Study Notes on Public Sector Procurement
Public Sector Procurement
Introduction to Public Procurement
Public procurement is defined as the process by which public sector organizations acquire goods, services, and works from third parties. This process encompasses a wide range of items, from routine office supplies (such as stationery or temporary staff) to complex procurement areas such as construction projects or Private Finance Initiatives (PFIs). Public procurement is fundamentally a centrally negotiated legal process that is guided by political decisions and is implemented by various local purchasers.
Public procurement is classified as any purchasing done by public authorities in either the classical sector or the utilities sector. The applicable public procurement rules are contingent on the total purchase value, which varies depending on whether it is above or below specified threshold values, which also differ between goods, services, and construction works.
Role of Procurement in National Development
Social Impact
Low Mortality Rate: Improved access to essential goods and services contributes to lower mortality rates.
Job Creation and Poverty Reduction: Effective procurement enhances employment opportunities and reduces poverty.
Enhanced Reputation for Government Institutions: Quality procurement practices build public trust in government entities.
Respect for Rule of Law: Transparent procurement processes reinforce adherence to legal norms.
Increased Access by Local Firms to Government Contracts: Local businesses receive more opportunities to secure government contracts, stimulating local economies.
Economic Impact
High Productivity: Efficient procurement processes boost organizational productivity.
Good Governance: Effective procurement contributes to the principles of good governance.
Employment Creation: Jobs are created through robust procurement activities.
Reduced Corruption: A sound procurement system mitigates corrupt practices.
Revenue Generation: Procurement forces firms to comply with tax obligations, thereby generating revenue through taxation, such as Value Added Tax (VAT) and social security contributions.
Wealth Creation: A well-designed procurement system enables wealth generation.
Stimulus for Private Sector Growth: Efficient public procurement stimulates growth within the private sector.
Public Procurement Reform in Africa
Reforming public procurement involves reassessing existing systems to enhance responsiveness and align with evolving objectives. The primary goal is to establish adaptable systems that foster efficient and effective public sector performance.
Historical Context
A 1998 conference on public procurement reform in Accra, Ghana, highlighted significant weaknesses in public procurement systems across Africa. Key aspects identified included:
Unclear and Non-Comprehensive Legal Framework: Multiple scattered laws governed procurement, many of which were outdated.
Weak Implementation of Rules of Conduct: There were notable deficiencies in enforcing procurement rules and a lack of regulations concerning conflicts of interest.
Limited Anti-corruption Provisions: Few countries had adequate mechanisms to combat corruption in procurement.
Resource Constraints: Many countries displayed limited resources to effectively monitor and enforce procurement regulations.
Distinguishing Features of Public Procurement Systems in Africa
Adversarial Relationships: Historically, there existed an arm’s-length relationship with suppliers, which limited collaboration.
Limited Private Sector Consultation: The involvement of the private sector in procurement processes was often minimal.
Involvement of Central Procurement Authorities: Central procurement authorities often engaged in operational duties, creating potential conflicts of interest.
Lack of Professional Procurement Personnel: Many procurement functions were conducted by clerical staff with little or no training.
Drivers of Public Procurement Reforms in Africa
Factors motivating reforms in public procurement across Africa include:
Governance Improvement: Enhancing governance practices in the public sector strengthens integrity.
Global Forces Response: Adapting to global trends necessitates an improvement in private sector participation rates.
Enhancing Transparency: Increasing transparency can help minimize corruption in public procurement.
Accountability Enhancement: Improving accountability strengthens the procurement systems.
Coordination Improvement: There is a need for better coordination across procurement systems.
Professionalism and Service Delivery Improvement: Pursuing professional standards in procurement can lead to better service delivery and lower poverty rates.
Evolution of Public Procurement
Old Public Procurement vs. New Public Procurement
Two contrasting models of public procurement can be observed:
Old Public Procurement: Characterized as a clerical function, cost center, reactive, and passive in nature. This model primarily focuses on national needs.
New Public Procurement: Recognized as a strategic function, profit center, proactive, and integrative. This model focuses on global outlooks and fosters partnerships with suppliers, promoting long-term relationships that add value. There has been a shift from non-professional to professional activities, with procurement evolving into a separate management function supported by technology.
Public Procurement in Ghana
The Ghanaian government recognized the necessity of overhauling the public procurement system due to widespread perceptions of corruption and inefficiency. In 1996, the government initiated the Public Financial Management Reform Programme (PUFMARP), aimed at ensuring accountability and value for money in public procurement.
Identified Weaknesses in the Procurement System
Lack of a comprehensive procurement policy.
Absence of a central body with technical expertise.
Undefined roles and responsibilities within procurement entities.
Inadequate legal frameworks to safeguard procurement practices.
Failure to establish regulations for the training, direction, and oversight of procurement activities.
No independent process to handle grievances from tenderers.
Establishment of the Public Procurement Oversight Group
In 1999, the government formed the Public Procurement Oversight Group, charged with designing a public procurement reform program. This led to drafting a public procurement bill, which was later passed into law on December 31, 2003.
Objectives of the Public Procurement Authority
The public procurement authority aims to:
Harmonize procurement processes across the public service to promote judicious and efficient resource use.
Ensure that public procurement is fair, transparent, and non-discriminatory, while striving for environmental and social sustainability.
Objectives of Public Procurement Act 663
The Act seeks to achieve several goals:
Harmonization of procurement processes for efficient state resource utilization.
Fair and transparent public procurement.
Successful delivery of government projects and services.
Implementation of sound public financial management practices for obtaining value for money.
Reduction of corrupt practices.
Encouragement of private sector investment and growth.
Scope of Act 663
Act 663 governs:
Procurement financed by public funds, either entirely or partially.
Procurement concerning goods, works, services, and contract administration.
Disposal of public stores and equipment.
Procurement financed by government loans or foreign aid.
Exceptions to Act 663
The Act does not apply in specific circumstances:
Where alternative procedures are deemed of national interest by the Minister.
If a loan agreement mandates alternative procedures.
The Act excludes store management or distribution activities.
Applicability of Act 663
The following entities fall under the purview of Act 663:
Ministries, Departments, and Agencies (MDAs).
Sub-vented agencies.
Governance institutions and state-owned enterprises using public funds.
Public universities, schools, colleges, hospitals, and the Bank of Ghana.