Public Procurement:Principles, Categories andMethods

Jorge Lynch

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Also By Jorge LynchPublic Procurement and Contract Administration: A BriefIntroduction

Contents

Chapter 1: The Public Procurement Cycle . . . . 1Introduction . . . . . . . . . . . . . . . . . . . . 1The Goal of Public Procurement . . . . . . . . . 1Actors, Stakeholders and Beneficiaries of Public

Procurement . . . . . . . . . . . . . . . . 2Similarities and Differences between Public and

Private Sector Procurement . . . . . . . . 3Procurement Legal Framework . . . . . . . . . . 6Tender Boards . . . . . . . . . . . . . . . . . . . 7

Chapter 2: Basic Principles of Public Procurement 8Transparency . . . . . . . . . . . . . . . . . . . 9Integrity . . . . . . . . . . . . . . . . . . . . . . 10Economy . . . . . . . . . . . . . . . . . . . . . 12Openness . . . . . . . . . . . . . . . . . . . . . 13Fairness . . . . . . . . . . . . . . . . . . . . . . 14Competition . . . . . . . . . . . . . . . . . . . . 15Accountability . . . . . . . . . . . . . . . . . . 16

Chapter 1: The PublicProcurement Cycle

Introduction

The Procurement Cycle begins with the identification of aneed and ends with the award of a contract. The intentionwith this definition is to simplify the procurement cycleand put it into context by excluding any elements that doesnot fall within this specific function. In some definitions,even elements of inventory control and logistics manage-ment are considered part of the procurement cycle, but theyactually take place during Contract Administration.

A clearer understanding is gained once the goal of publicprocurement is understood. For the purposes of this book-let, the procurement cycle is understood to encompass allactions from the identification and planning of a require-ment up to the award of a contract

The Goal of Public Procurement

The goal of public procurement is to award timely andcost-effective contracts to qualified contractors, suppliersand service providers for the provision of goods, work

Chapter 1: The Public Procurement Cycle 2

and services to support government and public servicesoperations, in accordance with principles and proceduresestablished in the public procurement rules.

Actors, Stakeholders andBeneficiaries of PublicProcurement

Procurement practitioners are the principal actors in thepublic procurement process. They are responsible for en-suring the goal of public procurement is achieved. Theymust gain stakeholder’s trust and ensure they fully under-stand the procurement process and principles.

Procurement practitioners are directly and indirectly en-gaged in the procurement process, from need assessmentto contract close-out. Although, they are more directly in-volved in the public procurement process, they also provideadvice and support during contract execution.

Stakeholders of Public Procurement

Stakeholders are those who stand to benefit from the resultsof public procurement, including those interested in theprocess and who might be affected, directly or indirectly,by a particular procurement action.

The difference between actors and stakeholders is primar-ily participation. Actors play an active role in the pro-curement process, while stakeholders a more passive role.

Chapter 1: The Public Procurement Cycle 3

Actors are also stakeholders because of the benefits theyderive from the use of public goods and services.

Beneficiaries of Public Procurement

All inhabitants of a country are beneficiaries of the publicprocurement system through public goods and servicesavailable and provided in the form of transportation sys-tems, public utilities, educational systems, and medicalservices and facilities, among others.

Similarities and Differencesbetween Public and Private SectorProcurement

Public sector and private sector procurement organizationsare designed to acquire goods and services. The maindifference between these two types of organizations is thepurpose for acquiring those goods and services. One isfocused primarily on a social benefit, the other is profitcentric.

Private sector procurement activities are for supportingthe principal business objective of a company, which is tomake a profit. This does not rule out the fact that privateentities may also seek social benefit; however, it is nottheir primary business objective. In the public sector, thetwo main reasons for acquiring goods and services are: (i)

Chapter 1: The Public Procurement Cycle 4

for supporting government operations, and (ii) to providepublic services.

Source of funding is another fundamental difference be-tween private sector and public sector procurement. Whileprivate sector procurement is funded by owners or share-holders of the company, funds used in public procurementare primarily from taxes and/or grants and loans obtainedby the government on behalf of the country.

