Public Procurement

DR ANTHONY FLYNN
E : F LY N N A 2 @ C A R D I F F. A C . U K
R O O M : C 4 4 ( 2 N D F LO O R ) , B U S I N E S S S C H O O L
Public Procurement
Defining public procurement
Process by which public authorities, such as government departments
or local authorities, purchase work, goods or services from companies
(European Commission)

Purchase by governments and state-owned enterprises of goods,

services and works (OECD)
Means by which government agencies and organizations acquire
supplies and services from outside sources (Kidalov and Snider, 2011)

Examples of public procurement

Building of a state school (public private partnership)
Building of a new road (public private partnership)
Purchasing furniture for a public prosecutor's office
Purchasing vehicles for police
Contracting cleaning services for a public university
Contracting legal services for central government

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Public Procurement
No profit motive

Government controlled

Policy instrument

Politicised

Strategic?

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Public Sector
Organisations
Central government

Local government

State agencies

Semi-state & utility companies

Education institutions

Health

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Stats on Public
Procurement
Public procurement accounts for a significant % of economic
activity
OECD Members
13% of GDP and 29% of total government expenditure, on average
Highest: 21% of Netherlands GDP and 45% of total government expenditure
Lowest: 5% of Mexico GDP and 21% of total government expenditure
55% of public procurement spend is attributable to sub-central level (state or local
level), on average

European Union (EU)

1.9 trillion spent on public procurement

Public procurement constitutes a sizeable part of international trade

15-20% of global GDP

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Stats on Public
Procurement

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Stats on Public
Procurement

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Stats on Public
Procurement

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Stats on Public
Procurement UK
Public Procurement accounts for a significant chunk of
economic activity in the UK
14% of GDP
31% of total government expenditure
242 billion in monetary terms

Cost savings
5.4 billion savings in 2013/2014 relative to 2009/10
Mantra: deliver more for less

SME facilitation
Target of 25% of the value of goods and services procured to go to SMEs
(directly or indirectly)

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 Stats on Public
Procurement UK

Source: House of Commons Library. (2015). Briefing Paper: Public Procurement.

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Trends in Public
Procurement
Facilitating SME access Framework agreements

81% of OECD countries have introduced 97% of OECD countries

measures aimed at promoting SME
participation, which include
use framework
56% carry out trainings and workshops for SMEs agreements
44% make documentation or guidance focused
on SMEs available online
Number of framework
28% have simplified administrative procedures agreements in the EU
so as to be more SME-friendly
increased by almost four
34% have put in place specific
times between 2006 and
legislative provisions or policies (e.g. 2009
set-asides) to encourage participation Approx. half of the OECD
from SMEs in procurement
countries calculate the
63% of the OECD countries do not track
savings resulting from the
the number or value of contracts use of framework
awarded to SMEs agreements

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Data Availability & Measurement

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Trends in Public
Procurement
Green public procurement
(GPP)
72% of OECD countries
have developed a
strategy/policy to support
green public procurement
Most OECD countries do not
assess the opportunity cost
of pursuing socio-economic
and environmental goals
https://www.youtube.com/watch?v=Atu6rH5U7Mk
5/27/17
Professionalisation
48% of OECD countries
lack adequate
procurement capability
Insufficient numbers of
procurement officials
Insufficient specialised
knowledge of available
technologies, innovations or
market developments
1 out of 3 OECD countries
do not recognise
procurement as a specific
profession
Only a minority have formal job
descriptions for procurement
officials and
certification/licensing
programmes in place
28% have integrity
guidelines/codes of conduct in
place for buyers
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Professionalisation

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Themes in Public
Procurement
Cost savings
Public value
EC regulations Environment

SMEs
Corruption Community benefits

Transparency/accountabilit Buyer professionalism

y Role in the organisation

e-Government

Innovation Data availability

Demand aggregation

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Public versus Private
Sector
Dimensio Public Sector Private Sector
n
Ownershi State/citizens of a Shareholders/entrepreneurs
p country
Funding Taxpayer Customer revenue
contributions
Control Political forces Market forces
Purpose Satisfy customers
Public service Value creation
Deliver
deliveryservices
within budget
Goals Increase profitability
Support societal
Grow market share
wellbeing
Develop new
products/services

