5.3: Public Procurement in Major Countries

Public procurement accounts for 15-20% of global GDP and GPA commitments worldwide, and the international dimension has gained importance in the era of globalization. Despite the vast size of spend and the impact on economic development, there is a lack of comparable standards globally. Below, we introduce public procurement around the world.

United States

In the United States, federal government agencies have established requirements for obtaining goods and services from the local or foreign private sector through government contracts. The U.S. federal agencies follow U.S. federal laws and grant legal power to the government agencies. This contract system is based on the successive and intricate changes of objectives since its establishment. Accordingly, one must study the history of the federal government contracts system and the history of the broader legal system of the United States to understand the modern government contracts system and its function (Nagle, 1999). Historically, the U.S. federal legal system’s roots date back to the English Common law, which was brought to the United States by the English colonists. Although the American Revolution markedly affected the United States legal system, it did not alter or reject the common law. The legal system incorporates the traditional legal principles, which were found in English laws. The United States legal system’s roots rest upon English common law that has been legislated (Legal Systems, 2020). The Federal Government has specified contract goals for using The Small Business Act that contracts greater than 2,500 USD but less than 100,000 USD be reserved for small businesses. With these opportunities set aside for small businesses, government procurement is supporting the local economy.

China

Under the government procurement law, goods, construction projects and services are to be purchased domestically through public procurement channels unless the items or services required are not available in China. Procurement processes may be either centralized or decentralized, with the majority being centralized. The Government Procurement Law (GPL) provides the rules on government procurement principles, contract award, supervision and legal liabilities. The GPL does not apply to military and defence procurement, which is governed by the Central Military Commission.  Emergency and national security procurement is also excluded from the GPL due to the urgent nature of the requirements or confidentiality concerns regarding state secrets. Government procurement has become increasingly more transparent with the adoption of public tendering processes. Information about material offences and dishonesty of procurement agencies, suppliers and review experts has now been made public, supporting an open and fair process. China’s free trade agreements (FTAs) do not include any form of preferential terms regarding public procurement. The China Mainland and Hong Kong Closer Economic and Partnership Arrangement states that most favoured nation and national treatment as regards to government procurement shall not apply to the FTA.

Mexico

The public procurement framework in Mexico is in accordance with the Procurement Law of the State of Mexico and Municipalities (Ley de Contratación Pública del Estado de México y Municipios, LCPEMyM). Most procurement is centralized with the Ministry of Finance having the responsibility for purchasing goods and services. Mexican laws restrict participation in national competitive bids to domestic firms. Foreign firms cannot compete even if they are willing to do so under the rules of national competitive bidding. Mexico has federal arrangements with states or provinces, which have their own laws and regulations. States and provinces have special procurement regulations in place for government-owned enterprises such as oil industries or utilities.

Most countries see e-procurement as a potential driver of modernization, greater transparency, and efficiency. Mexico pioneered the use of e-procurement in the late nineties and early 2000s. Several factors impeded the use of e-procurement to its full potential. Outdated legislation originally developed for paper-based methods hampered progress in Mexico.

A new system was developed in 2019 as the Integrated Strategy for the New National Public Procurement System (Estrategia Integral del Nuevo Sistema Nacional de Contrataciones Públicas). Its goal was to improve transparency, contribute to national economic development, social responsibility and diversity of suppliers. Unfortunately, corruption still exists in many forms in Mexico and has the potential to influence tenders. The use of exceptions such as shortened procurement windows and sole source awards are common.

Federal-level procurements generally have better control and anti-corruption safeguards than procurements at the regional level.

India

The public procurement system in India is decentralized and is comprised of multiple entities at different levels of government. India is not regulated by a general procurement law throughout the country, but the process is based on multiple rules. There is no central database or breakdown of contract spend and information. The Ministry of Finance primarily governs public procurement in India. It developed the General Financial Rules (GFR) for the general processes followed by all government offices dealing with finance. The principles of efficiency, economy, transparency, fair and equitable treatment of suppliers, and promotion of competition in public procurement are included in the framework. The various regions or government departments have the authority to make their own arrangements for the procurement of goods. However, if they do not have the expertise to procure goods, it must be carried out through the Directorate General of Supplies and Disposal (DGS&D). The DGS&D keeps a registry of suppliers and manages the import of goods by government departments. Procurement methods depend on the value of the contract and other factors, like emergencies, listed in the GFR. India has signed various trade agreements; however, details about public procurement are sparse, and public procurement gets limited coverage in trade agreements. India operates a public procurement system which is closed to a degree, leaning toward the use of domestic suppliers of goods and services.

United Kingdom

The United Kingdom’s procurement policy prioritizes value-for-money (VFM) maximization. Value-for-money maximization ensures efficient use of resources to achieve the best outcomes by balancing economy, efficiency, and effectiveness.

