The Importance of Procurement in Public Organizations

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Table of Contents

Introduction
The Role of Procurement as an Internal Service Function
Internal and External Challenges to Implementing Procurement Policies
Ethics and Leadership in Dealing with Challenges
Conclusion
References

Introduction

The government is responsible for providing citizens with various public goods, that is, goods available for everyone for free and not decreasing in the quantity after one uses them. Public goods include such significant entities as national security, police service, street lighting, flood defenses, and highway and school systems. However, the government cannot produce all the necessary inputs to provide citizens with essential public goods. Therefore, it needs to acquire the needed resources, which is the primary function of public procurement. It is difficult to underestimate the importance of procurement in public organizations, which will be discussed in this paper. Although public procurement has much in common with private procurement, it is faced with unique challenges, including privatization issues, poor contract management, e-procurement, outsourcing government services, HR issues, and corruption. This paper will explore these challenges, as well as ethical considerations and leadership efforts concerned with dealing with these problems.

The Role of Procurement as an Internal Service Function

Procurement plays a significant role in the public sector since it enables governments to provide citizens with the necessary public goods. The primary goal of public procurement is to “obtain the right goods, capital assets or services … in the right quantity, for delivery at the right time to the right place, from the right source … with the right service, and at the right price” (Pitzer & Thai, 2009, p. 6). Public procurement’s responsibilities have been widened recently, and, apart from acquiring goods and services, they have begun to include such processes as identifying the need of the population and contract closeout (Pitzer & Thai, 2009). As a result, procurement in public organizations has become an essential tool for governments to fulfill their obligations to citizens.

The goals of public procurement in obtaining goods may be divided into various categories. These categories include cost, quality, timeliness, managing risks, fulfilling economic and social objectives, maximizing competition, and maintaining transparency and integrity (Pitzer & Thai, 2009). When considering the right cost, procurement officers compare not only prices of goods but also associated indirect costs, such as the cost of shipping or the risk of loss, to determine the best cost-benefit ratio (Pitzer & Thai, 2009). Public procurement is also responsible for ensuring that the quality of the obtained goods and services meets the expectations of end-users and that these goods and services are delivered to users in time. Public procurement’s role in fulfilling social and economic objectives consists in providing safe and fair working conditions, taking care of the environment, and promoting the rehabilitation of severely disabled people and prisoners (Pitzer & Thai, 2009). Moreover, by maximizing competition, public procurement contributes to the reduction of costs, an increase in quality, and the development of innovations (Pitzer & Thai, 2009). Thus, public procurement is important because it fosters the well-being of society in various ways.

Yet, the most important reason why public organizations need procurement management is that they use money received through taxation to purchase goods or services. According to Pitzer and Thai (2009), public procurement expenditures comprise about 10-30% of various countries’ GNPs and have a considerable impact on the economy. In addition, in democratic countries, such as the US, the public requires transparency in the operations conducted by the government. Given these factors, procurement in the public sector should be carefully managed to ensure economic stability and citizens’ awareness of the use of their taxes.

The procurement department in public organizations also plays a vital role in increasing the effectiveness of other departments. For example, procurement officers are responsible for providing accurate information about procurement transactions, the acquisition cost and location of fixed assets, and disposed excess or surplus property to the financial department (McCue & Pitzer, 2005). Public procurement is also of great assistance to the budget department. In this case, procurement managers’ role is to provide market information, help with forecasting, and compare the agency requests with real-life cost data (McCue & Pitzer, 2005). In sum, the role of the procurement department in public organizations goes beyond placing orders and making purchases of the necessary goods and services. It also collaborates with other departments and assists them in performing their functions.

Internal and External Challenges to Implementing Procurement Policies

Public procurement faces multiple challenges, one of which is corruption. Thai (2009) argues that corruption is very prevalent in public procurement and may result in a 20-25% increase in the costs of government procurement. One example of corruption is when suppliers send expensive gifts to the procurement department, which may incite procurement officers to make a contract with these suppliers, even if they are not the best available option (Pitzer & Thai, 2009). Another corrupt practice that poses a challenge before public procurement is personal purchases. In this instance, procurement officers buy items for their families, co-workers, or other not-for-profit organizations at prices reserved for government purchases (Pitzer & Thai, 2009). The abuse of functions, embezzlement, and bribery also constitute a challenge for public procurement. A possible reason for corrupt practices in public procurement is the large sums of money involved in the process and the non-commercial nature of public procurement. As a result, procurement officers may be tempted to engage in corrupt practices, and public organizations may not have appropriate regulations to prevent it.

Emerging information technologies (IT) also represent a challenge for public procurement. According to Dixit et al. (2009), electronic procurement has several benefits, such as the possibility to automate buying and selling, effective control of parts inventories, and the reduction of purchasing agent overhead. However, the necessity to integrate IT into public procurement leads to the need for recruiting and retaining buyers and the support staff with high levels of computer literacy (McCue & Pitzer, 2005). Apart from that, procurement managers are faced with the task of developing appropriate performance measures that would indicate organizational success (McCue & Pitzer, 2005). Thus, the challenge of using IT in public procurement is closely linked to managing human resources.

Human resource management is a significant challenge to public procurement not only because of the introduction of IT but also some other issues. For example, in public organizations, monetary rewards for employees whose performance exceeds the expectation are not provided (McCue & Pitzer, 2005). Therefore, there is a need to find other practices to recognize employees’ efforts. Furthermore, Pitzer and Thai (2009) refer to the evolution of the workforce as “the greatest challenge to public procurement in the first two decades of the 21^st century” (p. 222). As a result of the workforce evolution, public organizations have to replace the aging staff, develop training programs for employees from the next generation, and adapt workers to rapidly-changing technology and innovations (Pitzer & Thai, 2009). Hence, public procurement needs to update its HR practices to hire more young professionals and provide them with the necessary resources to improve organizational performance.

