Public Procurement: Principles, Categories and Methods
Public Procurement: Principles, Categories and Methods
Buy on Leanpub

Chapter 1: The Public Procurement Cycle

Introduction

The Procurement Cycle begins with the identification of a need and ends with the award of a contract. The intention with this definition is to simplify the procurement cycle and put it into context by excluding any elements that does not fall within this specific function. In some definitions, even elements of inventory control and logistics management are considered part of the procurement cycle, but they actually take place during Contract Administration.

A clearer understanding is gained once the goal of public procurement is understood. For the purposes of this booklet, the procurement cycle is understood to encompass all actions from the identification and planning of a requirement up to the award of a contract

The Goal of Public Procurement

The goal of public procurement is to award timely and cost-effective contracts to qualified contractors, suppliers and service providers for the provision of goods, work and services to support government and public services operations, in accordance with principles and procedures established in the public procurement rules.

Actors, Stakeholders and Beneficiaries of Public Procurement

Procurement practitioners are the principal actors in the public procurement process. They are responsible for ensuring the goal of public procurement is achieved. They must gain stakeholder’s trust and ensure they fully understand the procurement process and principles.

Procurement practitioners are directly and indirectly engaged in the procurement process, from need assessment to contract close-out. Although, they are more directly involved in the public procurement process, they also provide advice and support during contract execution.

Stakeholders of Public Procurement

Stakeholders are those who stand to benefit from the results of public procurement, including those interested in the process and who might be affected, directly or indirectly, by a particular procurement action.

The difference between actors and stakeholders is primarily participation. Actors play an active role in the procurement process, while stakeholders a more passive role. Actors are also stakeholders because of the benefits they derive from the use of public goods and services.

Beneficiaries of Public Procurement

All inhabitants of a country are beneficiaries of the public procurement system through public goods and services available and provided in the form of transportation systems, public utilities, educational systems, and medical services and facilities, among others.

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 when managing public funds.

The ultimate aim of public sector procurement is to provide public services and support government operations at all levels within a country.

Public procurement is governed by the procurement legal framework, which is a law or regulation (or part of a law or regulation) that is sanctioned by the judicial system of a particular country. This sets the rules for the management of public procurement.

The procurement legal framework is usually further developed into policies and procedures, procurement and contract administration manuals and guidelines, including standard solicitation documents that are used to call for offers from contractors, suppliers and service providers. The language of public procurement policies, procedures, guidelines, manuals and standard solicitation documents must align with what is established in the public procurement legal framework. Adherence to the public procurement law is obligatory; any infraction is punishable by law.

The procurement legal and institutional frameworks (procurement rules) govern everything from the identification of a requirement through to the closing out of a contract; sometimes including disposal, reutilization and destruction of goods.

Tender Boards

A tender board is an entity created by law to oversee the public procurement process and to ensure that all public procurement activities are carried out in accordance with the public procurement rules.

Depending on the law, there could be several types of tender boards: departmental, ministerial and cabinet, each responsible for handling procurement actions at certain monetary value thresholds.

Some tender boards have similar functions as a procuring entity. Others only oversee and approve actions taken by the procuring entity and evaluation panels at various stages in the procurement process.

Chapter 2: Basic Principles of Public Procurement

Public procurement principles are the foundation of public procurement and should be addressed in the public procurement rules. They govern the management of public procurement, and also set the framework for a code of conduct for public procurement practitioners and all other officials directly or indirectly associated with the public procurement process.

As a practitioner you must have a clear understanding of public procurement principles, and know how to apply them to guide your day-to-day decision-making process. By integrating these principles into your work ethic, the outcome of your decisions will always be in line with the goal of public procurement.

As a public procurement practitioner you are a public servant. You manage public funds, are bound by an ethical code of conduct, and are accountable for what you do or fail to do when managing those funds.

Transparency, integrity, economy, openness, fairness, competition and accountability are some of the fundamental principles of public procurement. They are briefly discussed below.

Transparency

Transparency in public procurement is important.Information on the public procurement process must be made available to all public procurement stakeholders: contractors, suppliers, service providers, and the public at large, unless there are valid and legal reasons for keeping certain information confidential. Examples of confidential information are: proprietary information belonging to companies or individuals participating in the solicitation process, and certain military and defense-related procurements, to mention a few.

When a public procurement requirement is announced, electronically, through press release, the internet, and other venues, the announcement must include sufficient details for interested contractors, suppliers and service providers to determine if they are qualified to compete. The solicitation documents, particularly, must be available at a reasonable price, if not free of charge.

After reading the solicitation documents, interested contractors, suppliers and service providers should also be able to determine:

  • the nature of the requirement and its scope
  • the closing date for submission of offers or information
  • the evaluation and selection criteria
  • how and where offers should be submitted
  • the number of copies to be submitted, and point of contact for additional information and response to queries (clarifications)
  • the deadline for submission of queries
  • the schedule of pre-bid meetings and site visits (if applicable), and any other pertinent details

Additionally, if there is a change to the solicitation documents, all stakeholders should be notified using the same publications that were used for the initial notification, so interested contractors, suppliers or service providers can take necessary and timely actions to comply with the change.

