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Procurement issues in Malaysia
Wee Shu Hui, Radiah Othman, Normah Hj Omar,
Rashidah Abdul Rahman and Nurul Husna Haron
Accounting Research Institute and Faculty of Accountancy,
Universiti Teknologi MARA, Selangor, Malaysia
Abstract
Purpose – This study was undertaken with the aim of surveying the perception of the two main
stakeholders in procurement system; the contractors and the procurement officers on issues such as
accountability, transparency, corruption, integrity and cronyism pertaining to the public procurement
system in Malaysia.
Design/methodology/approach – Interviews were conducted over a nine-month period in 2007 to
gauge the perception of the procurement officers and contractors on procurement issues in Malaysia.
The interview data were then transcribed and grouped according to six main themes; transparency,
procurement policies and procedures and its implementation, personnel involved in the procurement
system, estimation/budget/pricing, professionalism and ethics and timeliness.
Findings – One of the common complaints made by the contractors was prevalence of interference from
outside parties and cronyism, which affects the awarding of contracts. The procurement officers were
blamed for malpractice and non-compliance to the policies and procedures of the procurement system.
Practical implications – The paper deals with sensitive issues and takes several months to
successfully gather respondents who willing to give feedback on their experience with the
procurement system. The data are first hand information and are carefully transcribed and categorized
into categories to help better understanding of the issues raised by the respondents.
Originality/value – The paper deals with sensitive issues and takes several months to successfully
gather respondents who willing to give feedback on their experience with the procurement system.
The data are first hand information and are carefully transcribed and categorized into categories to
help better understanding of the issues raised by the respondents and the private sector. She is also an
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Received 18 June 2009
Revised 28 October 2101
Accepted 9 December 2010
Keywords Malaysia, Public procurement, Public sector management, Accountability
Paper type Research paper
Introduction
Public servants have been told to carry out their duties speedily and accurately and live up to
the high expectations of the people. Deputy Prime Minister Tan Sri Muhyiddin Yassin, in
issuing the directive, said they should set a timeline, identify priorities, make decisions and
use time productively. He said they should also improve the way they work, co-ordinate roles,
activate all programmes that had been drawn up and use funds effectively. “It’s important to
determine our priorities. The prime minister has outlined many things including economic
development, education, and social development that had been stipulated in the development
plan that we wish to implement” (Star, 2009a).
The multi-pronged approach in developing Malaysia into a prosperous nation affects
its economic, social, culture, political and even aerospace research environment. As a
rapidly developing country, the government has put much effort to channel the
country’s resources to right places of development. Public fund, which is raised
through the collection of income tax, companies’ tax, duties and other sources, should
flow back to the public and benefit the public in terms of good public facilities and
amenities, education, subsidies and various developments.
International Journal of Public Sector
Management
Vol. 24 No. 6, 2011
pp. 567-593
q Emerald Group Publishing Limited
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DOI 10.1108/09513551111163666
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An effective procurement system would therefore ensure as little leakage from the
system as possible. The government procurement system is part of this conversion
process, from the collection of funds to the successful implementation of projects.
Hence, the procurement system is always under the intense scrutiny of different
stakeholders. Issues of accountability, transparency, corruption, integrity and
cronyism are concerns raised by the public to ensure that public funds are properly
managed and wastage of the public funds kept to a minimum. Nonetheless,
weaknesses exist in the system.
“The Red Book”[1] (The Putrajaya Committee on GLC High Performance, 2006)
highlights five common weaknesses in the Malaysian procurement system. They are
as follows:
(1) Failure to buy products in the right quantities, and at the right specifications
and prices, resulting in higher total cost of ownership.
(2) Inefficient and ineffective procurement processes, resulting in long cycle times.
(3) Opaqueness and ambiguity in the procurement process, resulting in leakages
and corruption.
(4) Inadequate infrastructure to support procurement, including flaws in
organization and governance.
(5) Non-existent or ineffective vendor development programs (VDPs)
It is therefore pertinent to investigate the problems as perceived by the contractors and
the procurement officers. Interviews were conducted in order to gauge the perception of
two main respondent groups on the procurement issues.
Research issues
One of the main concerns of the public is extravagant sum paid for jobs that are worth
its value. Quality is also another issue. The enormous amount of money involved in
government procurement and the fact that the money comes from the public demands
accountability and transparency, which are not only national issues, but are also
common global issues. For instance, in the USA, the State of South Carolina abandoned
its e-procurement system in June 2002 and pilot projects were shut down in 2002 in
Massachusetts, Indiana, and Michigan (Garson, 2004). While in Virginia the state
auditor reported that only 1.5 percent of the state’s business was transacted through its
state-of-the-art $US14.9 million system (Garson, 2004).
In Europe, the UK Ministry of Defense was reported for not being able to achieve the
targeted savings from its new e-procurement service after three years in operation
(KableNet, 2003). One reason can be due to the inability to “punch out” procurement
order data into the financial control systems, which was reported by Croom and
Brandon-Jones (2005) as critical for the success of an e-procurement system. On a
different note, Henriksen and Mahnke (2005) noted that in Denmark, the
structural-political issues related to the widespread decentralization had created a
serious barrier for a centralized procurement process through the public e-procurement
portal (PePP). They claimed that there were many other issues that needed to be
considered such as local identities, occasions for participation in decision making, and
possibilities for local interests and influence. Culture is also one of the issues that have
been highlighted, especially in the Asian region. A case-based study of Taiwanese
military procurement revealed that the main challenges for e-procurement
implementation were found to be related to cultural resistance to changes (Liao et al.,
2003). In New Zealand, the Government’s GoProcure E-procurement system has proved
more complex to develop than expected (Bell, 2003; Doesburg, 2003; Gifford, 2003).
There reported issues and failures of procurement systems have triggered the
public to scrutinize public spending on the part of the government. The British tabloids
are intensifying their focus on the spending of the British MPs while the USA is lifting
the veils on the extravagant and lavish spending of chief executive officers (CEOs)
using shareholders’ money. The public, and this includes the Malaysian public, are
more aware and demanding of their rights and privileges.
