Public Sector Procurement Concepts and Definitions

Procurement is the same as any other specialty. There are concepts and definitions used by different authors that overlap and which can cause some confusion. The concepts and definitions are important to create an understanding. However, there is a difference between the public sector and private industry.

An area of confusion is the word ‘procurement’ itself.  When you say that you are involved in or an expert in procurement, you often are asked, “What is that?”  The simple answer is to substitute the ‘purchasing’. The two are often regarded as interchangeable, especially in private industry. However, purchasing is only a part of procurement. Procurement starts with deciding what is needed and continues through how you are going to buy, the actual purchase and finally the completion of the process.

The public sector, with its higher degree of transparency and accountability is especially concerned with precise definitions. It has rewritten the old saying, “If you can’t measure it, you can’t control it”. Instead, for the public sector it often appears to be, “If you can’t define it, you can’t report it.” 

Are you going to procure a good or a service? Do you know the difference? In most cases it is easy to identify the difference between a good and service. A good is tangible. You can touch it, feel it and define it. A service is intangible. You know that it is based on interactions. It can be describe in relation to its characteristics.

Many procurements are a combination of both (goods and services) so when does a good become a service. Conversely when does a service become a good?  In the public sector, with its reporting requirements, it is important to know this. The answer and resulting definitions appear very straightforward. It is a good when 51% is considered the tangible and 49% is the intangible. It is a service when 51% is considered the intangible and 49% is considered the tangible. In other words when there is a combination, it is a good or service when the ‘majority’ is the good or service. What remains unsaid is how the percentage is determined or what it is based on.

Goods come with many options to enhance performance – computer programs, warranties, etc.  When you are buying an iPad, you are buying a good (the iPad) and a service (all the apps, technology and support). One cannot exist without the other. Do you need to worry or define which it is? In private industry the answer is “probably not”. However, in the public sector definitions become important as statistical information and data are gathered. Furthermore, rules, regulations and trade agreements need to be followed.

Just to muddy the water further, another area designed to create confusion in the public service are the definitions of construction and real property. These are often considered neither goods nor services. This means that they are separate and distinct thereby creating a third and fourth category, unique to themselves.

In reality, any procurement of construction or real property can be regarded as a good or service. Construction material is a good. Leases (intangibles) can be regarded as service agreements. However, this may not be the case in the public sector with the use of a third and fourth category.

Finally, there is a definition that is understood by all procurement officers but is probably important only to the public sector. That is the difference between sole source and single source. In the public sector, the former term ‘sole source’ is required to explain why there was no choice as to who to buy from. The second term is ‘single source’. This is used when only one firm or source is chosen for the procurement but others were possible. This is part of the accountability framework. Politicians, public, management, auditors, etc. may all want to know why the source was chosen.

A simple example will suffice. In preparing this article, I used Microsoft Word. If I had bought this software from Microsoft, it would have been ‘sole source’ as it is a proprietary. Only Microsoft has the ownership of this software. However, if I bought Microsoft Word from a store, this is ‘single source’ since I did not choose to use a competitive bid among many suppliers. In the public sector, I would have to justify why a particular store and why not another one.

From the viewpoint of public sector procurement, it is necessary to understand, not only the definitions, but the concerns regarding accountability and transparency. In this respect, procurement is more difficult in the public sector. Private industry has its own challenges but there is less need to be precise within the accountability framework. Definitions are less important.