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Public versus Private
Sector

Source: Murray (2001)

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 Environme
Environme
nt
nt

Goals
Goals

Publicn
ess

Structures
Structures

Manageria
Manageria
ll values
values

Source: Boyne (2002) and Rainey &

Bozeman (2000)

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Publicness
Organisational environments Organisational goals
Complexity Distinctive goals
Public agencies are expected to be
responsive to a wide range of stakeholders Equity (fairness), equality, public
(e.g. taxpayers, service users, regulators, accountability, democracy
politicians)
Permeability
Public agencies are open systems that are Multiple goals
subject to the influence of external events Public managers are expected to
and are expected to listen to the public
satisfy the (competing) goals of
Instability different stakeholder groups
Rules guiding the behaviour of public
agencies changes depending on which
political party is in power policy cycles
versus political cycles
Vague goals
Absence of competitive pressures Goals for public sector
Public agencies typically do not have to organisations flow from the political
compete with other organisations in the process and are often vague or
provision of services open to interpretation as a result

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Publicness
Organisational structures
More bureaucracy
Public sector decision making is more
formalised and subject to greater checks
and balances
Public sector culture is more risk-averse
Public sector organisations are less flexible
in adapting to their external environment
More red tape
Following rules is as important as
achieving results
Lower managerial autonomy
Public managers have relatively little
freedom to act in response to their
environment
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Managerial values
Less emphasis on materialism
Public managers are less motivated by
extrinsic rewards
More emphasis on public
service
Public managers have a stronger
commitment to public service and the
common good
Lower organisational
commitment
Public managers are less attached to
their organisations because link
between individual and organisational
success can be tenuous in public sector
20
Publicness and
Procurement
Publicnes Procurement
s
Complexity/Permeability
Numerous stakeholders set or in some way influence the
agenda for public procurement EC Commission, national
parliament, local councillors, employer bodies, NGOs
Organis Public agencies expected to be open & responsive to these
ational outside forces
environ Instability
New political administrations introduce their own
ment policies/priorities for public procurement, which may or may
not be consistent with what went before e.g. policies of US
President Donald Trump versus policies of former President
Barack Obama
Distinctive goals
Procurement objectives are meant to embody public sector
Organis goals of accountability, transparency, fairness and contributing
to the common weal
ational Multiple goals
goals Value-for-money versus socio-economic goals (Hard versus soft
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Publicness and
Procurement
Publicness Procurement
More bureaucracy
Significant amounts of paperwork involved in tendering for
public contracts
Arms-length procurement approach predominates
Public buyers prefer large, established suppliers
E-procurement under-utilised
Organisat More red tape
ional Qualification criteria rigidly applied e.g. min. number of years
structures in business
Contracts awarded to below cost tenders
Disqualification of tenderers for minor infractions of the
tendering procedure
Lower managerial autonomy
Adherence to EC Directives governing procurement is
required at all times regardless of change in external market
conditions e.g. recession
More emphasis on public service
Procurement managers endeavour to leverage contracts for
Manageri the benefit of domestic/local suppliers and the national/local
al values economy
5/27/17 Extrinsic motivators less
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& SUPPLY CHAIN MANAGEMENT 22
Public versus Private
Sector Procurement

Source: Murray (2001)

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 Procuring Health Services
PRIVATE SECTOR PUBLIC SECTOR

Average of 6 people in a buying group

Average of 4 people in a buying group
More likely to have administrative managerial staff
More likely to have service professionals in their buying in their buying group (e.g. HR manager)
group (e.g. occupational therapists)
Open competitions i.e. buyer publicly advertised
Closed competitions i.e. buyer invited selected firms to bid for firms to bid
Relational approach Arms-length
37% formally evaluated the performance of the supplier approach/transactional
55% formally evaluated the performance of the
supplier

Source: Lian and Laing (2004)

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Regulatory Environment
W
T
O
European
Commissio
n
National parliament