On the other hand, the pool of contractors is ever increasing. As at April 2009, there
are 32,000 Class F contractors in the country and they make up 70 percent of the
contractors of all classes. It is a big number, although not many are active. However,
only 4,373 of the estimated 31,500 Class F contractors in the country had been allocated
projects totaling to RM860millions (Beh, 2009). The awarding of contracts comes under
detailed scrutiny and the contractors have the right to expect that contracts and
tenders be given to the deserving ones. Transparency and accountability again are
major issues but these issues are long standing issues in addition to other issues such
as methods in allocating projects, price in tenders, and quality of projects. As reported
in May 2009, the Works ministry is still “gathering information so that we can come up
with a good mechanism to solve problems faced by the contractors”.
Procurement system in Malaysia
The procurement system in Malaysia can be divided into three systems, which are
direct purchase, tender (open tender and close tender/quotation) and direct negotiation.
The laws, regulations, and policy guidelines on these procurement types in Malaysia
are available in print form and on the web site of the Ministry of Finance as guidelines
for the procurement officers and the users (mainly contractors).
Generally, for the purchase of below RM50,000, the direct purchase procurement
system needs to be followed. The procurement system will require the filling of
multiple copies of requisition forms by the departments needing the goods. The
requisition forms are then sent to the purchasing department for approval. The
purchasing specialist will make several telephone calls to various suppliers asking
them to quote their prices, choice of products offered and the delivery terms. On
receiving feedback from the suppliers, the purchasing officers will make an analysis
and make procurement decision. He/she will then generate the purchase order and the
purchases will be made.
Closed tendering for procurements would be applied for procurement cost between
RM50,000 and RM200,000. Whereas open tendering is used for procurements above
RM200,000[2]. For tenders that target local suppliers, the bidding period is 21 days. For
international tenders, which arise only for goods and services that are not available
locally, the bidding period is 56 days. Model tender documents, which can increase
transparency and consistency, are found in the Treasury Instruction, Treasury
Circular Letters, and the Procurement Guidelines Book issued by the Ministry of
Finance. The Procurement Guidelines Book also explains procurement procedures to
government agency staff. In certain circumstances, the procurement could not be done
through tender. Thus, the purchase would be made through direct negotiation.
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Direct negotiation should only be considered only and when necessary in which it
would be exempted from open tender. It is mainly due to urgent purchase and there is
only one supplier thus no price and specification comparison could be made. In
principle, the appointed contractor must be the expert, well-known for its credibility,
have wide experience, proper planning, good pricing terms and most importantly, be
the only supplier or contractor in the country for the item to be purchased. Thus, the
process for direct negotiation is expected to be faster as compared with the open tender.
Even though the process of direct negotiation is faster, every step of the procedures
must also comply with the prescribed provision.
For the tenders, there is a need for invitation to tender in which it is publicized to
provide opportunity to many bidders to participate. This will also facilitate the
government to ensure value for money. Wide publication of tenders can help reduce
corruption by increasing transparency and participation. Under Malaysian rules, local
tenders must be advertised in at least one local newspaper in the Malay language.
International tenders must be advertised in at least one Malay-language newspaper
and one English-language newspaper. Foreign embassies in Malaysia and high
commissions are also informed. All tenders, whether local or international, are posted
on the web sites of the procuring and the central procurement web site of the
Malaysian Government. However, the way in which a government body invites
participation of the bidders would be different depending on the management of the
local authority. More opportunity given will create competition and ultimately the
benefit will go back to the local authority. The publicity creates equal playing field for
bidders and transparency leads to more justifiable decisions.
On receiving various tender documents from the contractors, there is a procurement
committee who will evaluate the tenders submitted and oversee the whole process of
procuring. The evaluation is generally handled by the Engineering Department or
other relevant departments depending on the nature of the items being tendered out. At
local authority level in Malaysia, the main decision-making body is the Full Council,
which consists of the president or mayor and 24 councilors. All major decisions, such
as passing annual budgets, enacting by-laws and approving planning permits are
decided in the Full Council meeting. The president or mayor chairs Full Council
meetings and is the CEO of the council. A council secretary assists the president or
mayor and all heads of departments. The presidents or mayors and councilors are
appointed by the respective state governments. The councilors are the representatives
of the rate-payers. They bring the views and aspirations of the local people. They also
pass by-laws and policies, approve planning permission and hear appeals such as
reduction of assessment rates.
In Malaysia, the procuring agency will set up a technical committee to determine the
technical specifications of the tender. Sometimes, in some cases, Ministry of Finance
required five suppliers’ quotations to conduct a technical evaluation. This is to make
sure that the right contractor or supplier with reasonable pricing will be selected. A
technical expert will be appointed to be in the committee to assist the tender board
committee in making the selection. However, the experts cannot select, only propose.
The committee, taking into consideration the recommendations from the technical
expert will prepare a report of their decision and its justification as required by the
Treasury Circular. There should be no interaction or communication at all to the
bidders on the decision until the announcement made public.
In terms of selection criteria, as much as possible, the procurement officers will practice
democracy. In the process, previous performance has always been the pre-qualifying
factor. Once they are selected based on their past performance, the technical committee
will then compare the pricing offered by the contractors and the estimates that they have.
In some cases, retendering needs to be done because the price quoted is far more different
from the estimates available. The committee will also check the ability of the contractors
to deliver their services by examining the background and assessing their financial
capability. Their financial capability is being assessed thoroughly by looking at least
their three-month average performances. In general, the contractor must be of Class F,
reliable, credible, has sufficient capital and financial stability and most importantly, is the
technical expert. The justification for the selection is normally documented in terms of the
contractors’ financial capability, experience, current jobs at hand and other factors as
considered necessary. If the tender is awarded to a new contractor, further justification
was needed. The contractors that were rejected previously would be highlighted
especially if they offer the lowest prices.
