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Government procurement is focused on rules compliance

Stephen Bauld
Government procurement is focused on rules compliance

I am often asked why government procurement is so focused on rules compliance and by doing so why it costs the general public far more money by having all these rules.

Private sector procurement is efficient by the very nature of the ability to be much more flexible in the general area of purchasing process. In the private sector, the primary concern in procurement is that any goods or services purchased be delivered on time, on budget and in accordance with specifications.

These concerns are far from irrelevant in the public sector, but in public sector procurement, across all advanced democratic states, there is far more focus on rules compliance than even the largest private sector entities.

Governments everywhere are wedded to the competitive tender as the ideal method for procurement, to be departed from not just where a compelling case exists, but only when permitted under predefined rules and regulations.

The assumption, accepted almost as an article of faith, is that such an approach will lead to optimal results.

Is such faith justified? The answer is that while an open, transparent and fair system can result in the best value for the public, it is not likely to do so except in a relatively narrow band of cases. There are both theoretical and observational reasons to doubt the so called "open, transparent and fair" process beloved by the government and that it is likely to generate an efficient result.

The most obvious evidence that the governmental approach to procurement is not likely to produce the best value for money is the fact that it is utilized essentially only by government.

Although private sectors may resort to a government-style tender in their procurement process, it is very unusual for them to do so. Since the private sector is profit driven, one would assume that they would almost always employ a tender approach, if in fact it was likely to lead to "the most efficient use of resources" not only "at the lowest overall cost" but so as to result in "best value for money."

The fact that competitive contracting is less used in the private sector than in the public cannot but cast doubt on the proposition that the competitive approach is necessarily the most cost-effective method of meeting government procurement needs.

No one would deny that there are benefits in competition. An open and competitive process reduces perceptions of favouritism and gives all suppliers (each of which is a taxpayer) a fair chance to bid for the government contracts that their taxes fund.

However, numerous studies have shown that governments around the world pay generally more than the private sector for goods and services that they buy. The solution to this problem most decidedly is not to move towards single-sourcing the vast majority of government purchases.

Monopoly generally violates the public interest, since by being insulated from competition, the monopolist can both charge higher prices and produce products of lesser quality because the consumer has no choice.

One obvious problem with government procurement is that, by virtue of the tender system, the government is essentially stuck with the first price that is quoted.

It is assumed that a tender results in each supplier bidding its lowest price. In reality, there is no reason why any bidder should do so. All that a bidder needs to do is quote a price that is below what he or she expects the competition to bid.

To put the matter simply, government could do a lot more to defend its own corner better, if it would only haggle — that is, if it just made more of an effort to negotiate an improved position. In other words, getting competitive quotes should only be the start of the contract award process, then the real effort to drive a good deal should begin, as is done in the private sector.

Stephen Bauld is a government procurement expert and can be reached at swbauld@purchasingci.com.

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