Concerning governing rules, private sector procurementcomplies primarily with contract or commercial law withrespect to the formation of contracts, but their methods ofprocurement are governed by company policy. The entirepublic sector procurement process, however, is governed bythe public procurement legal and institutional frameworks(procurement rules), and practitioners are obliged to adhereto them. Private sector procurement is also governed bycompany policy. Such policies are not necessarily dictatedby law, but by the objectives of the company. A privatecompany can engage in a contract with another privatecompany or individual, and the procurement method isdictated entirely by the internal policies of the company.

Public sector procurement is governed by the public pro-curement rules. In most countries, there is a law thatgoverns the procurement of goods, services and workswith public funds. These rules set the basis for managingprocurement and the various methods permitted underdifferent circumstances. Public procurement must also ad-here to certain principles. The process should be open to

Chapter 1: The Public Procurement Cycle 5

public scrutiny, depending on the procurement methodused, and any confidentiality agreement stemming fromthe particular procurement method used. Sometimes, theprocurement law is comprehensive, with high level ofdetail; sometimes it covers only the fundamentals, leavingthe details for further development in procurement regula-tions, guidelines and manuals (institutional frameworks),which should expand on but not contravene the publicprocurement law.

With respect to oversight, the private sector procurementprocess is mostly closed to public scrutiny, Shareholdersmay, however, require reviews of the procurement pro-cess. Public sector procurement, in contrast, is open topublic scrutiny, and public procurement practitioners areaccountable for their actions, and need to ensure publicprocurement is managed in accordance with the objectives,principles and procedures defined in the public procure-ment rules.

Public procurement management, requirement identifica-tion and budget allocation, procurement planning and strat-egy development, procurement method selection, solicita-tion documents preparation and advertisement, bid andproposal submission, evaluation and selection, and contractaward to closeout, are all addressed in the procurementrules. Public procurement practitioners are not at liberty touse a procurement method not stipulated in the procure-ment rules or not identified for a specific type of procure-ment requirement. Any deviation from public procurement

Chapter 1: The Public Procurement Cycle 6

rules requires justification and clearance from a designatedapproving authority, sometimes a Tender Board, before theaction is carried out.

Under private sector procurement, procurement practition-ers answer only to management, and are responsible fortheir actions; public sector procurement practitioners arepublic servants and are accountable for what they do orfail to do when managing public funds.

The ultimate aim of public sector procurement is to providepublic services and support government operations at alllevels within a country.

Procurement Legal Framework

Public procurement is governed by the procurement legalframework, which is a law or regulation (or part of a lawor regulation) that is sanctioned by the judicial system of aparticular country. This sets the rules for the managementof public procurement.

The procurement legal framework is usually further de-veloped into policies and procedures, procurement andcontract administration manuals and guidelines, includingstandard solicitation documents that are used to call foroffers from contractors, suppliers and service providers.The language of public procurement policies, procedures,guidelines, manuals and standard solicitation documentsmust align with what is established in the public procure-

Chapter 1: The Public Procurement Cycle 7

ment legal framework. Adherence to the public procure-ment law is obligatory; any infraction is punishable by law.

The procurement legal and institutional frameworks (pro-curement rules) govern everything from the identificationof a requirement through to the closing out of a contract;sometimes including disposal, reutilization and destructionof goods.

Tender Boards

A tender board is an entity created by law to oversee thepublic procurement process and to ensure that all publicprocurement activities are carried out in accordance withthe public procurement rules.

Depending on the law, there could be several types oftender boards: departmental, ministerial and cabinet, eachresponsible for handling procurement actions at certainmonetary value thresholds.

Some tender boards have similar functions as a procuringentity. Others only oversee and approve actions taken bythe procuring entity and evaluation panels at various stagesin the procurement process.