VFM encourages competitiveness and ensures that public funds are used economically and efficiently. Small and medium-sized enterprises are actively involved in government bidding in the United Kingdom and contribute to the improvement of the regional economy. Emphasis is given to removing the likelihood that small and medium-sized enterprises will experience a drawback when engaging in the public procurement market because, compared to larger companies, they do not have access to information on bidding. The participation programs of public institutions focus on encouraging the participation of small and medium-sized enterprises. The procurement agreement of the government of the United Kingdom is a mandatory agreement that supports public purchasing regulations, including the fair treatment of all suppliers by the local governments.

Germany

Public procurement in Germany uses innovation to enhance technologies, products, and services. It also ensures that the manufacture of products and services is compliant with economic, social, environmental, and ethical standards through sustainable public procurement. With a significantly high demand for products and services, the Competence Centre for Sustainable Procurement (KNB) uses the public procurement market as a model for the German public sector to operate and provide information in a web-based environment. To focus on government-specific priorities and sustainability standards, the federal government and certain state governments (e.g., Berlin, Niedersachsen, Hessen, etc.) will operate separately but will also work jointly to promote sustainable procurement and greater participation in public procurement by government departments and organizations via national and regional public procurement consultancy. Support is mostly given to areas of  resource efficiency, transportation, and sustainable construction, among others. The competence center publishes annual reports with results.

Japan

The public procurement system of Japan requires the local government to create a general competition based on an estimated price that is set by the contract manager who is issuing the contract on behalf of the local government. Bidders are not permitted to make an offer at a price exceeding that of the estimated price. Every year, the Japanese government sets up an annual government procurement contract policy for regional small and medium-sized enterprises. The annual policy of the Japanese government aims to improve and expand the opportunities for small enterprises so as to encourage their participation in government procurement by giving them insight into the government’s procurement plans and approving cooperative business associations to act as appropriate partners in government procurement contracts. To revitalize the regional economy, the local public organizations in Japan recommend that the local bidders use local products.

The Japanese government is analyzing different aspects of the price, quantity, and process of ordering merchandise. This is to ensure that contracts are awarded to local companies that are offering the best product at a reasonable price.

It also diversifies the market dynamics for small and medium-sized enterprises as much as possible by separating orders so that both small and medium-sized firms can benefit from public tenders.

The Japanese government must ensure that products supplied by small and medium-sized enterprises are procured at a reasonable price in relation to supply and demand, the price of raw materials, and the tax burden imposed upon the people (Yoon, 2023).

South Korea

Public procurement is considered a central activity conducted by the central government through the public procurement service (PPS). The rationale for this approach is the efficient management of procurement projects.

The law underlying this is the Government Procurement Act, which is essentially a procedural law that establishes the procedures and standards of the public procurement service (PPS).

The government, which can exert its effect on the market via public procurement, aims to enhance public good while connecting public procurement with industrial, social, and economic policies. The government’s use of public procurement serves both social and economic purposes, such as the protection of domestic industries from foreign competition, enhancement of the competitiveness of specific industrial sectors, elimination of regional imbalances, promotion of economic activities, and guardianship of the socially weak.

The objective of the public procurement contract system is to increase the public good while serving the needs of central or local governments by entering into contracts with companies in various industries in accordance with the relevant laws, regulations, and rules for the procurement of construction, services, and goods required by the public sector.

The core principles of South Korea’s government procurement include competition, disclosure, commercial function, and transparency. The principle of competition is upheld by the selection method, which is based on a competition involving multiple bidders. The principle of disclosure ensures that all bidders are allowed to take part in the bidding process. The principle of commercial function and transparency is achieved by judging an entity’s ability to carry out the contract on the basis of commercial functions, such as the price and quality offered by the entity (Yoon, 2023).

Saudi Arabia

The procurement system in the Kingdom of Saudi Arabia consists of public purchases of goods and services for government entities. All purchases are made through a competition system, in which all suppliers are free to bid by offering a fair price. The Ministry of Finance is responsible for administering the Saudi Government Tenders and Procurement Law (GTPL). According to the public procurement system, the Unified Procurement Agency (UPA) is a government entity responsible for unified strategic procurement in the country. A government contract may be defined as an agreement among government institutions or government institutions and private vendors. GTPL is facilitated by an electronic auction system that allows offering bids and selecting the lowest bid. Government contracts are governed by a hybrid of legal rules and administrative law. The government’s power is unique, as they have a right to use the contractor’s inventions. For example, according to the terms of the Saudi public works contract model, all intellectual property rights or inventions developed by contractors during the contract’s performance transfer to the government and become the exclusive property of the government agency. Furthermore, government contracts’ unique nature is justified because the government must contract for products to fulfill its public function. As per Saudi law, international procurement should follow local regulations, but some exemptions may be provided as per regulations for example, foreign persons may only be employed for work inside the Kingdom if local capacity is unavailable. Saudi Arabia has a robust Government Tenders and Procurement Law that describes all essential rules and regulations regarding the government procurement system and protects government agencies and the contractor’s legal rights (Alanzi, 2021).

