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Summary PSM Chapter 16
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Samenvatting Strategic Supply Management, ISBN: 9780273651000 Purchasing and Supply Management
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Chapter 16 Public and Regulated Supply ManagementFor a private sector firm, competitive pressures are translated and transmitted to its purchasing and
supply management activities as demands for cost reductions, timeliness and innovative solutions to
next-customer requirements. For a public body there is no equivalent pressure. In lieu of
competition, therefore, public procurement employs regulation – stipulated performance
requirements that put pressure onto the operating unit to be efficient. It is not certain that
regulation can have the same impact as competition in practice but it is the established approach for
putting pressure on public sector organizations to perform.
Countries vary in their preferences for public ownership of national infrastructure and services. Such
public services are called ‘utilities’. Public procurement is driven by the need for efficiency, ‘value for
money’ or ‘best value’, public scrutiny, national and regional regulation and legislation, and political
expediency: clearly, a complex matter.
The European Union exists to support political and economic peace and development in the region.
Fundamental to both is the notion of a single market for goods and services. There are two basic
purposes behind the procurement Directives:
1. To ensure that those spending significant amounts of public funds explore the whole of the
single market and thus have the best chance of getting value for money;
2. To ensure that firms in member states throughout the EU get the chance of bidding for
business throughout the whole market.
The Directives are translated into Regulations at the national level and voted into law under national
legal systems.
When someone in a public sector organization needs to spend public money on provision of goods
or services, it is important to establish whether or not the amount is significant in the context of the
EU principles and purposes. This is done by the setting of ‘thresholds’ – financial levels above which
the expenditure is deemed to be significant. For purposes of global dealing, a platform for agreeing
fixed exchange rates is necessary, to allow planning and audit to have some stability. The unit
employed by the global financial community for these purposes is called ‘Special Drawing Rights’ or
SDR. It should be noted that although the Directives apply to all qualifying contracts above the
respective thresholds, the Treaty principles of ‘No discrimination on the grounds of nationality, equal
treatment of potential bidders, proportionality, mutual recognition and transparency’ apply to all
purchases by the public sector, including below-threshold purchases and contract outside the full
scope of the Directives, such as Category ‘B’ services and concession contracts.
Originally, the Directives were developed to guide public procurers in three separate types of
contract:
1. Supplier: where items or materials are to be bought or leased;
2. Services: which may range from street cleaners to opera singers for public concerns;
3. Works: buildings, bridges, roads, etc.
To reflect the fact that utilities might be public or private a special Directive was developed for what
were initially called ‘the excluded sectors’. The logic behind this special ‘Utilities Directive’ was that
privatized public service organizations had to compete with established private companies and
should be less constrained in their procurement than government organizations. This easing was
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, generally achieved by setting thresholds higher. In addition to these, two further Directives were
developed – to deal with enforcement of the requirements. These were called ‘Compliance’ and
‘Remedies’. As the Directives were developed and released at various times over a period of 30 years
they became ‘messy’ – increasingly complicated as they tried to accommodate complex political and
economic pressures while the European Union itself grew. Thus, the regulations based upon
Supplies, Services and Works Directives were replaces with the 2006 Public Contracts Regulations
and the Utilities Directives by the 2006 Utilities Contract Regulations. The essential elements of
these Regulations require those spending public money to:
- Invoke competition for purchases over a certain value by requiring the purchaser to place an
advert in the OJEU;
- Allow specified periods of time for contractors throughout the EU to tender if they wish to
bid for the contract;
- Ensure that tenders are evaluated in an open, fair and transparent way;
- Provide an opportunity, through an accelerated debriefing process, for all bidders to
challenge an award decision before the award is made;
- Require the purchasing organization to publicize details of the contract awarded (also
through the OJEU).
‘Prior Indicative Notices’ (generally known as PINs) are issued by public sector bodies when they
wish to give advance notice to the market of future requirements.
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