In general, the pricing offered by the contractors would normally be exhibited in the
proposal, but there are also cases where the pricing is not shown. Normally, if the
pricing is not available, the tender will be rejected immediately to avoid fraud or
manipulation. If the pricing is provided then it must be properly evaluated.
Normally, a checklist will be made to make sure that all procedures are being
followed. The committee analyzes and confirms details listed and initials them. Then, a
technical interview date will be set after finalizing the ranking of the bidders. The final
report will be sent directly to the offer board for approval. Once tender board has
approved, the committee would then analyze and table it in the tender board meeting to
be considered. If the tender board disagrees on the pricing factor, the estimates will be
revised. If the project involves a huge sum of money, a project manager will be
appointed to redo the whole process of calling tender, awarding tender and getting the
closest estimates.
In principals, the contractors must be informed within ten days and only if they
agree that an offer letter would be issued. If the contractor refuses, the case would be
forwarded to the attention of the Contractors Service Center (PKK) for action. One of
the reasons for the rejection normally given by those contractors is miscalculation of
estimates. In such cases, they can be suspended by up to a year. If the contractor
accepts the offer letter a meeting would be called to endorse the result by the State
Secretary. One local authority has its own policy to send out short message services
(sms) within 24 hours to inform the successful contractors. This is to avoid the chances
of results of being leaked before they are made available
As the contracts offered will be made out of public money, monitoring should be
given the priority. It should be carried out at all phases and should be conducted
thoroughly. There should be a team concentrating on monitoring the work on site
including of the materials used, the progress to-date and the progress claim made. Any
complaint will put the government in the highlight. This will affect the public
confidence in the credibility and transparency of the system. This will reflect the
inability of the government’s officers and the integrity of the procurement system.
There must be a proper system to discourage supervising agencies or individuals from
trying to alter the contents of their reports to let the changes in quality, performance,
equipment and characteristics go unnoticed.
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The payment of the tender awarded would normally be based on the progress of the
project. The contractors need to submit the progress billing attached with the approve
percentage of completion by the authorized person in charge. The general guideline is
to honor payment within 14 days on submission of completed information and
documentation with the Finance Department. Most of the problems occur when
contractors do not attach necessary documents required. In order to avoid delay in
paying the contractors, the payment officers have to make sure that documentation is
complete. If there is any problem, the documents would be sent back to the relevant
contractors for verification. From thereon, it would take another two days with the
Treasury and three days in the finance department to process the payment. Overall, it
would take the latest a week for the payment to be honored. There is also a clause
saying that the contractors can be paid three months after the signing date of the
agreement. Before any payment is being made, it is a contractual obligation of the
committee to also monitor whether the claim is made in accordance to the terms,
product delivery and other criteria prescribed. The Ministry of Transport would
normally release payment within 15 days. In fact, 98 percent of such processing can be
completed within 10 days. If the payment is late, the finance officer must inform the
reason for the delay in writing.
E-procurement in Malaysia
One of the extensive efforts from the government is the introduction and
implementation of e-procurement (known as e-Perolehan in Malaysia (http://home.
eperolehan.com.my)) to replace in stages the conventional and traditional procurement
system. E-procurement refers to the use of electronic methods in every stage of the
purchasing process from identification of requirements to payment, and potentially to
contract management (Tonkin, 2003).
Volatile environment, intense global competition, coupled with the increase and
widening use of IT necessitates a paradigm shift of transacting business via efficient
virtual internet. E-procurement has been associated with savings in time, improved
productivity, and reduced costs to the governments as well as the suppliers although
the initial costs and time spent in establishing the system may be high in the
beginning. However, e-procurement could ensure greater transparency, and provide
equal opportunity to private entrepreneurs in bidding for government contracts. In the
long run, the effective practice of e-procurement will provide a conducive environment
for robust competition, attracting the best suppliers, resulting in money well spent.
The e-Perolehan allows the Government ministries to electronically select items to
be procured from the desktop, initiate an electronic approval process and also create,
submit and receive purchase orders, delivery orders and other related documents
electronically (Maniam et al., 2006). With the abolishment of manual documentation,
the technical and pricing evaluation committee can only refer to what have been stated
on the screen, thus making the process more transparent.
Legitimacy theory and stakeholder theory
Legitimacy theory
The legitimacy theory posits that the organization is responsible to disclose its
practices to the stakeholders, especially to the public and justify its existence within
the boundaries of society (Wilmshurst and Frost, 2000). Thus, the relationship and
interaction between an organization and the society is the focus of the legitimacy
theory:
A condition or a status which exists when an entity’s value system is congruent with the
value system of the larger social system of which the entity is a part (Lindblom, 1993, p. 2).
Legitimacy is a generalized perception or assumption that the actions of an entity are
desirable, proper, or appropriate within some socially constructed system of norms, values,
beliefs, and definitions (Suchman, 1995, p. 574).
Legitimacy theory provides a sufficient and superior lens for understanding government
procurement system. The concept of legitimacy implies that the social contract between
the government and the public can be destroyed. In government procurement context,
there are various issues (such as cronyism, corruption, etc.) that could threaten the
legitimacy practice. Failure to act in accordance with the social contract is construed as
being detrimental to the ongoing implementation of government policies. In the light of
this theory, the recent complaints made by class F contractors have been legitimized and
action taken by the relevant authority, as highlighted in the following excerpt:
Since last year, the ministry has required that 10 percent of all development projects costing
more than RM10mil to be allocated for Class F contractors, who are usually engaged by the
main contractors (Class A). Each Class F contractor, whose job includes laying tiles, fencing
and wiring, is only entitled to take up projects of not more than RM200,000.
Speaking to reporters after attending the ministry’s monthly gathering yesterday, Shaziman
said the decision to temporarily suspend the policy was made following a meeting with more
than 700 Class F contractors. They complained about fewer jobs, low profit margins due to
higher construction costs and their problems with the main contractors, he said.
“We will find a solution that will benefit both parties,’’ he added.
Shaziman said small contractors (Class D, E and F) would be given priority in the RM200mil
project to upgrade federal roads in Felda settlements under the second stimulus package, to
help them through the economic downturn. It was reported that as of last month, only 4,373 of
the estimated 31,500 Class F contractors in the country had been allocated projects totalling
RM860mil (Beh, 2009).
Pursuant to legitimacy theory, government officers’ choices of legitimizing
implementation strategies are based on the perceptions of the particular local
authority or department involved, and different government officers will be likely to
have different ideas about what the public expects (that is, what the terms of the social
contract are), and whether the department or agency or local authority is perceived by
its community members as complying with these expectations (see Deegan et al., 2002).
Nevertheless, when significant events such as a major environmental disaster occur, or
when there is sustained mass media interest, then it is reasonable to assume that most
officers would perceive that the department’s ongoing legitimacy is threatened.
The legitimacy theory argues that officers make a disclosure practice as a way to build
a good impression among the stakeholders of the role and the officers (Magness, 2006).
Additionally, the government discloses the information to the public in an effort to change
the public’s perception towards the government’s performance and activities to reflect the
change in the change in lineup under the new Prime Minister. The recent release of the
report in May 2009 by PriceWaterhouseCoopers on the Port Klang Free Zone (PKFZ)
fiasco illustrates the concerted effort of the Malaysian government under the “People
First” from the 1Malaysia concept to move beyond the rhetoric to walk the talk.
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Research methods
The main objective of this research is to get an in-depth understanding of the problems
faced by contractors and government procurement officers that entails the use of
qualitative research techniques.
The first phase was a pilot phase of face-to-face interviews with 12 individual
contractors. Contractors formed a huge group and as reported in The Star (2009b) the
Works Minister reported:
There are 32,000 Class F contractors in the country and they make up 70 percent of the
contractors of all classes.
A total of 250 contractors, the majority of whom are located in Klang Valley were
interviewed over a nine-month period. Focus group interviews were conducted with
three to six interviewees in a group. The focus group interviews were conducted at
various seminars and conferences fro contractors held by different bodies and
associations at different times and different places over the nine-month period.
The aim of these interviews is to obtain first-hand information on the general
perception of contractors and procurement officers on the government procurement
system. In ensuring the consistency of questions asked during the interview
sessions, interviewees and facilitators are guided by an interview protocol.
Interviewers were taught the skill of interviewing and given the list of questions to
ask.
Appointments were made with different government agencies and departments and
the researchers were able to secure interviews with 18 procurement officers located
mainly in the Klang Valley. Interviews were conducted with procurement officers to
understand better how the system worked and the problems faced by them. A
semi-structured approach was utilized to solicit information that may be peculiar to a
particular agency or department.
Each interview with key procurement personnel lasted from one to two hours.
According to Tuckman (1972):
By providing access to what is inside a person’s head, [it] makes it possible to measure what a
person knows (knowledge and information), what a person likes or dislikes (values and
preferences), and what a person thinks, his attitudes and beliefs.
Most interviews were tape-recorded but some interviewees requested that the
interviews be not be taped due to the highly confidential nature of information that was
revealed. These interviews were then transcribed and analyses were made according to
the common themes that surfaced from these interviews.
Interview of procurement officers
The sample for focus group interviews is randomly selected from among individuals
who are procurement officers at federal, state and local government and from different
parts of the country (North, South, Central, East and East Malaysia). The interviews
were conducted with procurement officers, engineers, IT officers, Yang Dipertua,
Deputy Yang Dipertua, Accountant, Secretary to Local Authority and Dato’ Sharir
Samad, the former Chairman of Public Accounts Committee.
The full list of the organizations, position and number of interviewees is listed in
Table I.
Organization
Position
Public Accounts Committee
Majlis Daerah Hulu Selangor
Kementerian Sumber Asli
Kementerian Pengangkutan
Kementerian Kesihatan
Majlis Bandaraya Melaka Bersejarah
Majlis Perbandaran Kajang
Majlis Daerah Ulu Langat
Ministry of Culture, Arts and Heritage
Pejabat Negeri Perak
Majlis Perbandaran Kajang
PBT Pasir Gudang
Chairman
Procurement Officer
Majlis Perbandaran Seberang Perai
Majlis Daerah Ulu Langat
Total no of interviewees
Principal Assistant Secretary
Chairman
Deputy President
Accountant
Engineer
Engineer
IT officer
Accountant
No of interviewee
1
1
1
1
1
2
2
1
1
1
1
1
1
1
1
1
18
Interview of contractors
About 250 contractors were interviewed at face-to-face and focus group interviews in
different parts of Malaysia, with the majority of interviews carried out in the Klang
Valley. Interviews on an individual basis were arranged and carried in various places
convenient to both interviewers and interviewees, such as at the Accounting Research
Institute in UiTM Shah Alam. Focus group interviews were carried out at conferences
organized for contractors at Sunway Lagoon Hotel and Dewan Annex at UiTM Shah
Alam at various dates starting from February 14, 2007 onwards.
The findings presented below are organized based on different issues highlighted
based on the two groups responds. The issues have been grouped according to themes:
transparency, procurement policies and procedures and their implementation,
personnel involved in the procurement system, estimation/budget/pricing,
professionalism and ethics and timeliness.
Findings
Based on the interviews conducted, the similarities and differences regarding the issues
raised by the procurement officers and contractors are discussed under a common theme.
Transparency
Transparency is given the utmost priority by the Malaysian Government in all its
services. Transparency guarantees equal opportunities and access to the stakeholders.
Transparency International (2006) defined transparency as laws, regulations,
institutions, processes, plans and decisions that are made accessible to the public at
large or at least to “representatives” of the public so that processes and decisions can
be monitored, reviewed, commented on and influenced by the stakeholders, and
decision makers can be held accountable for them. The opportunity for abuse and
manipulation of the procurement process would also be reduced whenever the
transparency of the process is increased.
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Table I.