Southern Africa

Public procurement is essential for economic development and has an important role to play as a driving factor in future development. Until recently, many countries in Africa did not have, and many still do not have well-developed public procurement regimes. This presents a major obstacle to achieving the generally accepted goals of public procurement, which are, amongst others, transparency, competition, value for money, fairness, cost-effectiveness and integrity. Unfortunately, corruption, as in many other parts of the world, is also rife in public procurement in Africa, and poor public procurement regimes lend themselves to being misused. This presents a serious impediment to the economic development of Africa (de la Harpe, 2015).

Portugal

In Portugal, the Instituto dos Mercados Públicos do Imobiliário e da Construção (IMPIC) is the public institute responsible for monitoring procurement activities of contracting authorities, encompassing both the procedural and contract performance phases. IMPIC issues an annual report on public procurement activities, which includes a section on contract performance regarding both price and time duration deviations. The Portuguese legal system does not provide a centralized database on appeals related to public procurement contracts. IMPIC publishes annual reports on procurement activities in Portugal and is responsible for licensing, monitoring, and supervising electronic platforms for public procurement, as well as issuing guidelines on good practices. Public procurement contracts are regulated in administrative courts including contract modifications and procurement disputes. (Tatrai et al., 2024).

Hungary

In Hungary, the publication of public procurement contracts is mandatory. Contracting authorities must upload their contracts to the only mandatory Electronic Public Procurement System (EPS), from which they are entered into the Contract Repository maintained by the Public Procurement Authority (PPA). Contract modifications and contract performance notices are also uploaded and monitored by the system, which indicates if the contract is performed at a higher value than the original contract value. However, uploading invoices in the system is not mandatory, making it difficult to track the flow of public money in the EPS for the invoices received. Hungarian regulation requires contracting authorities to keep written records of their public procurement procedures, from the preparation to the performance of the contract concluded under the procedure. The Public Procurement Arbitration Committee (PPAC) is the deciding authority regarding any non-conformity, breaches, modifications or disputes to public procurement contracts. The PPAC’s statutory tasks are to monitor the performance and modification of contracts resulting from public procurement procedures, to control the publication of notices, and to validate purchases that have been negotiated without prior publication of notices. Annual reports on procurement statistics are submitted to the Parliament for auditing. (Tatrai et al., 2024).

Serbia

In Serbia, there are currently no statistics on the performance of public procurement contracts, even though the Law on Public Procurement stipulates that the contracting authority is obliged to control the performance of public procurement.

The Public Procurement Portal covers only one aspect of the public procurement process – its ‘entrance’ where, after awarding the tender to a particular bidder, there is a range of interconnected activities that need to be followed until the completion of the assigned contract.

The current report from the Public Procurement Office on public procurement includes details of central public procurements, bidders, participation of SMEs, the largest contracting authorities, and activities of the Public Procurement Office.

The court system that handles disputes related to public procurement contracts is the territorially competent commercial court. There is no specific organization responsible for examining the legal basis for the modification of contracts, although the contracting authorities are required to send notifications of contract modification to be published on the Public Procurement Portal (Tatrai et al., 2024).

Attributions: “5.3: Public Procurement in Major Countries” is adapted from the following sources:

“The USA Government Procurement System: The Power of the Contracting Personnel” copyright © 2021 by Awad Ali Alanzi from the Journal of Legal, Ethical and Regulatory Issues, licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted.

Accountability in Public Expenditures in Latin America and the Caribbean: Revitalizing Reforms in Financial Management and Procurement by O. Lapido, A. Sanchez and J. Sopher, copyright © 2009 the World Bank, licensed under a CC BY 3.0 IGO deed, except where otherwise noted.

“The Improvement Policy Design of Public Procurement Process for the Public Management Innovation in South Korea” copyright © 2023 by Donghu Yoon in Sage Open, licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted.

“Saudi Procurement System and Regulations: Overview of Local and International Administrative Contracts” copyright © 2021, by Awad Ali Alanzi from Laws, licensed under a Creative Creative Commons Attribution 4.0 International License, except where otherwise noted.

“Procurement under the Uncitral Model Law: A Southern Africa Perspective” (2015) by S de la Harpe from PELJ, licensed under a Creative Commons Attribution-ShareAlike 4.0 International License, except where otherwise noted.

“Transparency  and Monitoring of Public Procurement Contract Performance” by Tunde Tatrai from Transylvanian Review of Administrative Sciences, copyright © 2024 AMP, licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted.

The multiple choice questions in the Checkpoint boxes were created using the output from the Arizona State University Question Generator tool and are shared under the Creative Commons – CC0 1.0 Universal License.