WHAT IS PUBLIC

PROCUREMENT?

J o r g e A . Ly n c h T.
 Also by Jorge A. Lynch T.

Frequently Asked Questions on Public Procurement:

A Reference Guide to Procurement
and Contract Administration Basics

Public Procurement and Contract Administration:

A Brief Introduction

Public Procurement:
Principles, Categories and Methods

What is Public Procurement?

Essential Principles of Public Procurement

Procurement Planning Basics

Public Procurement Methods:

Identification and Selection
 Copyright © 2019 by Jorge A. Lynch T.
All rights reserved.
Published in the Philippines
www.procurementclassroom.com

This Lesson is intended to serve as a quick reference source for

beginners and intermediate-level procurement professionals
who wish to enhance their knowledge and build a successful
career in Public Procurement. Material in this lesson is for
educational purposes only. This lesson makes no guarantees of
success or implied promises.

The Procurement ClassRoom believes in repurposing content

whenever relevant and beneficial to our readers. Some materials
in this lesson may have previously existed as a blog post, book
excerpt, or another form of digital media.

Neither the publisher nor the author assumes any liability for
any errors or omissions or for how this lesson or its contents are
used or interpreted or for any consequences resulting directly
or indirectly from the use of this lesson.
 About The Procurement ClassRoom Lessons

The Procurement ClassRoom was founded in 2013 to provide

aspiring and novice procurement practitioners with a
platform where they can interact and learn about the theory
and practice of public and project procurement in a manner
is straightforward and easy to understand. Most importantly,
with these fundamentals, they will be able to develop a solid
foundation leading to a successful career.

This Procurement ClassRoom Lesson 1 was developed

primarily from the author’s experience working on donor-
funded projects in various countries since the year 2000. It relies
heavily on donor and country-specific procurement guidelines
that were developed based on the UNCITRAL Model Law on
Public Procurement, but does not follow any of them to the
letter; relying mostly on the author’s practical experience and
understanding.

Other Lessons are in the making and will also be concise;

containing sufficient information to give you a better
understanding of a specific topic of the management and
practice of public and project procurement, and contract
administration.

We appreciate receiving feedback from readers. Please

send your suggestions for new topics and improvements
to: suggestions@ProcurementClassRoom.com.
 Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Why Is Public Procurement Important? . . . . . . . . . . . . . . . . 3

The Public Procurement Process . . . . . . . . . . . . . . . . . . . . . . 4

The Goal Of Public Procurement . . . . . . . . . . . . . . . . . . . . . . 5

Actors, Stakeholders And Beneficiaries . . . . . . . . . . . . . . . . . 6

Stakeholders In Public Procurement . . . . . . . . . . . . . . . . . . . 7

Beneficiaries Of Public Procurement . . . . . . . . . . . . . . . . . . . 8

Similarities And Differences Between

Public Sector And Private Sector Procurement . . . . . . . . . . . 9

Procurement Legal Framework . . . . . . . . . . . . . . . . . . . . . . . 12

Tender Boards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

About The Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

 INTRODUCTION

M any of us have not given much thought to the

fundamental question: what is Public Procurement? Also
called Government Procurement, Public Sector Procurement,
Government Purchasing, Government Contracting and
Government Acquisition, to mention a few. Most of us just view
it as purchasing goods and services.

As novice practitioners, we may start with using template

bidding documents and are told to just fill in one blank or
another, or replace sections of a bidding document with
information pertinent to the procurement requirement we may
be working on. Then soon we progress accordingly until we are
just filling in blanks and replacing text without any knowledge
of the bigger picture of what we are doing and the impact it has
on the society and people’s lives.

But our lack of understanding may be justified because, as

you will read in the paper: “What is Public Procurement?
Definitional Problems and Implications” by Robert E. Lloyd
and Clifford P. McCue, there are inconsistencies regarding
the body of knowledge and terminology used to define public
procurement. According to the authors, perspectives on what
public procurement is or should be vary from routine ordering
to sophisticated analysis of government spending.