List of interviewees
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In the public sector, transparency in a procurement system has been an important
issue for years and is still regarded as a sensitive issue. In many countries, the
conventional procurement system has led to unwholesome activities such as
corruption. In the government sector specifically, the lack of transparency in
procurement activities can sometimes be the source of such unwholesome activities
such as corruption, scandal and abuse of public resources. The traditional procurement
system with its inherent lack of transparency has been perceived as inadequate since it
results in inflated cost and progress delay. The inadequacies delays project
developments, and purchase of goods and services. Complaints and dissatisfaction of
public taxpayers are not uncommon and these are often publicly voiced out in public
channels such as newspapers, etc.
One of the complaints raised by the procurement officers is on awarding tenders to
deserving contractors. The invitation to tender is publicized to provide opportunity to
many bidders to participate. This will also facilitate the government to ensure value for
money. However, one local authority officer from Melaka informs how his organization
stresses value for money but does not practice open tender. He said:
[. . .] For example, the procedures for purchasing official vehicles for the local authority. It was
not made based on open tender. The office obtain and compare quotations from various car
dealers. The final selection will be on car dealer that offers the best price and value for money.
At the initial procurement system, there is a need to identify what are the things that
need to be procured based on the necessities and demand rather than fulfilling the
personal benefit of irresponsible personnel. The government has the right to decide
whether to purchase or sell goods or services, or to outsource the management of a unit.
The risk is that the decision does not follow a policy rational or an existing need but
rather the desire to channel benefits to an individual and/or organization. The
procurement rules should emphasize on transparency rather than confidentiality, open
bidding only from pre-qualified suppliers, guarantee equal access to information to
suppliers, and make sure all documentation are publicly and timely available.
The policies had been created to provide transparency and accountability especially
in the suppliers’ selection process. However, there should be a balance between
transparency and its contribution to corruption control with other considerations such
as efficiency (OECD, 2007). In practice, many countries have adapted the level of
transparency and openness of the procurement procedure according to a number of
factors, including the sensitivity of the information and the specificity and value of the
public procurement.
Based on the interviews conducted with the procurement officers, they agreed that
the Malaysian procurement policies and procedures are good in comparison with the
procedures from other places. The officers themselves strictly adhered to and followed
the guidelines set up. The officers involved discussed and identified various factors to
be considered at all the processes from decision to contract, invitation to tender,
selection of tender committee until the tender evaluation. These processes are lengthy
and involve arguments between the officers because of to the bureaucracy practices.
However, interference from the local politician, businessmen, members of parliament
and someone who is very influential from the top management has interrupted the
processes and no longer transparent. Numerous contractors made references to the
importance of making acquaintances with these “inside” people, in order to be awarded
with the tenders. The majority of the procurement officers claim that there are cases
where recommendation letters from the politician being brought into the meeting and
sometimes certain contractor is chosen because of political reasons rather than his/her
credibility. According to them, sometimes, even the State Governments interfere by
giving advice and instructions to local authorities. Most of the time, the local
authorities can only give technical advice, but the State Governments make the
decisions. The scenario would jump the whole processes and straight away come to the
final decision in which the tender should be awarded to a party with which they have
personal relationship. This interference has abused the beauty of the policies. The
whole tender processes that are time consuming and have already taken consideration
various factors seem useless.
Based on research done by Evenett and Hoekman (2005), a lack of transparency can
impede the ability of new companies to bid for contracts even if there is no
discrimination. This is due to the ambiguity and uncertainty that exist in the policies
created. In other words, transparent procurement policies and implementation could
help more companies to bid and try to get government jobs and be able to crystallize
the public’s ambiguities.
From the users’ perspective, they emphasize two key areas that need greater
transparency: evaluation and selection of contractors. It is understood that not every
bidder will get the job. The issue is giving the job to the most deserving contractor.
There are numerous cases where the jobs are not given to the “best choice”. Important
criteria such as the track record of contractors, their experience and their ability to
complete the jobs on time should be taken into consideration in the evaluation and
selection of contractors. Integrity is an important issue and “under the counter”
practice must not be condoned. Procurement procedures need to be exercised with all
fairness and justice. Cronyism cannot be tolerated especially in small projects. An
example cited is a hospital canteen in Selangor. All the tenders have been submitted
and at the last minute, the contractors were asked to withdraw their tenders to give
way to some politician:
If politicians interfere in government procurement, then their cronies will get everything. For
example, in the case of a certain MPK as reported in the local newspaper, the children of the
councilor also became council members, leading to the angry reaction of the public. But in the
end, he is still appointed as a council member. Where is justice? Where is integrity?
A result of questionnaire also revealed that the respondents were just moderately satisfied
that “the organisation informed the respective parties who will sit in the board of
awarding tender”. As explained before, this is possibly due to the transparency and
cronyism issues. The board that is from the public sector might have personal affairs and
interests with some of the suppliers that are from the private sector, which could lead
them to decide unfairly. Matechak (2005) opined that public procurement is one of the key
areas where the public sector and the private sector interact financially that is a prime
candidate for corrupt activity, cronyism, and favoritism as well as outright bribery.
The transparency issue would be different in “direct negotiation”. Some of the
procurement officers feel that it has many disadvantages such as no comparison of
pricing can be made as the supplier is the sole supplier in the country and so, the
evaluation is made based on trust. The procurement officers raise concern that in the
future, for another exercise, another supplier might be able to supply similar items
through direct negotiation. But still, comparison might not be able to be conducted in
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the absence of the benchmarking on the pricing. In the end, they are afraid that direct
negotiation allows different suppliers to supply similar items with different pricing.
One officer interviewed claims that sometimes, outsiders interfere in the process; there
is one case where the price hiked from RM80,000 to RM200,000. The hike could reflect
the wastage of the public money, inefficiency in the procurement system, transparency
process being hidden, and finally lead to untrustworthiness to the procurement system
itself.