Chapter 2: BasicPrinciples of PublicProcurementPublic procurement principles are the foundation of publicprocurement and should be addressed in the public pro-curement rules. They govern the management of publicprocurement, and also set the framework for a code ofconduct for public procurement practitioners and all otherofficials directly or indirectly associated with the publicprocurement process.

As a practitioner you must have a clear understandingof public procurement principles, and know how to applythem to guide your day-to-day decision-making process.By integrating these principles into your work ethic, theoutcome of your decisions will always be in line with thegoal of public procurement.

As a public procurement practitioner you are a publicservant. You manage public funds, are bound by an ethicalcode of conduct, and are accountable for what you do orfail to do when managing those funds.

Transparency, integrity, economy, openness, fairness, com-petition and accountability are some of the fundamental

Chapter 2: Basic Principles of Public Procurement 9

principles of public procurement. They are briefly dis-cussed below.

Transparency

Transparency in public procurement is important.Informationon the public procurement process must be made availableto all public procurement stakeholders: contractors, suppli-ers, service providers, and the public at large, unless thereare valid and legal reasons for keeping certain informa-tion confidential. Examples of confidential information are:proprietary information belonging to companies or indi-viduals participating in the solicitation process, and certainmilitary and defense-related procurements, to mention afew.

When a public procurement requirement is announced,electronically, through press release, the internet, and othervenues, the announcement must include sufficient detailsfor interested contractors, suppliers and service providersto determine if they are qualified to compete. The so-licitation documents, particularly, must be available at areasonable price, if not free of charge.

After reading the solicitation documents, interested con-tractors, suppliers and service providers should also be ableto determine:

• the nature of the requirement and its scope

Chapter 2: Basic Principles of Public Procurement 10

• the closing date for submission of offers or informa-tion

• the evaluation and selection criteria• how and where offers should be submitted• the number of copies to be submitted, and point ofcontact for additional information and response toqueries (clarifications)

• the deadline for submission of queries• the schedule of pre-bid meetings and site visits (ifapplicable), and any other pertinent details

Additionally, if there is a change to the solicitation docu-ments, all stakeholders should be notified using the samepublications that were used for the initial notification, sointerested contractors, suppliers or service providers cantake necessary and timely actions to comply with thechange.

Integrity

In public procurement integrity is twofold. There is theintegrity of the procurement process, and that of publicprocurement practitioners.

Integrity of the Public ProcurementProcess

Integrity is essentially reliability. Bidders, and all otherstakeholders, must be able to rely on any information dis-

Chapter 2: Basic Principles of Public Procurement 11

seminated by the procuring entity, formally or informally.The integrity of the procurement process assures confi-dence in the public procurement system. When solicitationdocuments are made publicly available, the informationthey contain must be dependable and free of ambiguitiesor bias.

When reviewing solicitation documents, prospective bid-ders should be able to determine if they are qualified toundertake the assignment. They also should be able toassess the need for association with other bidders and thetype of association they would need to form given theirqualifications and the requirements of the assignment.

Bidders should have a clear understanding of the require-ment, and know how they will be evaluated. Evaluationand selection criteria must be clearly stated in the solicita-tion documents. These criteria should remain unchangedunless there is need to modify them. If modification isrequired, the solicitation documents should be amended,published and made available to all prospective bidders.Any changes in the offer submission date, should allowbidders sufficient time to adjust their offers accordingly tomeet the new submission deadline.

Integrity of Public ProcurementPractitioners

Practitioners working within procuring entities, and othergovernment officials involved in the public procurement

Chapter 2: Basic Principles of Public Procurement 12

process, must display personal and professional integrity.Ideally there shouldn’t be any inconsistency between thetwo.

Public servants involved in the public procurement processshould, at all times, be perceived as honest, trustworthy,responsible and reliable. They must always keep the pur-pose of the procurement requirement in mind, and striveto ensure that they responsiblymanage public procurementas mandated by the public procurement rules.

Economy

Synonymous with efficiency, value for money, and com-mercially reasonable price, the principle of economy em-phasizes the need tomanage public fundswith care and duediligence so that prices paid for goods, services and worksare acceptable and represent good value for the publicfunds expended on them.

