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Public Procurement

Chapter · October 2019

DOI: 10.1007/978-3-319-31816-5_344-1

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P

Public Procurement the required goods and services proportion as per

the overall demand. Scholars also define it as an
Saeed Siyal and Chunlin Xin activity to assess, buy, and receive products,
School of Economics and Management, Beijing works, and services. This activity is called public
University of Chemical Technology, when performed by public organizations or in the
Beijing, PR China name of public organizations or funded by them
(Adotévi 2004). The supply function within the
private firms is concerned with managing the
Synonyms timely delivery of the products and services via a
specific supply chain process which is cost-
Government; Procurement; Purchases effective and feasible.
Government and the enterprises owned by
state procure a wide series of the goods and ser-
Definitions vices as well as get their work from the private
sectors which range from the basic equipments of
Public procurement refers to the process of pur- the computers to the construction of buildings and
chasing of goods, services and works by the gov- roads. Public procurement is one of the crucial
ernments as well as the enterprises which are economic activities of the government which
owned by the state. characterize a substantial part of its GDP, thereby
resulting in the massive financial drifts, which
estimates about 10–15% of the GDP across the
Introduction: What Is Public globe (OECD 2005). It is acknowledged by
Procurement? OECD (2007) as one of the public activities
which is most prone to corruption. Being a
The term public procurement is self-explanatory major interface among the government and pri-
by itself, as it is clear from its meaning wherein the vate organizations, it gives to both the actors
public means government and procurement several prospects of distracting the funds of the
means buying or purchasing. Hence, public pro- government for their personal matters (Beth
curement maybe referred as a process or system 2007).
by which the public organizations procure or pur- About 40–50% of the several economies of the
chase products in the form of goods, services, or world are represented by their expenditure to pro-
sometimes the combination of goods and services vide services and purchases form the private
(Thai 2001). Besides, it accounts and interprets firms. The states like Singapore spend its 18% of
© Springer Nature Switzerland AG 2020
A. Farazmand (ed.), Global Encyclopedia of Public Administration, Public Policy, and Governance,
https://doi.org/10.1007/978-3-319-31816-5_344-1
2 Public Procurement

economy, whereas the other emerging economies procurement which include the silk trade among
are likely to spend up to 80% of their economies. China and Greek. Evidences from the USA repre-
Although the public procurement is very impor- sent the predated procurement of municipal
tant, so far it is one of the ignored and government than that of the state or central gov-
underresearched topics up till now (Walker and ernment (Page 1980). To cope with the colonies
Brammer 2009), as compared to the procurement and disbursements, printing had been one of the
of the private firms despite having the same mean- services of the state. The governments of that time
ing and concepts in the context of scientific phe- had no any professional officials of procurement;
nomenon. Although both the types have similar instead they used to get the required products and
rules and regulations in terms of function as they services from the commissioners by paying them
have to procure the products and services, in fact the commission for their services and delivery.
they differ from each other (Knight et al. 2012). Later in 1810, Oklahoma became the pioneer
The main difference among the public and private state to take the initiative of creating a board
procurement is identified as the link between both committee for procurement required by all of its
of them (Thai 2008). In addition, the public pro- departments and agencies.
curement performs the task to accomplish the
social, ecological, and supplementary benefits in
their procurement in order to fulfill the duties of
Main Principles of Public Procurement
government toward the society (Walker and
Brammer 2009).
There are five main principles which underpin the
Though public procurement is believed to be
process of procurement; each one of them is
an apparently key role of the government, the
discussed below. Refer to Fig. 1 for better under-
huge attention has also been given by the public
standing of all the five principles.
bodies, policy makers, and professionals of public
procurement in order to develop and bring
reforms in it. Despite all this, it is less studied Value for Money (VFM)
area in academic and research perspective. It is the most imperative principle of procurement
Hence, not a single school from the members of which involves the contemplation of public orga-
the “National Association of Schools of Public nizations to contribute for development of their
Affairs and Administration” is offering the degree policies, rules, and priorities during the time when
programs in public procurement, although more they are getting the best payback and results
than 103 institutions including universities and against the expenditure (Bauld and McGuinness
colleges have certificate programs in public pro- 2006). At certain times, the states are at their
curement besides they also offer courses of public liberty in order to consider some other measures
procurement in their bachelor, master, and doc- rather than the lowest cost, for instance, the tech-
toral programs in business administration and nical skills, educational qualification of the strate-
related majors of management sciences gic employees, and prior records of performance
(Anonymous 2000). in conferring contracts to the suppliers (Qiao and
The domain of public procurement owes a long Cummings 2003). These things may cost the gov-
history which is somewhat written on a table made ernments more but will also give more benefits
of red clay found in Syria. It shows the pioneer and improved performance. There are some bar-
procurement activities dated between 2400 riers which cause hindrances in attaining the
and 2800 B.C. The details of the procurement VFM; these include weak central organizations,
illustrate “50 jars of the fragranced oil having politics, customs, norms and traditions, and dearth
weight about 600 in grains” (Coe 1989, p. 87). of programs related to education and training
Additionally, some other historical evidences (Palmer and Butt 1985). Overcoming these chal-
from 800 B.C. have also been found related to lenges will be useful in achieving the VFM.
Public Procurement 3

