Government procurement
Government procurement or public procurement is when a governing body purchases goods, works, and services from an organization for themselves or the taxpayers.[1][2][3] In 2019, public procurement accounted for approximately 12% of GDP in OECD countries.[4][5] In 2021 the World Bank Group estimated that public procurement made up about 15% of global GDP.[6] Therefore, government procurement accounts for a substantial part of the global economy.
For tendering in the public service, see Civil service examination.
Public procurement is based on the idea that governments should direct their society while giving the private sector the freedom to decide the best practices to produce the desired goods and services.[7]: Chapter 1 One benefit of public procurement is its ability to cultivate innovation and economic growth.[8][9][10] The public sector picks the most capable nonprofit or for-profit organizations available to issue the desired good or service to the taxpayers. This produces competition within the private sector to gain these contracts that then reward the organizations that can supply more cost-effective and quality goods and services. Some contracts also have specific clauses to promote working with minority-led, women-owned businesses and/or state-owned enterprises.[11]
Competition is a key component of public procurement which affects the outcomes of the whole process.[12] There is a great amount of competition over public procurements because of the massive amount of money that flows through these systems; It is estimated that approximately one trillion USD is spent on public procurement worldwide every year.[13]
To prevent fraud, waste, corruption, or local protectionism, the laws of most countries regulate government procurement to some extent. Laws usually require the procuring authority to issue public tenders if the value of the procurement exceeds a certain threshold. Government procurement is also the subject of the Agreement on Government Procurement (GPA), a plurilateral international treaty under the auspices of the WTO.
Overview[edit]
Need for government procurement[edit]
Government procurement is necessary because governments cannot produce all the inputs for the goods they provide themselves. Governments usually provide public goods, e.g. national defense or public infrastructure. Public goods are non-rival and non-excludable, which means that one individual's consumption does not diminish the quantity or quality of the commodity available to others, and individuals cannot be prevented from freely consuming the commodity, or "free-riding". Consequently, private markets cannot provide public goods. Instead the government provides those goods and finances them by raising taxes from all citizens.[14]
In addition to public goods, governments often also provide merit goods, such as education or health care. Merit goods are private goods which are rival and excludable and are therefore provided by private markets. Nevertheless, governments also provide merit goods because of reasons of equity and fairness and because they have positive externalities for society as a whole.[15]
In order to provide public and merit goods, the government has to buy input factors from private companies, e.g. police cars, school buildings, uniforms etc. This process is called government or public procurement.
Scope[edit]
Government procurement regulations normally cover all public works, services and supply contracts entered into by a public authority. However, there may be exceptions. These most notably cover military acquisitions, which account for large parts of government expenditure, and low value procurement.[16] The GPA and EU procurement law allow for exceptions where public tendering would violate a country's essential security interests. Additionally, certain politically or economically sensitive sectors, such as public health, energy supply or public transport, may also be treated differently.[17] Government procurement, is linked to economic growth, competition enhancement, policy achievement, and innovation promotion.[18]
Potential problems[edit]
Government procurement involves a high risk of corruption, collusion and unwanted favoritism.[18] An important role in this has the great size of financial turnover and the complexity of many procurement processes in which businesses interact very closely with politicians and civil servants. Often the personal interests of the public officials are not the same as the interests of the public. The vulnerability of public buyers to private subversion has led every country to restrict the discretion of procuring entities in what they buy and pay. But while the regulation of the private sector empowers public officials and enables them to extract bribes in exchange for regulatory relief, the regulation of government constrains public officials. Public procurement regulations reduce the discretion of buyers, typically with the intent of reducing corruption.[19]
Regulation by jurisdiction[edit]
Albania[edit]
Albania's Public Procurement Agency (Agjencia e Prokurimit Publik) is a central body with legal and public personality reporting to the Prime Minister, and financed by the State Budget.[47] Its activity is based on: