
recoup its investment, then transfers ownership to the public sector body
• A Turnkey Operation – the public sector provides funding and retains ownership of the facility, but the
private partner designs and builds it and also operates for a period
• An Operation and Maintenance contract – a private partner is simply contracted, on a tender basis, to
operate and maintain a public facility
• A Private Finance Initiative - a private consortium raises the capital finance to design and build a public
sector project. Once construction is complete, the public authority begins to pay back the private consortium
the cost of the building plus interest. Contract typically lasts for 30 years.