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Private sector and public sector comparisons in procurement

Stephen Bauld
Private sector and public sector comparisons in procurement

Private and public sector procurement departments are run in an entirely different manner, with different policies and procedures, rules and regulations.

As a general observation, not only do municipalities fail to appreciate how a more efficient approach to purchasing could improve their bottom line, they consistently undermine the importance of purchasing as a critical part of overall municipal operations.

Across Canada, as well as the United States, municipal procurement departments at mid-sized cities consist of four to six buyers who are responsible for purchasing between $300 and $800 million in goods and services per year.

In contrast, in most private sector industries, a firm with an annual procurement spend of $300 million or less would likely have a procurement staff twice the size.

Since procurement professionals are major players in their local markets, delivering a wide range of programs and services, municipalities need top notch procurement departments. However, with a human resource approach characterized by such features, they are most unlikely to get one and even less likely to retain it.

Complicating matters further is the fact that, due to tight funding, municipalities have lost much of their high-level professional expertise, preferring instead to contract out for consulting services. This has watered down the ability of municipalities to manage their more complex procurement projects.

Construction affords an obvious example of areas in which critical expertise is lost. At one time municipalities had large engineering departments and in-house architects.

Such professionals are now largely gone. When a large construction project comes along, there is no in-house staff to devote to the project. The only option is to use expensive consultants.

A further human resources-related concern is that too often in the municipal sector, the voice of the purchasing department — if it is ever heard at all — is heard through too many filters for it to be given sufficient attention.

In the private sector, the senior purchasing official is now usually a vice-president, reporting directly to the corporate chief executive officer. As a member of the senior management team, the vice-president of purchasing is directly involved in all senior level decision-making and is directly consulted with respect to corporate strategic initiatives.

The ranking of procurement represents its importance to overall success. In contrast, at most municipalities, the chief purchasing officer is at the manager level: ranking below the city manager, the commissioners (general managers), directors and deputy directors.

Thus, at a typical mid-sized Canadian city, the officer in charge of spending $300 to $800 million per year is ranked in the fourth or fifth tier of management. Most municipal bylaws direct the purchasing manager to require municipal staff to conform to the city’s purchasing policies and procedures.

However, the client department representatives with whom the purchasing manager must deal include not only directors or deputy directors, but also the odd commissioner, all whom outrank the purchasing manager.

The result of such a low ranking is to exclude the views of purchasing from any direct involvement in critical decision-making at the senior officer level.

When the commissioner of public works wants to make an “emergency” purchase of beach cleaning equipment, he (or she) simply calls up a friend, the commissioner of corporate services, and complains some buyer is preventing him from doing so.

When this happens, defend the buyer and the proper approach.

Very often, the answer is no. The consequence? For all its superficial commitment to a rules-based system of procurement, municipalities have opted for a managerial structure, which effectively means those defending adherence to the rules are not even present when critical decisions are made to override them.

I have always said public sector procurement is about rules and regulations and private sector procurement is about saving money.

Stephen Bauld is a government procurement expert and can be reached at Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.

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