What is Public Procurement? 1

As basic as our knowledge may be as novice practitioners,
it is very easy to recognize that the main purpose of public
procurement is to buy or acquire goods and services. It is
also not very difficult to determine that the source of funds is
primarily from revenues obtained by the Government through
taxes, but the source could also be loans or grants received
by the Government from bilateral or multilateral funding
arrangements, such as with international financial bodies
like the World Bank and or similar institutions, and other
Governments.

Given the source of funds used in public procurement, it is

important to have a working definition so that we understand
what we are talking about whenever we use the term “Public
Procurement”.

For the purpose of this Lesson, Public Procurement is the

acquisition of goods, services and construction works to
support government operations, and to provide public goods
and services. Such services include: public transportation and
utilities services, medical and educational facilities and services,
roads, bridges and other public infrastructure, which can all be
classified as either “hard infrastructure” or “soft infrastructure”.

What is Public Procurement? 2

 WHY IS PUBLIC
PROCUREMENT IMPORTANT?

I t is estimated that procurement spending amounts to

somewhere between 15% to 22%, or more, of a country’s
gross domestic product (GDP), approximately €1.5 trillion
annually in the European Union and over $500 billion at the
federal level in the United States (See pages 2 and 3 of Strategic
Importance of Public Procurement). With such extremely
high monetary amounts, even small improvements towards
reducing fraud, waste and abuse of these funds could result in
significant savings of scarce public resources. A one percent
reduction on a procurement spend of US $100 million, for
example, would result in a saving of US $1 million.

What is Public Procurement? 3

 THE PUBLIC PROCUREMENT
PROCESS

T he public procurement process begins with the identification

of a requirement and ends with the award of a contract.

For the purposes of this Lesson, the procurement process is

understood to include all actions from the identification of
a requirement up to the contract award. In some definitions,
even elements of inventory control and logistics management
are considered part of the procurement process. A clearer
understanding is gained once the goal of public procurement
is understood; particularly: who are its actors, stakeholders
and beneficiaries, and what comprises the legal basis for
public procurement.

What is Public Procurement? 4

 THE GOAL OF PUBLIC
PROCUREMENT

T he goal of public procurement is to award timely

and cost-effective contracts to qualified contractors,
suppliers and service providers for the provision of goods
and services to support government and public services
operations, in accordance with the principles and procedures
specified in the procurement rules.

What is Public Procurement? 5

 ACTORS, STAKEHOLDERS
AND BENEFICIARIES

P rocurement 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 the stakeholders’ trust and ensure they fully
understand the public procurement management process and
the procurement rules.

Procurement practitioners are directly engaged in the

procurement process, from need assessment to contract close-
out. Although, they are more involved in the procurement
process, they also advice and support contract managers.

What is Public Procurement? 6

 STAKEHOLDERS IN PUBLIC
PROCUREMENT

S takeholders are all 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
specific procurement activity.

The difference between stakeholders and actors is the extent of

their participation in the procurement process. Stakeholders
play a passive role, while Actors are directly involved in the
procurement process. Actors are also stakeholders because
of the benefits they derive from and the interest they should
have in the effective delivery of public goods and services.

What is Public Procurement? 7

 BENEFICIARIES OF PUBLIC
PROCUREMENT

A ll inhabitants of a country are beneficiaries of the

public procurement system, because of the benefit
and convenience they obtain from the use of public goods
and services provided in the form of transportation systems,
educational systems, medical services and facilities, utilities,
and other soft and hard public infrastructure.

What is Public Procurement? 8

 SIMILARITIES AND
DIFFERENCES BETWEEN
PUBLIC SECTOR AND PRIVATE
SECTOR PROCUREMENT

P ublic and private sector procurement organizations are

designed to acquire goods and services, and in some cases
infrastructure works. The primary difference between these
two types of organizations is their purpose for acquiring those
goods and services. Public sector procurement is focused
primarily on a social benefit, while private sector procurement
is mostly profit centric, with their activities primarily geared
towards making a profit. In the public sector, the two main
reasons for acquiring goods and services are: (i) for supporting
government operations, and (ii) to provide public goods and
services.

Funding source is another fundamental difference between

private and public sector procurement. While private sector
procurement is funded by the owners/shareholders of the
company, the source of funds for public procurement is primarily
taxes and/or grants and loans obtained by the government on
behalf of the country.