According to a procurement officer from Hulu Selangor, direct negotiation reflects
an agency’s inefficiency in doing proper planning. One representative from a Ministry
stresses that there is no such thing as emergency as proper planning can be made
much earlier. Every agency has similar activities and functions to be performed yearly,
as such direct negotiation is not a necessity. Some state authorities are very strict about
dealing with direct negotiation. Some procurement officers claim against this exercise
that it is not necessary true that direct negotiation is important to get the project done
faster because sometimes the process can be much slower than tender. The whole
process of appointment can take up to two or three months, although there is no need
for a quotation committee’s decision. This is because the approval from the finance
committee is still required. Further, a comparison is not made between the pricing with
the current market price.
Procurement policies and procedures and their implementation
In general, the procurement officers perceived the guidelines as clear and they have no
problem in understanding them in order to apply them in their daily work. They also
agree that although the Treasury has been very successful in setting up very clear and
complete policies, in some circumstances sometimes it cannot be fully complied with.
In such instances, the tender would be sent back to the technical committee for further
review.
One local authority officer from Melaka reveals how his organization stresses on
value for money but not practicing open tender. He said:
[. . .] For example, the procedures for purchasing official vehicles for the local authority. It was
not made based on open tender. The office obtain and compare quotations from various car
dealers. The final selection will be on car dealer that offers the best price and value for
money [. . .]
Another issue highlighted by a Ministry’s representative; in which he claims that there
are also disadvantages of being democratic in selecting the best contractors. He said
the idea is novel as the intention is to give equal opportunities to all contractors. If a
contractor has been chosen previously, the selection committee will choose another
contractor for a new job or work. Even though the previous contractor has performed
his job excellently, he will not be chosen for the next job in a queue to give opportunity
to other contractors. The new contractor might not be as good as the previous
contractor or the pricing might not be as close to estimates as what has been given by
the previous contractor; he will be given the job under the banner of democracy and
equal opportunity. The representative said that it would be a waste of time to choose a
lesser credibility contractor when the committee cannot choose the best contractor
available just because he has been given a job previously.
Apart from that, there is also issue on the voting system raised by the contractors.
The voting system is established to provide opportunities for more contractors to be
given the jobs. However, the system does not take into consideration the value of the jobs
especially to compete for small jobs. For example, if a contractor got a small job for
RM8,000, he would not be able to get another contract for the year. The recent voting was
for jobs ranging from RM4,000 to RM8,000, values of which are very small. The voting
system should not be limited to the smaller jobs and it would be just as useful for jobs or
tenders of say RM50,000 and above. There are also issues in voting system raised by the
contractors in the valuation of work-in-progress or incomplete work by previous
contractors. They complained that whenever there is an incomplete job, the price offered
is too low that makes it impossible for the next contractor to continue or bid.
A representative from Perak commented on the voting system and bureaucracy
practices in the procurement system. He adds that if any contractor has been previously
been awarded tender by the Works department, the committee would crosscheck his
previous performance inclusive of its administration and management performance.
There are also cases where some contractors are having financial problems resulting in
projects that cannot be completed on time. In this case, a new contractor had to be
appointed to continue the project. The contract value would be based on the value of the
incomplete project. The committee has to go to the construction site to evaluate the
uncompleted project. However, one procurement officer admits that this can also be due
to poor monitoring procedures. He says sometimes the maintenance cost can be more
expensive than the initial development cost due to low quality materials being used and
the extensive modification works needed to be done.
From the contractors’ perspective, they opined that the improvements in
implementation have been forthcoming albeit slow. The bureaucracy should be
reduced in order to make the procurement process more efficient. Bureaucracy in the
implementation of policies has serious repercussion on the profit margin of contractors.
As quoted from a contractor:
Because of bureaucracy in government, projects get delayed and this led to cost increase due
to increase in the price of construction materials and the contractor is forced to shoulder the
burden of the price increase. The actual prices are now much higher than the budget
estimates.
From this it can be found that the bureaucracy would not only remove the best
contractors to be selected, but also indirectly eat up the profit margin of the contractors
selected.
The other issue on the procedures of procurement system is contractors have to
register with the local authority each time they are applying for tender. This procedure
makes the process a lengthy one. The red tape and the bureaucratic procedures of each
registration take up a lot of time. This red tape can be reduced if it suffices to register
only once with the Ministry of Finance (MoF) so that the process does not repeat itself
each time the contractor goes and bid for a contract. A contractor expressed his
dissatisfaction:
Why do we need to register with each department or organization since we have already
registered with MOF? All our details are already in our registered profile with MOF. It is time
consuming to travel to and fro just to fill forms.
The lengthy process results in delays in the award of projects that lead to increases in
costs (due to rising material costs), and this cost increase would be borne by the
contractors through no fault of their own. They had to revise their budgets.
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The dissatisfaction continues when the governments frequently appoint
consultants to monitor the quality of contractors’ work. The contractors questioned
the necessity of hiring the consultants. Contractors feel that the consultants took
advantage of government projects by fixing the price that need to be paid by contractor
for their “services”. The Class F contractors feel like they are untreated fairly because
they also need to pay for the Electronic Fund Transfer (EFT) fee besides the fee for a
consultant, which reduced their profit margin. These contractors feel that they,
themselves, make better “consultants” for their projects rather than hiring consultants
from outside.
Additionally, the tender documents are found fairly complicated to handle, which
frustrates the good intention of the contractors in trying to comprehend the
requirements of the tender process. There are instances where the contractors think
that they are qualified to bid for the contract but then found they are not.
Personnel involved in the procurement system
In certain circumstances, a procurement officer from Johor admits that problems such
as incomplete and abandoned projects keep on repeating due to poor monitoring and
auditing services from the relevant authority. It is found that this scenario is
contributed by the problematic contractors and poor monitoring and auditing officers.
On awarding the tender to the selected contractors, there is a crucial need for the
relevant authority to continuously monitor and audit the progress and performance of
the projects tendered. The monitoring and auditing role could help ensuring the
projects proceed without having severe problems and run smoothly in accordance with
the plan within the acceptable tolerance level. The roles should be emphasized not only
on the awarded contractors, but also on the sub-contractors in which the main
contractor delegated part of the projects. In playing this role, the officer should be
independent in which he/she should not have close relationship with the contractors
and sub-contractors that could jeopardize his/her professionalism.