Public Procurement,
Fig. 1 Principles of public
procurement

Ethics due to the high poverty rate, and rule of law is

Ethics is also one of the significant principles of enforced so poorly in these countries which makes
public procurement, due to the reason that the the public procurement more prone to corruption
professionals of procurement are expected to fol- (Nwabuzor 2005). There is a great need to take
low the ethical conduct to a greater extent as serious measure to have control over corruption
compared to other professionals (Atkinson and minimize it to the lowest. However, some
2003). Some of the professionals are still unaware states like Sweden, Switzerland, Austria, Nether-
of this, which may cause serious issues such as lands, and Australia seem to have a very good
breaches in the related code of conduct. Atkinson control over corruption and unlike involvement
(2003) mentions that 500,000 professionals of in it, while Bangladesh is reported as the most
procurement exist in the markets of the USA, but corrupt country of the world as compared to others
only 10% of them are the members of professional (Tandoor 2004). An effective and efficient bench-
association which conducts trainings in ethics of mark needs to be developed as global solution for
procurement. The rest of the 90% are unaware of the ethical dilemma for international code of
the ethics in procurement and the legal standards ethics in the international market.
which are involved in the process of procurement.
Recently, the developments in developed states
Competition
like the USA, UK, and others have declared that
Majority of the products and services are pur-
contributing financially for the funds of party and
chased by means of this competitive tendering.
parliament members has been established and
For instance, if the ports authority is in need of
become prevalent practices in the developed as
procurement of gantry cranes, at first it will adver-
well as developing states (Rege 2001). Yet, the
tise with all the technical requirements and give a
issue of corruption related to procurement has
call for bids from the relevant suppliers. After that
been more serious for the developing states as
they start receiving bids which are handed over to
compared to the developed ones, as they have
the tender board for evaluating the bids if they
taken and are still taking certain measures to con-
fulfill their requirements or not. There is a great
trol it. A report by World Bank shows that every
competition in all this procedure. The credibility
year the corruption reaches over $ 1 million which
of the suppliers and cost seem to be very impor-
accounts nearly 12% of the GDP of countries like
tant for winning the tenders; after evaluation of all
Nigeria, Kenya, Venezuela, Bangladesh, India,
the bids, the tender is awarded to the most com-
and Sri Lanka. This huge corruption is caused
petitive and credible supplier. This process of
4 Public Procurement

