Public procurement makes up about 12.9% of GDP on average in OECD countries. This huge economic activity represents 13-20% of GDP worldwide. Government spending through public procurement stands as one of the biggest areas of spending globally.
Public procurement happens when government entities buy goods and services from private sector companies. The numbers are mind-boggling. U.S. government spending hit $4.45 trillion in 2019. The federal government leads as the biggest buyer in the United States. Their procurement activities account for over 40% of the U.S. GDP.
Business leaders can find great opportunities by learning the public procurement process. The United States has more than 90,000 local governments. These include townships, cities, counties, school districts, and special districts. The market is incredibly big. Health spending stood at 31.9% of public procurement spending on average across OECD countries in 2021. This shows where the best opportunities lie.
This Gatewit.com piece will help you understand what public procurement means and how big it really is. You’ll learn its main benefits and get a step-by-step breakdown of the process. We’ll also show you how it helps implement policies and welcome new ideas. This guide will give you the knowledge to direct your way through public procurement’s rewarding yet complex world. It doesn’t matter if you’re just starting with government contracting or want to grow your public sector business.
Understanding Public Procurement: Definition and Scope
Public procurement is the life-blood of government operations worldwide. Public authorities buy massive amounts of goods and services each year to serve their citizens better. Let’s dive into this process and see what it means for businesses.
Public procurement meaning vs government procurement
People often use the terms ‘public procurement’ and ‘government procurement’ as if they mean the same thing, but there are subtle differences. Public procurement covers buying activities across the entire public sector. This includes government agencies, publicly held utilities, public corporations, and places like hospitals and universities. Government procurement specifically talks about purchases made by government bodies and agencies at every level – from your local town hall to federal departments.
These two share the same main goal: to keep the buying process transparent, fair and accountable. The rules are stricter for public procurement than private company deals. This makes sense because they’re spending taxpayer money.
What is public procurement in the context of business?
Businesses see public procurement as a huge chance to grow. Public authorities in the EU spend about 14% of GDP (roughly €2 trillion every year) on purchases. OECD countries use about 12% of their GDP, while the global average sits at 15%.
The system creates a competitive marketplace where private companies can bid to supply goods and services to government bodies. Businesses benefit from this setup through:
- Steady, high-volume contracts
- More chances for small and local businesses
- Long-lasting partnerships with public sector clients
We call this relationship between government and businesses either Government-to-Business (G2B) or Business-to-Government (B2G). It works quite differently from typical B2B deals.
Types of goods and services typically procured
Public procurement usually falls into three main groups:
- Goods: These are physical items like office supplies, furniture, IT equipment, vehicles, and medical supplies. Even if installation comes with it, the focus stays on the actual product.
- Works: This means construction projects such as new buildings, highways, bridges, renovations, and infrastructure like water, sanitation, and transportation systems.
- Services: These split into two types – consulting services (think feasibility studies, project management, and advisory work) and non-consulting services (things like maintenance, repairs, and utility management).
Organizations use these categories to buy smarter and build better relationships with their suppliers.
Key Benefits of Public Procurement for Society and Economy
Public procurement’s power creates waves across the economy, society, and environment. This massive scale of government purchasing substantially shapes markets and changes business practices. It accounts for about 12% of GDP in OECD countries and reaches up to 30% of GDP in many developing nations.
Economic benefits: competition and cost-efficiency
Competition in public procurement brings major economic advantages. Studies show that better procurement regulations lead to more competition and economical solutions. The right procurement processes with ideal competition levels (usually 5-10 bidders) help achieve the lowest possible prices. Research proves that better quality regulations substantially increase both bidder numbers and the chances of prices falling below estimated costs.
Social benefits: equity, labor standards, and inclusion
Public procurement does more than just drive economics – it’s a powerful tool to advance social goals. When buyers look beyond price and think about how products and services come to market, it makes a real difference. This approach creates positive change by:
- Making public office more transparent and accountable
- Closing inequality gaps through fair sourcing practices
- Creating better labor markets by setting supplier workplace standards
- Helping small and medium businesses thrive to boost economic diversity
Environmental benefits: sustainable sourcing practices
Public procurement activities cause 15% of greenhouse gas emissions directly or indirectly—seven times more than the entire aviation industry. Green procurement practices deliver impressive environmental results. The U.S. federal government saved $291 million in 2022 through eco-friendly purchasing. The world bought 301 million EPEAT-registered IT products that year. These products cut energy use by 101 billion kilowatt hours—enough to power 8.24 million U.S. homes for a year.
The Public Procurement Process Explained Step-by-Step
Public procurement follows a well-laid-out lifecycle with three main phases. Each phase plays a significant role to ensure the best outcomes for government entities and suppliers.
Pre-procurement phase: needs assessment and planning
The procurement process starts with a complete needs analysis to determine required goods or services. This vital first step helps authorities buy more relevant and effective solutions that allow transparent resource distribution. A proper needs analysis should identify the users of goods or services, expected outcomes, geographical requirements, and timeframes. Government authorities should connect with the market at least 90 days before tender issuance to collect valuable feedback on planned procurements. Stakeholders from departments of all sizes work together to develop specifications, set budgets, and conduct preliminary market research. Research indicates organizations can lose up to 9.2% of annual contract value due to poor planning and management throughout the procurement lifecycle.