Concerning governing rules, private sector procurement

complies mainly with contract or commercial law with respect
to the formation of contracts, but their methods of procurement
are governed by company policies, which are dictated 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
What is Public Procurement? 9
policies of the company.

The entire public sector procurement process, however, is

governed by the public procurement legal and institutional
framework (procurement rules), and practitioners are obliged
to adhere to them. 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 how procurement should
be managed and the various methods permitted under diverse
circumstances.

With respect to oversight, the private sector procurement

process is mostly closed to public scrutiny. Public sector
procurement, in contrast, is open to public scrutiny, and public
procurement practitioners are accountable for their actions.
They also need to ensure public procurement is managed in
accordance with the principles and procedures specified in the
procurement rules.

Public procurement must also adhere to certain principles. The

process should be open to public scrutiny, depending on the
procurement selection method used and any confidentiality
agreement stemming from that method.

Sometimes the procurement law is very detailed, and

sometimes it covers only the fundamentals, leaving the details
for further development in procurement guidelines and
manuals which should expand on but not contravene the law.
Public procurement management, requirement identification
and budget allocation, procurement planning and strategy
development, procurement method selection, bidding
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 permitted to use

What is Public Procurement? 10

procurement methods that are not stipulated in the procurement
rules or not identified for a specific type of procurement
requirement. Any deviation from the procurement rules
require a formal justification and clearance from a designated
approving authority, sometimes a Tender Board, before the
action is carried out, unless there is imminent danger to life or
a major loss or waste of public resources.

The similarities and differences between public sector and

private sector procurement are summarized in the following
table.

Public Sector Private Sector

Acquire goods, services and Acquire goods & services

Objective: works

Societal development centric Profit centric. Scope restricted

Purpose: and not for profit. to vision, mission and
objectives of the organization

Public (taxes, and loans Private (shareholders, and

and grants from bilateral others)
Funding source: / multilateral funding
institutions.)

Procurement legal framework, Contract (commercial) Law

regulations, guidelines and
manuals govern the entire
Rules:
process from requirement
identification to contract
closeout.
• Open to public scrutiny.
• Practitioners accountable.
Process: • Governed by procurement
principles as stipulated in
the procurement rules
governs formation of contract,
but procurement method
determined by company
policies
• Closed to public scrutiny
unless unlawful act suspected
• Governed by company policy
• Open to shareholder’s
scrutiny

Spend authorization: Budget driven Management

Accountable to public Responsible only to the
Practitioners: company

Table 1: Similarities and Differences

Public Sector Procurement versus Private Sector Procurement

What is Public Procurement? 11

 PROCUREMENT LEGAL
FRAMEWORK

P ublic 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 country.
This sets the rules for the management of public procurement.

The procurement legal framework is usually further developed

into policies and procedures, procurement guidelines and
manuals, including standard bidding documents that are
used to call for bids from contractors, suppliers, and service
providers.

Adherence to the procurement rules is obligatory – any

infraction is punishable by law. The language of public
procurement policies, procedures, guidelines, manuals and
standard bidding documents must align with what is stated in
the procurement rules.

The procurement rules govern everything from the

identification of a requirement through to the closing out of
a contract; in some cases including disposal, reutilization and
destruction of defective or expired goods.

What is Public Procurement? 12

 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
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.

What is Public Procurement? 13

 About the Author

This Lesson was written by Jorge A. Lynch T., an International

Procurement and Supply Management Consultant with almost three
decades of experience. He manages, advises, trains and mentors on
Public and Project Procurement and has completed assignments in
Africa, Asia, the Pacific and Latin America. He received a Master
of Science degree in Logistics and Supply Chain Management from
Cranfield University in the UK and is a Fellow (FCIPS) of the
Chartered Institute of Procurement and Supply (CIPS).

His main interest is to teach public and project procurement

management to novice practitioners in order to assist them to
develop a solid foundation on which to build a successful career as
knowledgeable procurement professionals.

To learn more, you should become a member of the Procurement

ClassRoom at: https://procurementclassroom.com/join-free-library/

What is Public Procurement? 14

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