What Are the Key Differences Between Public and Private Sector Procurement?
In the public sector, procurement is primarily affiliated with government organisations, be it on a local or national level. In contrast, private procurement evidently happens for organisations that are profitable and privately owned. While an essential business need for both in many circumstances, they differ in a variety of considerations.
Government-sourced procurement will never have the same purchasing power as privately-funded procurement. As these organisations are naturally not-for-profit, they won’t have the budgets to delve into.
Public budgets will likely be very carefully distributed and delegated well before any purchase from a supplier is made. Private organisations will likely be the same but offer a little more flexibility.
Many of the differences are brought about by how procurement is funded in both contexts:
- Private organisations can easily transfer money from different departments or accounts to pay for goods and services. The budgets or public sector departments are much more rigid.
- Similarly, funding being cut for public sector organisations can put a dead stop on procurement. It can be a very long time until these are reinstated.
In terms of procurement, it’s easier for private organisations to source and purchase from suppliers. These organisations will always choose the best option for them, with less need to focus on what's best for the value they can afford.
Both private and public procurement must be pursued in line with a wide variety of regulatory obligations - ones that depend on the jurisdiction procurement’s regulatory environment. They can also be legally obliged to meet several international pieces of legislation, depending on specifics.
These kinds of wider regulations could be enforced by organisations such as the World Trade Organisation (WTO). Rules like these work to protect procurement procedures from illegal activity, but private sector organisations might find themselves with fewer restrictions than public sector ones.
A large consideration in terms of regulatory obligations is transparency. For public services, everything must be visible to the public eye. Audit trails are essential, with information regarding procurement accurately documented.
Reports on this include:
- Contract opportunities
- Contract awards
- And more
Additionally, procurement must also represent an equal opportunity for all interested in the contract. There must be no special treatment as this results in contracts and the allocation of public funds rendered unable to be thoroughly scrutinised. Private sector companies don’t need to offer this equal opportunity.
Public and Private Motivations
Private organisations are focused on returns. This means, to remain competitive on how to cut costs and deliver better services, procurement activities remain private. Conversely, public sector organisations must show their dealings, proving public money is spent wisely and fairly.
From the public sector organisations' point of view, the audits they conduct will have to be more regular and more stringent. The information associated with any purchasing will also be shared with other organisations and is accessible by private and public organisations.
Not to compare the two and their motivations too lightly, as each procurement journey begins for completely unique reasons, but public sector motivations tend to be a little more complex. These go beyond securing greater market share or value for money but will also include needs for securing better social value, social cohesion and equality.
These are inherent in the hopeful outcomes of procurement and public sector organisation will go to great measures to ensure they’re achieved. Recently, it’s more common for private sector companies to focus on the same kind of objectives, as there’s a growing financial opportunity in providing social value, especially in terms of addressing equity or environmental concerns.
The motivations for public sector organisations when procuring services are varied. Similarly, various considerations go into preparations when bidding on contracts, which are all vastly important. To find out more about these considerations, as well as how to level up your bidding capabilities, explore our guide.
Public sector procurement is an increasingly lucrative opportunity for businesses - the key is knowing how to discover contracts and make connections. To do so, attend our virtual summit, the Public Sector Show 2021.
The Public Procurement Playbook
Want to learn more about the public sector procurement process and win more public sector business? Download the Public Procurement Playbook.
Topics Covered Include:
- Public Procurement Trends & Stats
- How to Target and Find Contracts
- Improving Sales Potential & Outreach Tips
- Tips for Winning Contracts
- Managing the Bid Process
- Links to Other Useful Resources