Procurement phase: RFPs, bidding, and contract award
The authorities move to solicitation through public advertisement or direct invitation to qualified suppliers once planning completes. This phase involves preparation of formal documents such as Requests for Proposals (RFPs), Requests for Quotations (RFQs), or Invitations for Bids (IFBs). The team must create an evaluation plan that outlines criteria, scoring methods, and selection procedures before issuing solicitations. Subject matter experts form the evaluation team and assess submissions using one of three approaches: mandatory criteria requirements, point-rated criteria, or both combined. Teams select suppliers based on lowest price, best overall value, or highest technical proposal within budget constraints.
Post-procurement phase: contract management and evaluation
Contract award shifts the focus to implementation and monitoring. This final phase turns legal documents into real business outcomes and stands as the most vital stage of the contract lifecycle. The core team secures agreements, extracts key data points, meets contractual obligations, and renews successful relationships when needed. Good post-award management stops contract value leakage, builds strong supplier relationships, and makes resource management more efficient. The team creates an evaluation report that summarizes the process, findings, and outcomes. Debriefing sessions help unsuccessful suppliers improve their future responses.
Strategic Use of Procurement for Policy and Innovation
Public procurement has evolved beyond its administrative roots to become a strategic tool that helps governments address societal challenges and promote breakthroughs and sustainability.
Sustainable Development Goals and procurement (SDG 12.7)
SDG Target 12.7 wants to “Promote public procurement practices that are sustainable, in accordance with national policies and priorities”. Procurement can influence more than 80% of all SDG targets. The United Nations Environment Program (UNEP) oversees SDG indicator 12.7.1 and collects data from national governments every two years to track progress. This indicator tracks the “Number of countries implementing Sustainable Public Procurement policies and action plans”. Forty national governments showed their commitment by submitting reports about their sustainable procurement efforts in 2020. This response shows a growing worldwide dedication to using procurement as a policy tool.
Human rights due diligence in supplier contracts
The US National Action Plan on Responsible Business Conduct puts human rights standards at the forefront of federal procurement policies. Government contractors must conduct human rights due diligence “throughout their value chains in line with internationally recognized standards”. These standards include the UN Guiding Principles for Business and Human Rights, OECD Guidelines, and ILO’s Tripartite Declaration. Federal agencies now need stronger processes to report human rights violations in supply chains. Leading companies have started including human rights criteria when selecting suppliers. They add these commitments to contract terms and consider human rights factors in performance reviews.
Supporting SMEs and local businesses through procurement
Small and medium enterprises (SMEs) make up 99.9% of businesses and employ 61% of the private sector workforce in countries like the UK. All the same, complex procedures, administrative burdens, and high technical requirements create significant barriers for them in public procurement. Governments have started implementing policies to help SME participation. They ensure tender sizes work for SMEs and make procurement processes simpler. These changes benefit everyone involved – SMEs get better market access while the public sector gains innovative, responsive suppliers. Programs like APEX Accelerators help small businesses direct their way through government marketplaces, showing increased government support for SMEs.
Conclusion
Public procurement is the life-blood of modern governance and economic development. This piece shows how this powerful tool makes up about 12-20% of GDP worldwide. This creates huge opportunities for businesses of all sizes.
The difference between public and private procurement might look small at first glance. Understanding these details helps businesses guide themselves through complex regulations. Companies that become skilled at the procurement lifecycle can access stable, high-volume contracts for goods, works, and services.
Well-designed procurement systems naturally create economic benefits. Research shows that the right level of competition improves cost-efficiency without sacrificing quality. It also helps close inequality gaps and creates better working conditions. Green procurement practices save millions in costs and cut down energy use and emissions by a lot.
The procurement process follows three phases: pre-procurement planning, competitive bidding, and post-award management. This well-laid-out system works well for both government bodies and suppliers. A full assessment stops resource waste, and clear evaluation keeps competition fair. Good contract management turns legal documents into real business results.
Public procurement does more than just handle paperwork – it’s a strategic policy tool. The Sustainable Development Goals’ Target 12.7 shows how procurement can tackle bigger social challenges. Human rights checks now shape supplier relationships. New programs help small and medium businesses break through traditional barriers.
Business leaders who get these dynamics can position themselves well in this huge market. The future will bring both challenges and opportunities as procurement practices adapt to new economic, social, and environmental needs. The public procurement world might be complex, but it rewards those who come prepared with knowledge and strategic thinking.
FAQs
Public procurement is the process by which government entities purchase goods and services from the private sector. It’s crucial because it accounts for 12-20% of global GDP, creating significant opportunities for businesses while ensuring efficient use of public funds.
Public procurement drives economic benefits through competition and cost-efficiency, promotes social equity and labor standards, and encourages sustainable practices. It also stimulates innovation and supports small and medium-sized enterprises.
The public procurement process typically involves three main stages: pre-procurement (needs assessment and planning), procurement (RFPs, bidding, and contract award), and post-procurement (contract management and evaluation).
Governments use public procurement strategically to address societal challenges, promote sustainability (as per SDG 12.7), enforce human rights due diligence in supply chains, and support local businesses and SMEs.
Public procurement generally covers three main categories: goods (such as office supplies and equipment), works (like construction and infrastructure projects), and services (both consulting and non-consulting services like maintenance and repairs).