Integrity

In public procurement integrity is twofold. There is the integrity of the procurement process, and that of public procurement practitioners.

Integrity of the Public Procurement Process

Integrity is essentially reliability. Bidders, and all other stakeholders, must be able to rely on any information disseminated by the procuring entity, formally or informally. The integrity of the procurement process assures confidence in the public procurement system. When solicitation documents are made publicly available, the information they contain must be dependable and free of ambiguities or bias.

When reviewing solicitation documents, prospective bidders should be able to determine if they are qualified to undertake the assignment. They also should be able to assess the need for association with other bidders and the type of association they would need to form given their qualifications and the requirements of the assignment.

Bidders should have a clear understanding of the requirement, and know how they will be evaluated. Evaluation and selection criteria must be clearly stated in the solicitation documents. These criteria should remain unchanged unless there is need to modify them. If modification is required, the solicitation documents should be amended, published and made available to all prospective bidders. Any changes in the offer submission date, should allow bidders sufficient time to adjust their offers accordingly to meet the new submission deadline.

Integrity of Public Procurement Practitioners

Practitioners working within procuring entities, and other government officials involved in the public procurement process, must display personal and professional integrity. Ideally there shouldn’t be any inconsistency between the two.

Public servants involved in the public procurement process should, at all times, be perceived as honest, trustworthy, responsible and reliable. They must always keep the purpose of the procurement requirement in mind, and strive to ensure that they responsibly manage public procurement as mandated by the public procurement rules.

Economy

Synonymous with efficiency, value for money, and commercially reasonable price, the principle of economy emphasizes the need to manage public funds with care and due diligence so that prices paid for goods, services and works are acceptable and represent good value for the public funds expended on them.

Everyone associated with the public procurement process or directly responsible for facilitating the acquisition of goods and services with public funds, should strive to avoid fraud, waste and abuse of public resources; whether it is the result of over specifications of required goods, paying unreasonably high prices for substandard goods, collusion with other bidders, or other forms of unacceptable practices.

Openness

Public procurement requirements should be open to all qualified organizations and individuals. The public should also have access to information pertaining to public procurement requirements. Access to public procurement information is not absolute. Confidential and proprietary information belonging to organizations and individuals participating in process should not be available publicly, and the extent of their disclosure should be detailed in the procurement rules or other relevant regulation.

There are also procurement methods, such as restricted or selective bidding, that limit the availability of solicitation documents to only those firms meeting certain qualifications. The request for quotations (or shopping), and direct contracting (sole source) also present certain limitations on competition given that the request for offers is limited to a certain number and type of organizations or individuals.

The evaluation of offers received is always kept confidential until the evaluation panel reaches a final conclusion and after the evaluation report is cleared by a designated approving authority. This would be defined in the procurement rules.

Most defense procurements are confidential, restricting relevant information to a “need-to-know” basis only.

Except for confidential defense procurements, the results of the public procurement process should be published and made available on relevant websites. In addition, public procurement information (except for confidential/proprietary information) should be open to all on a restricted access basis.

Fairness

There are different interpretations of fairness in public procurement, so rather than define fairness as treating all bidders equally, better to mention how fairness is achieved in public procurement.

To achieve fairness in the public procurement process:

  • Decision–making and actions must be unbiased, and no preferential treatment should be extended to individuals or organizations given that public procurement activities are undertaken with public funds.
  • All offers must be considered on the basis of their compliance with the stipulations of the solicitation documents, and offers should not be rejected for reasons other than those specifically stated in the solicitation documents and the procurement rules.
  • A contract should only be signed with the supplier, contractor or service provider whose offer is compliant and best responds to the objectives of the requirement in terms of technical capability and price.
  • Suppliers, contractors or service providers should have the right to challenge the procurement process whenever they feel they were unfairly treated or that the procuring entity failed to carry out the procurement process in accordance with the public procurement rules. Such challenges must be based on the solicitation documents and/or the public procurement rules.

Competition

The public procurement process should not be manipulated for the benefit of any organization or individual. Given that public procurement is funded primarily with tax payers’ money, all eligible organizations and individuals should be allowed to participate by submitting offers in response to a specific requirement for which they are qualified.

Public procurement requirements should be widely disseminated to increase the chances of a good market response, leading to the award of competitively-priced contracts.

Despite this principle, not all contracts are awarded using a competitive process because this sometimes depends on the urgency of need and the resulting procurement method used to fulfill a specific requirement.

The use of non-competitive procurement methods, although justified under certain conditions, should be kept to a minimum. Examples of non-competitive procurement methods are: shopping (also called request for quotations or invitation to quote) and direct contracting (single/sole sourcing). Each of these non-competitive procurement methods have their purpose and should not be misused.

Accountability

Accountability in public procurement means that anyone involved in the procurement process is responsible for their actions and decisions with respect to the public procurement process.

As public servants, procurement practitioners, and others involved in the public procurement process, are accountable and exposed to sanctions as a remedy for any behavior that contravenes the public procurement rules. You also have an obligation to report and/or answer to a designated oversight entity, and the public, on the consequences of your actions and decisions.