Public Sector vs. Private Industry Procurement: Different Challenges
There is no doubt that there are significant differences between the public and private sectors…and not only in purchasing. Private industry works to survive. Poor planning and high cost can lead to bankruptcy. The public sector purpose is to provide services to taxpayers. Survival is not an issue; taxes need only be raised.
One of the differences is what to do with a supplier who continually fails to deliver on time. In the private sector, the decision is relatively simple – replace the supplier (unless it is sole source). In the public sector, this is not as easy. The supplier has rights. The situation must not only exist but must be well documented…and this is where the problem exists. Contract administration is poorly done (both public and private). Often the recurring situation is not well documented. The burden of proof is not met.
Still another difference is caused by the need for accountability and transparency. Businesses must react and contract much more quickly in order to ensure the survival or viability of the firm. Accountability is normally internal with little transparency. In contrast, the public sector must ensure that they prudently spend taxpayers’ money. This means a longer, more detailed approach. In this case, accountability is both internal and external with a high degree of transparency.
How does this second difference materialize in action? First, the public sector spends considerable time in developing detailed specification regarding the need. This is important as firms must be able to compete for the service or requirement fairly. In contrast, private industry often has a need to fill. They are much more likely to write an outline of the need and ask firms to give them a solution. Think of the story of the tortoise and the hare. The tortoise (public sector) and the hare (private industry) both arrive at the finish line. The difference between the story and reality is that they are not in a race.
This difference also shows in the presentation of the solution. In the public sector, firms have to prove that they have the capability to provide the solution and, then, provide details on their solution to prove that it is the best one. This results in multi-page proposals that can run thousands of pages in some cases. In private industry, the ‘bidder’ is more likely to provide an overview of the solution and a portfolio with the firm’s credentials. This may be no more than 10/12 pages. Regardless, a much shorter proposal with much less detail is required.
There is a difference in the number of bidders that are tolerated. In private industry, time is at a premium. The bid often is given only to known suppliers who already have a reputation in the field. Furthermore, the number of bidders is often restricted to ensure that firms who are approached are going to bid and that there will not be too many bids to evaluate.
With the public sector, the goal is not to restrict bidders to known suppliers only. While in private industry, the choice of bidders is normally made, public sector procurement has innovated in a different way. The use of e-procurement and e-bid boards shows that public sector can, at times, be more innovative than private industry. By posting the bids, firms are able to self-select whether they can bid on a requirement or not. Furthermore, they can ask questions and receive answers that all firms can see and use to improve their proposals. In this way, firms can access bidding opportunities that otherwise they would not have known about.
Evaluation of proposals also illustrates the difference. Most public sector entities have to publish the evaluation criteria. The major difference is whether the weights for each criterion will be included or if the bidder has to determine which criteria are more important. The result is consensus is normally the method that evaluators use to determine a ‘winner’. While this approach may be used in private industry, there may not even be a formal evaluation or evaluation criteria. Normally a decision is made quickly, possibly by one or two people. There may not even be a formal evaluation. Furthermore, a known firm (with a relationship) may inadvertently make an error and not qualify. In spite of this the firm may be contacted, given the opportunity to repair the bid and also receive the contract. Often the end result is to go to a known (safe) firm rather than take the chance on a new firm.