Procurement challenges: Private vs. public procurement law—October 2012 print edition

Many in the procurement field may think that public and private purchasing operate in two relatively distinct and separate worlds. While the public sector may seem hamstrung by myriad rules and legislation, private purchasers may appear free to operate in a more free environment that allows for a greater variety of ways of doing business, including bidding.

But is this really the case? The perception certainly gives rise to several questions. For instance, what is the biggest difference between the public sector and the private sector when it comes to competitive bidding? As well, what are the advantages of competitive purchasing that the private sector can take away from the public domain? Is there anything of commercial value that the private sector can take away from these requirements?

With these questions in mind, Purchasingb2b checked in with legal expert Rosslyn Young, a commercial lawyer at The Procurement Office whose practice focuses on procurement and competitive purchasing, to provide some perspective on the issue. Read Young’s response on common questions related to the difference—as well as the similarities—between public- and private-sector bidding.

There are several key differences between the bidding process for private corporations and enterprises and public institutions such as schools, hospitals and government agencies. The first difference is that most public sector entities are compelled to openly compete purchases that are valued over a certain amount because of trade treaties, statutes and government policy. Private sector entities can typically choose to employ competitive purchasing only when it makes sense from a business perspective and, when they do so, can run invitational rather than open, public bidding processes.

The other big difference is the level of judicial scrutiny. Regardless of whether an entity is private or public, if it chooses to enter into a bidding contract (Contract A), then it opens itself to judicial scrutiny through lost profit claims for alleged breaches of the tendering process rules. However, in the public sector, even when a public sector entity chooses to run a competitive process outside of Contract A using a non-binding format, they are subject to possible challenges through judicial review, which is the court’s residual power to scrutinize government decisions under administrative law. While there are business pressures that dictate how a private sector entity manages a competitive process, if the process is properly constructed outside of Contract A then the scope of potential legal risk—though not completely extinguished—is greatly reduced.

The value of competition

Competitive purchasing offers several advantages that the private sector can take away from the public sector. Perhaps the biggest advantage is the harnessing of market competition through competitive bidding. While the private sector has the luxury of choosing the most efficient way to select vendors in each situation and is not compelled to open a process to full competition, there are significant advantages to considering a range of vendors through a competitive purchasing process. For starters, competitive purchasing enables the discovery of a wealth of different and diverse suppliers that a purchaser may not have known were available to provide a service. While posting an RFP on a public posting site may not be viable in all situations for a private sector entity, publicly issued Request for Expressions of Interest (REOI), Request for Information (RFI) or Request for Supplier Qualifications (RFSQ) can be useful tools to conduct market research and find qualified suppliers in the marketplace. After a company has identified suppliers it can then enter directly into negotiations with the most qualified supplier or issue an invitational RFP.