According to an accountant from a local authority in Selangor:
There are no specific and clear guidelines on how to prevent or even punishment for
government officers for breaching trust, misconduct and negligence in relation to
procurement.
These officers issues is expected be solved by the implementation of the e-procurement
in which it has reduced the role of the officers through the abolishment of manual
documentation. Thus, the technical and pricing evaluation committee can only refer to
what have been stated on the screen, thus making the process more transparent. In
fact, one of the objectives of e-procurement is to improve the speed in handling
government procurement procedures but at times, the response from the officers
through e-procurement are slow. Contractors did comment on this matter as follows:
E-procurement system still has some weaknesses. The response from the officers is still slow.
The slow response would thus affect the contractors’ and stakeholders’ expectation on
the e-procurement as its implementation is hoped to make most of the procurement
transactions faster and in a more efficient manner. Although the contractors believe on
the competency level of the procurement staff, nonetheless there are some areas
(although they are ISO certified) where they have yet to achieve the required standard
due to the incompetent officers. The following is an example of an incompetent officer
who had to go “up and down” several times to correct some errors:
A contractor had made a small, undetected error in the document which had already been
signed by the government. The officer insisted it must be corrected even though the
document had already been signed. This officer checked through the document again and
halfway reading through the document, spotted another error, and he had to go “upstairs”
again to consult the boss, after which he came back. Three minutes later, he spotted another
mistake, went up again.
Estimation/budget/pricing
The main problem encountered by the tender committee is to have good/close
estimation for different type of work and services. They do not have clear and precise
guidelines on estimates as this might change from time to time depending on the
changes in the market price of the raw building materials. Most of the time, the
estimation provided is basically a rough estimate. The committee will then compare
the pricing provided by the contractor and the estimates that they have. In some cases,
retendering needs to be done because the price quoted is far different from the
estimates available.
The procurement officer from Penang claims that some officers in the Technical
Department are very close with contractors and this relationship might jeopardize their
professionalism when they are asked about the estimation for the upcoming projects.
The estimates should remain confidential and be kept by the officers. However, the
estimates sometimes are keyed in by lower ranking staff as the officers are very busy.
A representative from a ministry claims that there are officers who are working
together with the contractors to come up with five quotations. They will share the
profit equally if any of the quotation is being selected. By principal, the estimate must
be sealed and carefully kept in a secured box but sometimes, there is a leak of the
information from the insider informing the contractors or the pricing that they should
quote when they tender.
For most of the contractors that have no inside people, they had to inflate their
budget estimates by adding an extra 10 percent construction material per year in
tandem with rising prices of building materials. However, this way would not
guarantee them in getting the tender. The following opinion was raised by the
contractors:
The quantity surveyor made changes in price when the job has already started. Profit margin
is affected and no reason is given. If the pricing follows the normal price, the quotation would
not be accepted. There needs to be a certain degree of flexibility in adjusting the pricing.
Interviewees claim that JKR practices flexibility for the small jobs, whereby the prices can be
adjusted accordingly.
Owing to intense competition and bidding, some contractors are not capable of
completing the projects that have been awarded to them because of unreasonably low
bidding prices:
There are some selfish contractors who bid at very low prices in order to obtain the contract
since there is a tendency for the government to accept the lowest price rather than taking into
consideration the experience and quality of work done by the contractors. Personally, I feel it
is better for the government to pay a little extra in order to get better quality work.
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Professionalism and ethics
The tender estimation issues above that highlighted the officers who are working
together with the contractors to come up with five quotations has shown the breach of
the trust, professionalism and ethics and leading to insider trading activity. The
information leakage leads to unfair and injustice competition among the contractors
that contribute to dissatisfaction among them.
The corroboration between officers and contractors is sometimes extended to the
stage of project claim. One of the main concerns here is when false or inaccurate claims
by the contractors are being protected by procurement officers or those in charge of
revising them. Before any payment is made, it is a contractual obligation of the
committee to also monitor whether the claim is made in accordance to the terms,
product delivery and other criteria prescribed. If certain criteria have not been fulfilled,
the amount would be deducted accordingly. One contractor has been quoted by
procurement officer because it engages its own consultant to monitor the contractor’s
progress such as whether they on the right track or the right supplies and materials
have been delivered. Since the monitoring from the government was very weak, the
payment officers had to rely on the consultant’s report before making payment.
The corroborations above would encourage the subcontractors or contractors to
maintain good relationship with the procurement officers as a mean to channel bribes.
Even though a representative from a Ministry claimed that the procurement officers
presumed such given money as an appreciation for their work and not for other reason
(bribe, etc.), such a relationship has jeopardized their professionalism and ethics.
Based on the questionnaire result on the same topic, a question “My organisation
has channels for me to report any corruption attempts from the suppliers” has the
lowest mean value. This finding indicated that not only the bribery attempts are
actually existed, but also unfortunately the mechanism to minimize them from
happening is only moderately satisfactory. The percentage of answers for Disagree
and Strongly disagree (almost 20 percent) signify that some of the officers did not
aware the existence of the corruption channels. This unawareness could be considered
as troublesome, as it could promote more corruption activities.
Transparency International(2006) defines corruption as “the misuse of entrusted
power for private gain”. The “Private gain” must be interpreted widely, including
gains accruing i.e. to an economic actor’s close family members, political party and in
some cases to an independent organization or charitable institution in which the
economic actor has a financial or social interest. The corruption would then affect the
value of money being spent on the procurement process and it is being born on the
public expense. The corruption activities could exist at every stage of the procurement
processes. It could start from the procurement planning and budgeting, procurement
solicitation and during the contract award and performance.