Public sector organisation

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 Public procurement is exempted from the General Agreement on Tariffs and Trade
(GATT) and the General Agreement on Trade in Services (GATS)
Government Procurement Agreement (GPA)
Aims to is to mutually open government procurement markets among its parties
Overseen by the World Trade Organisation (WTO)
Principles: non-discrimination (on nationality), transparency, and procedural fairness
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19/47 WTO members have signed up (incl. EU 28, US, Canada, Japan, Korea, China)
European Commission sets public procurement rules for EU Member States
The rules are designed to create a level playing field for all businesses across Europe/*Support the Single
Market*
They organise the way public authorities purchase goods, works and services (defence & some utility
companies exempt)
Public procurement rules are transposed into national legislation and apply to tenders whose value
exceeds thresholds referred to as above threshold contracts https://
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ec.europa.eu/growth/single-market/public-procurement/rules-implementation/thresholds_en CHAIN MANAGEMENT 27
Directives are transposed into national law and are legally binding on public authorities
Procurement Directives date back to the 1970s
Directive 2014/24/EU on public procurement http://ec.europa.eu/growth/tools-databases/newsroom/cf/itemdetail.cfm?item_id=8562

Directive 2014/25/EU on procurement by entities operating in the water, energy, transport and postal
services sectors
Directive 2014/23/EU on the award of concession contracts
Directive 2007/66/EC Remedies
5/27/17 Directive http://ec.europa.eu/growth/single-market/public-procurement/rules-implementation/remedies-directives_en
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European Commission procurement policies are not legally binding. Intended to guide and influence procurement
behaviour at national level
SME access: European Code of Best Practices Facilitating Access by SMEs to Public Procurement Contracts
Green public procurement: Buying Green: A Handbook on Green Public Procurement
https://www.youtube.com/watch?v=Atu6rH5U7Mk

Socially responsible public procurement: Buying Social: A Guide to Taking Account of Social Considerations in
Public Procurement
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file:///C:/ Users/sbsaf13.X3497F65443CC/Downloads/EUL14136_SocConsidPubProcu_101210.pdf 29
Legal framework for public procurement is derived from EC Procurement Directives as transposed into British
Domestic legislation: Equality Act 2010/Late Payments of Commercial Debt Regulations 2013/Public Services
(Social Value Act) 2012
Policy framework for public procurement is influenced by EC policy and by current understanding of the role
of procurement
Main policy foci: Value for money/SME access/Supporting apprenticeships/Environmental
protection/Innovation & technology
5/27/17
https:// www.gov.uk/guidance/public-sector-procurement-policy
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Tensions in Public
Procurement
Hard Soft
goals goals

Co
Cont
ntra
ract
ctin
ingg wi
with
th
SM
SMEsEs

En
Envi
viro
ronm
nmenenta
tall
pr
prot
otec
ectio
tionn

Va
Valu
luee fo
forr m
mon
oney
ey So
Soci
cial
al re
resp
spon
onsi
sibi
bilit
lityy
Co
Commpl
plia
ianc
ncee wi
with
th EU
EU En
Enco
cour
urag
la
law
w agin
ingg
in
inno
nova
vatio
tionn am
amonongg
su
supp
pplie
liers
rs

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 Tensions in Public
Procurement
Value for money
Demand aggregation
SME access
Framework agreements Dividing contracts into lots

Procurement performance

Compliance with legal

National loyalties framework

International obligations

See Schapper et al., (2006) on conformance-performance tension

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Tensions in Public
Procurement
Research findings
While procurement officers would like to do business with
small firms, in practice their primary aim is to achieve value
for money (Loader, 2007:313)
Cost effectiveness arguments typically emerge as politically
expedient and easier to justify to public fund-holders than
taking the steps required to accommodate small firms (Cabras,
2011)

Goal conflict in public procurement render SME-friendly policy

objectives contested, unclear, or misaligned (Kidalov and Snider, 2011:5)
Pressures to minimise expenditure can also take precedence
over environmentally-friendly public procurement (Coggburn and Rahm,
2005; Walker and Brammer, 2009)

63% of US public buyers admitted that budgetary constraints

restricted their ability to leverage procurement for local
economic development, environmental stewardship, and
social responsibility (National Institute of Government Purchasing, 2013)
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