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Concept
Government procurement
Summary
Government procurement or public procurement is the procurement of goods, services and works on behalf of a public authority, such as a government agency. Amounting to 12 percent of global GDP in 2018, government procurement accounts for a substantial part of the global economy.
To prevent fraud, waste, corruption, or local protectionism, the laws of most countries regulate government procurement to some extent. Laws usually require the procuring authority to issue public tenders if the value of the procurement exceeds a certain threshold. Government procurement is also the subject of the Agreement on Government Procurement (GPA), a plurilateral international treaty under the auspices of the WTO.
Government procurement is necessary because governments cannot produce all the inputs for the goods they provide themselves. Governments usually provide public goods, e.g. national defense or public infrastructure. Public goods are non-rival and non-excludable, which means that one individual's consumption does not diminish the quantity or quality of the commodity available to others, and individuals cannot be prevented from freely consuming the commodity, or "free-riding". Consequently, private markets cannot provide public goods. Instead the government provides those goods and finances them by raising taxes from all citizens.
In addition to public goods, governments often also provide merit goods, such as education or health care. Merit goods are private goods which are rival and excludable and are therefore provided by private markets. Nevertheless, governments also provide merit goods because of reasons of equity and fairness and because they have positive externalities for society as a whole.
In order to provide public and merit goods, the government has to buy input factors from private companies, e.g. police cars, school buildings, uniforms etc. This process is called government or public procurement.
Official source
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