Language
Country/Area
No result found
The Secret of Global Government Procurement: Why Does It Account for 15% of Global GDP?
Government procurement, also known as public procurement, is the process by which government agencies purchase goods, work and services for themselves or for taxpayers. In 2019, public procurement in OECD countries accounted for around 12% of their GDP. According to estimates by the World Bank Group, by 2021, public procurement accounted for approximately 15% of global GDP. This shows that government procurement occupies a very important position in the global economy.
Public procurement promotes innovation and economic growth because the public sector selects the nonprofit or for-profit organization most capable of providing the needed goods or services.
One of the main advantages of public procurement is its ability to promote competition. The government creates competition by selecting the most capable suppliers to provide services through collaboration with the private sector, which forces businesses to provide more cost-effective and high-quality goods and services. Additionally, some contracts include specific clauses designed to support minority- and women-owned businesses, as well as state-owned enterprises. Competition is a key element in the public procurement process as it directly affects the outcome of the entire procurement process. It is estimated that around US$11 trillion is spent on public procurement each year worldwide.
To prevent corruption, waste, bribery or local protectionism, the laws of most countries regulate government procurement. The law usually requires that procurement agencies issue public tenders when the value of the procurement exceeds a certain threshold. The relevant laws on government procurement are also governed by the Government Procurement Agreement (GPA) under the World Trade Organization (WTO).
The necessity of government procurement
Government procurement is necessary because the government cannot produce all the raw materials for its goods and services on its own. Governments typically provide public goods, such as national defense or public infrastructure. These public goods are non-rival and non-excludable, meaning that one person’s consumption does not reduce the availability of that good to others, and therefore cannot be provided by the private market. The government needs to raise money to provide these goods by levying taxes on all citizens. In addition, the government also needs to provide performance goods such as health care and education. Even though the performance goods themselves are supplied by the private market, the government will still intervene to promote social equity and meet the external needs of society.
Public procurement can drive economic growth, innovation and policy implementation.
Scope and strategy of procurement
Government procurement regulations generally cover all public works, services and supply contracts issued by public bodies. However, military procurement is generally not subject to such norms as this area often involves critical security interests. Faced with the 2007-2008 financial crisis, many countries have attempted to increase the quality and reduce costs of procurement through various procurement strategies. These strategies include public e-procurement, centralized purchasing or framework agreements.
Public e-procurement is the use of electronic means to replace the different stages of public procurement, aiming to reduce administrative costs, thereby increasing competition and reducing procurement prices.
Public procurement and innovation
Because the public sector has huge purchasing power, governments hope to use public procurement as an effective tool to stimulate innovation. Research shows that public procurement can serve as a demand-side tool in innovation policy and effectively promote innovation activities.
The balance between quality and cost
One of the challenges governments face in the procurement process is the need to minimize costs. Procurement strategies require using the best means to obtain the most cost-effective services and goods within the context of limited resources. This may require purchasers to continuously improve their industry knowledge while complying with laws and policies to avoid quality degradation due to the blind pursuit of low costs.
Challenges of Government Procurement
Government procurement is often plagued by corruption. In some places, companies or suppliers may win these contracts by bribing public officials, especially in areas with a history of official corruption. The complexity of the procurement process and the huge amount of money involved make corresponding supervision particularly important, which has also led many countries to restrict the discretionary power of public procurement.
Monitoring and transparency
As the government procurement system continues to grow in size, its complexity and impact also increase accordingly. This makes it more challenging for governments to monitor public spending and its impact. In some cases, due to insufficient funds, some countries are even unable to choose the right private sector to provide necessary goods and services, further highlighting the importance of public procurement in government operations.
Looking at the operating model of government procurement, whether it can effectively balance innovation, quality and cost is a common challenge faced by many economies?
