In 2013, Peter Smith of Spend Matters wrote about findings from a survey on the differences between public sector and private sector procurement. The survey data tended to suggest, as one might expect, that public procurement is bureaucratic, inflexible and compliance-focused, whilst private sector procurement, where there are no EU procurement directives to worry about, might be seen as flexible, innovative and profit-minded (“better”?). Much, therefore, seems to come down to “regulation”—more specifically its form and extent. For many, regulation is a distinguishing feature between public procurement and private procurement. Arguably, public sector procurers are on the back foot because of it.
As legal academics working primarily in the field of public procurement, we found the above insight intriguing as it aligns with intuitions that we have had for some time about the need for systematic research of private sector procurement as a regulated field of activity. To this extent, we were heartened when Peter recently followed up the 2013 blog due to its popularity as this is an area we are keen to investigate empirically should there be sufficient appetite. (Editor’s note—our recent writing on the same topic is here, here and here).
It’s the Easter vacation, so, to compensate for our academic pedantry in a world where
Why use legal rules to regulate procurement?
There are all sorts of reasons for using legal rules to regulate public procurement. In England & Wales, for instance, we have legal rules in place to achieve value for money (local authorities’ “Best Value” duty), market access (Public Contracts Regulations 2015 which transpose EU and WTO trade obligations), and also promotion of “horizontal” policies, e.g. industrial, social, environmental and labour policies (local authorities’ “Social Value” duty).
There appears to be no, or limited, need to regulate private procurement in the same way. Private corporations are primarily guided by profit. This should mean that they are sufficiently motivated to achieve economy through efficient procurement processes. Indeed, if a private corporation were to
Reconceptualising contract law: “Private procurement law”?
To say that private procurement is free from regulation is, of course, not accurate. There are no “Private Contracts Regulations 2015”, but the law does impose some limitations. Peter Smith sketched out some of the legal rules that constrain the private sector when procuring, such as bribery legislation and competition law. The common law of obligations, in particular, contract law, is especially relevant. In the post here, for example, David Metzger helpfully sets out important aspects of this law.
He describes how, from a legal perspective, private sector procurers should be quite wary about the drafting of tender documents and the running of bid processes given the risk of becoming subject to legal obligations that could end up in litigation. In reality, however, one would not expect businesses to get too hung up with legal infringements, other than in the most extreme cases, and so
The legal rules governing private procurement are clearly much more limited. The legal framework discussed by Metzger, however, may not provide the full picture. The reality of private procurement regulation might be quite different: actors may be “regulated” in other ways, not just through formal legal rules, e.g., by market norms or expectations (or moral considerations), which may operate to constrain
Whilst typically this non-legal regulation may not be legally enforceable in the courts, that does not necessarily mean that
“The diamond industry has systematically rejected
It may well be that the procurement norms referred to above have been codified. Like local authorities regulating their procurement through standing orders (though this is required under local government legislation), to what extent do corporations put in place their own rules for regulating procurement processes, i.e. self-regulation, e.g. in the form of “internal rules and policies”(as Peter Smith suggests there are)? Are there industry-wide rules in particular sectors (e.g. agreed procurement “principles”: see J&A Developments Ltd v Edina Manufacturing Ltd (2007) referring to “good tendering procedure”). Are there
If there is such “codified” regulation, this gives rise to a number of questions that, to our knowledge, academic research has not addressed. For instance, what are the objectives of this regulation and to what extent, if at all, do these correspond with the objectives of public procurement law (e.g. sustainability objectives?). Who formulates this regulation (the “regulators”)? How is regulation formulated? How much freedom is there for procurement professionals, e.g. to what extent do they perceive themselves to be constrained by the rules? Are there potential sanctions for non-compliance and are they effective?
For public procurement law academics and policy-makers,
The extent, if any, to which public procurement law (which—taking EU procurement law as an example—in places makes commercial sense) has, and is, informing private procurement regulation is also of interest. For example, what, if anything, is the private sector lifting from public procurement law (regulatory innovations like competitive dialogue?), and, if this is the case, is the regulation tweaked to make it more commercial?
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