competitive tendering reduces the chances of of them equally. The accountability, being an
favoritism, corruption, and fraud. In addition, it imperative principle of public procurement, is
encourages and enhances the participation of followed at both the levels (i.e., national as well
more suppliers, and that high competition leads as international). Internationally, the governments
to the reduction in cost and improvement in the often have involvement in the activities of trading,
quality of the products and services (Erridge purchase of products and services, aid matters
et al. 1999). which include both give and get, and play the
diplomatic roles in other states (Department of
Transparency Foreign Affairs and Trade 2006). This conduct
Transparency refers to openness of the system leads to financial risk and also creates the issues
which makes it very important for the process of in accountability. While the scenario for the
procurement. It is also an essential aspect to national level is quite different from that of the
ensure accountability and minimize corruption. international, here the managers in public sector
Transparency, being the core value of governance, organizations have to face the situations which are
has increased eminence in the OECD states and more competitive than before. They also have to
close association in rising the agenda of the gov- deal with the public which always demands
ernment (Deighton-Smith 2004). Public procure- accountability and better services and products
ment is an area which is surrounded by the (Gunasekaran 2005).
widespread corruption in both the developed and
developing states. The corruption not only
involves the procurement professionals who Policies of Public Procurement: Why Do
make the decisions, but the ministers and political They Matter?
parties are also involved in that. To minimize all
these activities, transparency plays an important This part mainly outlines and builds the frame-
role and adheres the governments to raise their work of relevance and application of public pro-
standards of conduct and rule of law and ensures curement in the context of economic, social, and
its openness to scrutiny (Deighton-Smith 2004). It environmental perspective; besides it also dis-
also assures both the domestic and international cusses the ways of integration of issues regarding
investors for the fair award of tenders and con- the sustainability and innovation into public pro-
tracts. Dearth of transparency in all markets and curement. This will increase the understanding of
missing of the info about rule of law, principles, the policies of public procurement and their rele-
and practices act as the barriers and cause hin- vance to the sustainability and innovation.
drances in trade, and foreign suppliers get more
affected as compared to the local suppliers
(Arrowsmith 2003). Impact of Public Procurement: A Broader
View Ahead
Accountability
The accountability isn’t only applicable to the Generally, public procurement is observed to
public sector organizations (Barrett 2000), but it spend for works, products, and services required.
also applies on the private organizations and Government has the responsibility to regulate and
keeps them accountable to their respective stake- control the execution of public procurement in
holders for all the financial transactions (Hughes accordance with its rule of law and principles.
2003). Employees in public organizations usually By these, they might also need certain goals and
face political influence in performing their respon- objectives as the secondary ones and account
sibilities and implementing them, whereas the them in the public procurement likewise
private sector has to pay attention to mechanism the European Union. These rules of law and prin-
of markets they are working with (Stewart 1999). ciples are applicable on a broader level as
Both the sectors differ in the context of influence, compared to the direct government spending
but the principle of accountability applies to both unaccompanied.
Public Procurement 5

The expenditure of the government is huge and sustainable policies, specifically when the cost of
noteworthy. The estimated expenditure on public whole life is being accounted for (United Nations
procurement in Europe is about €2 trillion every and Kjöllerström 2008; European Commission
year (European Commission 2011; Procurement 2011).
of Innovation Platform 2014). In general, it is Furthermore, execution of the sustainable and
about 15–20% of GDP, whereas 40–90% of bud- innovative policies has also been contributing in
get of the public is consumed on the purchase of terms of accomplishment of the environmental as
products, services, and other works (European well as social goals and objectives (Sustainable
Commission 2016). Consequently, these absolute Procurement Task Force 2006; European Parlia-
budgets enable governments to use the power of ment et al. 2010). The governments get huge
their markets to get the economic, social, as well support in attaining their goals and objectives in
as environmental results and upshots directly; terms of transnational agreements, for instance,
besides it also arouses the marketplace to yield the Paris Agreement in 2015, and refining their
and consume in a sustainable and innovative image in the eyes of public or common people
manner (ICLEI and Clement 2007). (Procurement of Innovation Platform 2014).
Thus, the policies of public procurement which Overall, these paybacks and contributions of the
boost up the governments to get involved in sta- sustainable and innovative policies of public pro-
bility and innovation are becoming more crucial curement help to trigger and initiate the govern-
in addressing technical advancements and chal- ments to govern as specimen and example for
lenges in socioeconomic perspective (Lember other states to follow.
et al. 2013; Rolfstam 2013). The primary goal of
the public procurement is to accomplish value for
money in the perspective of cost and quality,
Barriers to Implement the Sustainable
while the impact to supplementary goals of the
and Innovative Policies of Public
policies is recognized as the secondary goal of the
Procurement
public procurement policies.
There are some barriers which restrict the policies
of public procurement to be implemented effec-
Sustainable and Innovative Public tively; first, aversion of risk, dearth of skills and
Procurement Policies competence, as well as inadequate resources
(UNEP 2013). Secondly, there occurs hindrance
These polices have been in practice national and in implementation of the public procurement pol-
local levels; besides numerous organizations are icies due to the reason that they are usually
also executing these policies to engage them- reflected as a responsibility related to economic
selves toward attaining sustainability and innova- and administrative side. Therefore, these policies
tion. This operationalization probably brings in are not aligned with a broader functioning to
benefits and paybacks to the national governments accomplish the desired goals and objectives
in several ways around. At first, it brings in the (Procurement of Innovation Platform 2014). In
financial paybacks. A report by the UK’s Office of addition, the national governments perceive the
Government Commerce (2011) confirmed that in implementation of these policies to be expensive
execution of these policies in public procurement, for them (European Commission 2015). Thirdly,
the value of money can easily achieved by the deficiency of the political obligation and assur-
optimal combination of prices of life cycle and ance along with the technical capability of the
quality so as to cope with the needs of the governments to effective application of such pol-
public. Additionally, the effectiveness of cost icies may also act as a barrier (United Nations and
can also be brought in by implementing the Kjöllerström 2008).
6 Public Procurement