Another challenge to procurement in public organizations is associated with contract management, particularly assessing contract risks. Pitzer and Thai (2009) emphasize the importance of identifying all possible risks and including them in the contract using clear and concise language to prevent ambiguities and misinterpretation. They distinguish the following types of risks that should be assessed in the contract: proposal risks, surety/liability risks, schedule risks, contractual risks, performance risks, and price risks (Pitzer & Thai, 2009). Briefly, a good contract should clearly and unambiguously define the party’s responsibilities, terms of the agreement, penalties, and conditions for breaching the contract. Unfortunately, as Smith (2019) argues, many public procurement officers think that contract management is only about specifying terms of agreement and penalties. They do not pay attention to the value and risks of the contract and its impact on the buyer (Smith, 2019). Smith (2019) says that public procurement officers sometimes even fail to draw the contract in a concise and unambiguous language, which is a big problem in public procurement. Consequently, the issue with contract management is that it is a complicated procedure, and not every employee is qualified enough for it.

Privatization is also a significant challenge to public procurement since, along with its benefits, it has particular drawbacks and encounters various obstacles. Privatization means “allowing private organizations to perform the work of government” (Becker, 2001, p. 1). This practice has certain advantages, such as improving service quality, increasing productivity, and getting access to specialized skills and equipment (Becker, 2001). Furthermore, the most frequent reason for governments to privatize is cost reduction (Savas, 2000). Privatization is the most feasible when public organizations fail to perform their duties, and their work results in low-quality goods and services, inefficiency, debts and losses, unresponsiveness to the public, and illegal practices (Savas, 2000). In this case, it would be reasonable to delegate the work of the government to private organizations.

However, there are certain issues with privatization, which pose a challenge to procurement in public organizations. The most important concern is the loss of adequate control over operations, which Becker (2001) calls “the Achilles heel of privatization” (p. 11). Privatization may negatively affect employees since, in private organizations, the disparity in the wages of executives and low-level workers are much greater than in public organizations (Becker, 2001). In addition, privatization may result in an increased workload, which will decrease employees’ productivity in the long run (Becker, 2001). Another issue is that the public may resist privatization due to the fear of prices going up (Savas, 2000). Finally, this practice can lead to the creation of uncontrolled private monopolies, which will endanger competition (Savas, 2000). Thus, public organizations have to consider all these issues when deciding to engage in privatization practice.

Another challenge is outsourcing, which is closely related to the practice of privatization. However, while privatization may refer to a complete transfer of public assets to a private organization, outsourcing means contracting with an outside organization to perform a particular government function. Outsourcing benefits public organizations in terms of cost-saving and reducing the need for special resources and professionals necessary for performing particular duties (O’Looney, 1998). Yet, the challenge to public procurement regarding outsourcing consists in the necessity to shift the focus from service delivery to the expertise in the field of contract negotiation and management (O’Looney, 1998). Another issue is that in-house services are often supplied together with informal services, such as consulting, and these services will not be provided by subcontractors unless specified in the contract (O’Looney, 1998). Overall, outsourcing may be a reasonable cost-saving practice for public organizations to provide complex services requiring expertise and technology, but risks and potential costs should be carefully evaluated to ensure the feasibility of this decision.

Ethics and Leadership in Dealing with Challenges

In addressing the specified challenges, professional ethics play a significant role. As was mentioned, procurement officers are responsible not only for making important purchases for the government but also maintain transparency, fostering competition, and contributing to public well-being. Given the constant strain coming from such factors as corruption, the political environment, public expectations, and media attention, it may be difficult for procurement officers to comply with ethical principles accepted in their profession (Pitzer & Thai, 2009). To perform their duties by professional ethics, public procurement officers should be impartial and honest, and their decisions should be based on their loyalty to the organization (Pitzer & Thai, 2009). Procurement officers should be able to withstand conflicts of interest. As a result, it is vital for leaders in public procurement to exercise ethical standards and act in favor of their organizations. McCue and Pitzer (2005) argue that the role of leaders in public procurement is “accomplishing the organizational mission without overspending the budget” (p. 49). The importance of leadership in dealing with challenges consists in directing the work of employees in compliance with organizational goals and professional standards.

Conclusion

To sum up, the importance of public procurement is explained by the necessity to provide the government with the necessary goods and services required to perform its duties. The effective management of public procurement is also significant because it constitutes a large part of government expenditures and utilizes financed received from taxation. Public procurement faces such challenges as corruption, HR issues, contract management, privatization, and outsourcing. To address these challenges, strong leadership is required, and leaders need to comply with ethical principles to ensure cost-effectiveness, transparency, and fulfilling organizational goals.

References

Becker, F. W. (2001). Problems in privatization theory and practice in state and local governments. The Edwin Mellen Press.

Dixit, A., Gupta, M., & Narain, R. (2009). Role of information technology in E-procurement. National seminar on recent advances on information technology. ResearchGate. Web.

McCue, C. and Pitzer, J. T. (2005). Fundamentals of leadership and management in public procurement. National Institute of Governmental Purchasing.

O’Looney, J. (1998). Outsourcing state and local government services: Decision-making strategies and management methods. Praeger. Web.

Pitzer, J. T., & Thai, K. V. (2009). Introduction to public procurement (3^rd ed.). National Institute of Governmental Purchasing.

Savas, E. S. (2000). Privatization and public-private partnerships. Chatham House.

Smith, P. (2019). 5 reasons contract management is still a big challenge in the public sector. Public Spend Forum. Web.

Thai, K. V. (2009). International public procurement: Concepts and practices. In K. V. Thai (Ed.), International handbook of public procurement (pp. 2-22). CRC Press.

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