Everyone associated with the public procurement processor directly responsible for facilitating the acquisition ofgoods and services with public funds, should strive to avoidfraud, waste and abuse of public resources; whether it isthe result of over specifications of required goods, payingunreasonably high prices for substandard goods, collusionwith other bidders, or other forms of unacceptable prac-tices.

Chapter 2: Basic Principles of Public Procurement 13

Openness

Public procurement requirements should be open to allqualified organizations and individuals. The public shouldalso have access to information pertaining to public pro-curement requirements. Access to public procurement in-formation is not absolute. Confidential and proprietaryinformation belonging to organizations and individualsparticipating in process should not be available publicly,and the extent of their disclosure should be detailed in theprocurement rules or other relevant regulation.

There are also procurement methods, such as restricted orselective bidding, that limit the availability of solicitationdocuments to only those firms meeting certain qualifica-tions. The request for quotations (or shopping), and directcontracting (sole source) also present certain limitations oncompetition given that the request for offers is limited to acertain number and type of organizations or individuals.

The evaluation of offers received is always kept confiden-tial until the evaluation panel reaches a final conclusionand after the evaluation report is cleared by a designatedapproving authority. This would be defined in the procure-ment rules.

Most defense procurements are confidential, restrictingrelevant information to a “need-to-know” basis only.

Except for confidential defense procurements, the resultsof the public procurement process should be published and

Chapter 2: Basic Principles of Public Procurement 14

made available on relevant websites. In addition, publicprocurement information (except for confidential/propri-etary information) should be open to all on a restrictedaccess basis.

Fairness

There are different interpretations of fairness in publicprocurement, so rather than define fairness as treating allbidders equally, better to mention how fairness is achievedin public procurement.

To achieve fairness in the public procurement process:

• Decision–making and actions must be unbiased, andno preferential treatment should be extended to in-dividuals or organizations given that public procure-ment activities are undertaken with public funds.

• All offers must be considered on the basis of theircompliance with the stipulations of the solicitationdocuments, and offers should not be rejected forreasons other than those specifically stated in thesolicitation documents and the procurement rules.

• A contract should only be signed with the supplier,contractor or service provider whose offer is com-pliant and best responds to the objectives of therequirement in terms of technical capability andprice.

Chapter 2: Basic Principles of Public Procurement 15

• Suppliers, contractors or service providers shouldhave the right to challenge the procurement processwhenever they feel they were unfairly treated orthat the procuring entity failed to carry out theprocurement process in accordance with the publicprocurement rules. Such challenges must be basedon the solicitation documents and/or the public pro-curement rules.

Competition

The public procurement process should not be manipulatedfor the benefit of any organization or individual. Given thatpublic procurement is funded primarily with tax payers’money, all eligible organizations and individuals should beallowed to participate by submitting offers in response to aspecific requirement for which they are qualified.

Public procurement requirements should bewidely dissem-inated to increase the chances of a good market response,leading to the award of competitively-priced contracts.

Despite this principle, not all contracts are awarded usinga competitive process because this sometimes depends onthe urgency of need and the resulting procurement methodused to fulfill a specific requirement.

The use of non-competitive procurementmethods, althoughjustified under certain conditions, should be kept to a mini-mum. Examples of non-competitive procurement methods

Chapter 2: Basic Principles of Public Procurement 16

are: shopping (also called request for quotations or invita-tion to quote) and direct contracting (single/sole sourcing).Each of these non-competitive procurement methods havetheir purpose and should not be misused.

Accountability

Accountability in public procurement means that anyoneinvolved in the procurement process is responsible for theiractions and decisions with respect to the public procure-ment process.

As public servants, procurement practitioners, and othersinvolved in the public procurement process, are account-able and exposed to sanctions as a remedy for any behaviorthat contravenes the public procurement rules. You alsohave an obligation to report and/or answer to a designatedoversight entity, and the public, on the consequences ofyour actions and decisions.