Implementing Public Procurement ministry of interior and finance rather than the
Policies ministry dealing with innovation policies. The
second level is the strategic procurement which
Regardless of these barriers which cause hin- takes place in the situations when the need of
drances in the implementation of these policies, technology, goods, and services rises so as to
the governments are actively taking part for the boost up the market. Being related to sectorial
proper and effective application of such policies policy, it’s not interfered or in coordination with
by several means varying from the legal chucks to the ministry dealing with the innovation.
soft recommendations for practice so as to imple- The systematic application of both these forms
ment effectively and efficiently. For instance, it of public procurement requires actions and func-
has been very important to consider other perspec- tionalities in coordination among the several min-
tives along with the price in contract awarding istries and establishments dealing with public
criteria in European Union, which make the pur- procurement along with their set targets, goals,
chasing agencies to identify other measures and the structure of incentives offered in return.
including quality used (European Directives
2014). Additionally, some legal procedures may State Procurement in Connection with Private
also sometimes be useful to maintain sustainabil- Users
ity at certain level. It is clearer and understandable Some strategies in procurement process don’t
to assume that enactment of policy objectives and only exist to meet the needs and accomplish the
goals in different perspectives via public procure- operationalization of the countries, they are also
ment in different ways in order to define the policy meant to provide support and livelihood to the
goals have variations in the outcomes, as the sit- private sellers and contractors (Rothwell 1984).
uations may also vary depending upon the coun- This process leads to the occurrence of coopera-
tries (Knight et al. 2004). Hence, the countries tive procurement in which both agencies, govern-
learn from the implementing styles of other coun- ment and private buyers, procure and use the
tries and their consequences, which may be a innovations jointly. Hence, they take the joint
lesson for them. benefit from the innovations procured from either
side, which saves the money of both agencies, and
cause a mutual benefit for government agencies as
Forms of Public Procurement well as private purchasers. In addition, it increases
the availability of recent innovations which are
Public procurement that assumes innovation as its useful for both of them.
strategy in the policies of innovation is probable to
appear in diverse forms which can be differenti- Commercial Versus Pre-commercial
ated in a comparative mode. There are three main Procurement
forms of public procurement in this perspective The yearning and aspiration to practice procure-
which are discussed as follows. ment to bring innovation has always led the states
to take new and innovative initiative to cope with
General Versus Strategic Procurement this modern era of globalization, particularly in
Procurement within the states can be distin- European countries, who have been leading in
guished in two main levels. The first level is more differentiating the approaches of public pro-
usually structured in such a form to make the curement. The main idea behind this form of
innovation as basic criterion in each of their tender public procurement points out the innovative
call and evaluation of its documents at a later goods and services which require further research
stage. Currently, it is often practiced in the UK and development (R&D). Hence, the high-tech
and rarely in other states. This makes the central risk which may occur in R&D is mutually shared
offices solely responsible for procurement and its by the buyers and suppliers. Theoretically, it gives
consequences. These are under the control of the idea about the current position of potential
Public Procurement 7

manufacturers endeavoring to go ahead of the pre- • Making the process of public procurement
commercial phase, which means that the goods more efficient and effective
and services being provided are not available in • Providing equal opportunities
stock but they are produced on demand base. But • Fair dealing for the suppliers
practically, the word procurement refers to the • Rational conduct of providers
R&D amenity agreement that is made with the
future suppliers in a process of multiple phases,
ranging from assessment and viability to R&D, Conclusion
tests of the first consignments in the field leading
to their commercialization. Public procurement is a means to accomplish the
policy goals of the government and procure good,
services, and works in an efficient and cost-
Concept and Goals of Public effective way. Despite some barriers, there are
Procurement certain principles of the public procurement
which make it easier to follow without any hin-
Public procurement has been acknowledged as drance and bias. The policies of public procure-
the central and fundamental mechanism to assure ment are being well implemented in developed
the public resources management as proficient and states, while the developing states are still endeav-
free of corruption. To do so, recently the concerned oring to implement properly.
officials have intensely changed and played a signif-
icant part to meet the demands of the current times.
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