In many countries procurement reformers and anti-corruption advocates are
rightfully taking a holistic view in approaching procurement reform and
anti-corruption initiatives. Such holistic approaches include (Matechak, 2005):
.
devising higher ethical standards for procurement officials;
.
requiring asset disclosure for public officials of a certain rank or in a particular
position; and
.
passing of freedom of information laws.
Whereas in Malaysia, proactive initiatives have been taken to cater these serious
issues. On April 26, 2006, Malaysian Prime Minister Dato’ Seri Abdullah Ahmad
Badawi, who has expressed a commitment to a better procurement process and
procedure, launched the Red Book to improve the procurement process of
government-linked companies (GLCs) (Transparency International, 2006). According
to the Prime Minister, the top 15 GLCs can potentially save RM15 billion if they adopt
best practices, better governance, and transparency and accountability in their
procurement policies. The launch of the Red Book signals the government’s
commitment to achieving the vision of the national integrity plan with zero corruption.
Despite the above professionalism issues, most of the contractors expressed their
gratitude that government officers show a high level of professionalism in carrying out
their jobs by ensuring that the job has been done within the specifications as laid down
by the organizations. For example, officers would ensure that every single tile must
follow specification. Technical staffs are dispatched to the work sites to check and
monitor the projects in order to ensure that the entire task is done within the required
specification. It is getting increasingly difficult for contractors not to adhere strictly job
specification. After the job is completed, the technical officers will come and check the
job. It must be done according to what has been agreed in the contract.
Timeliness
The lengthy process results in delays in the award of projects that lead increase in
costs (because of rising material costs) and this cost increase would be borne by the
contractors through no fault of theirs. Because of bureaucracy in government, some of
the project has to be delayed leading to cost increase and placing a heavy cost burden
on the contractors who had to revise their budgets. The contractors suggest that the
procurement systems need to be improved in term of payment and the duration.
The recent news announced by the Deputy Prime Minister on February 25, 2009
regarding the increase of open tender limit from RM200,000 to RM500,000 has invited
various responses. From the contractors’ perspective, they opined that the increased
benchmark would make the tender process faster and could foster more participation
from the Class E contractors. In contrast, Transparency International Malaysia opined
that the announcement would affect the transparency and accountability of the
government procurement system. It could lead to misuse of power when the big
projects are being delegated to smaller projects and be awarded to Class E contractors
that are lack of expertise or have bad records.
The timeliness issue here is not to focus on the procurement officers only, but also
on the contractors. It is both parties’ issues. Although the contractors has been
screened for capability, experience, capital, background and the lowest price offered,
still some contractors have to be terminated due to inability to proceed work
immediately or long delay after the contract has been awarded. The procurement
officers claim that this can take up 5 percent to 10 percent of cases.
For certain contractors that able to complete or meet the target of the project by
required stages, progress billing claim would be the issue. The general guideline is to
honor payment within 14 days on submission of completed information and
documentation with the Finance Department. Most of the problems occur when
contractors did not attach necessary documents required. In order to avoid delay in
paying the contractors, the payment officers have to make sure that documentation is
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complete. If there is any problem, the documents would be sent back to the relevant
contractors for verification. From thereon, it would take another two days with the
Treasury and three days in the finance department to process the payment. Overall, it
would take the latest a week for the payment to be honored. There is also a clause
saying that the contractors can be paid three months after the signing date of the
agreement. However, the major stumbling block is at the Land Office which seldom
refuse to release certain documents within the stipulated time.
The delay in fact is not in line with the Prime Minister’s suggestion where the
contractors (especially Class F) and suppliers were promised will be paid within two
weeks after the completion of the projects/ goods and services being delivered. In this
condition, neither the officers nor the contractor is to be blamed. The government
budget should also be focused on. In certain circumstances, the payment delay is due to
lack of budget in the government itself. The allocation of fund would be prioritized
accordingly. Some of the organizations pay the contractors and suppliers using their
own collection rather than the allocation from the federal government:
From the date of tender submission until the project gets awarded, the period is excessively
long but I don’t put 100 percent blame on the government. I think that the government is
diverting the budget allocation to priority projects and hence inadvertently delayed the
current project. However, the delay causes the financial hardship to the contractors. Price
increases of construction materials affect the budget and profit for the contractors. For
example, the budget that had been agreed at the submission date is RM100,000, but because
of the long process, raw material prices have increased and this will affect the budget
estimation for contractor.
The government opens a tender based on last year price without taking into account the
price increases of construction materials every year.
Recommendation
The above highlighted issues are significantly worrying the public and the
stakeholders. Various suggestions and improvement have been implemented to cure
the issues. The following recommendations are highlighted by the procurement
officers, contractors and stakeholders.
Transparency
Rules are not enough, especially when the law enforcement mechanisms are also weak.
Proper monitoring policies can help make existing norms effective. Transparency
International has developed and implemented a number of monitoring tools to increase
transparency and access to information that involve cooperation between
governments, companies, donors and civil society. Monitoring should also include
an annual external audit.
Some government agencies, such as the Ministry of Health and Hulu Langat
authority has proactively endeavor the recommendation by practicing Management
Audit. This practice audited the management of the government agencies on its
compliance with all procedures, rules and regulations in relation to procurement. As
such, the procedures had to be made transparent and any queries raised would require
the procurement officer to refer back to Circulars, Treasury Instructions etc. for
confirmation. A checklist must be prepared to regularly monitor the contractors’
performance and the timeline target for each project must be spelt out. The quality
inspection is normally conducted by the Council Members from Finance Committee.
The report would be submitted to the Members of Parliament. Strict action would be
imposed for example, a cut in salary payment as penalty. However, many other local
authorities who started much earlier the management audit have abandoned the
practice because their top management are not interested in taking action of its officers.
Most common reasons are limited staff and too much burden with working papers.
Thus, other monitoring mechanism should be emphasized.
At the moment, the Monitoring and Control Division of the Ministry of Finance
monitors adherence to procurement rules, and may also set up special task forces to
investigate complaints. The minister of finance, however, has the ultimate
decision-making authority regarding complaints. Audits are also important review
mechanisms. All procuring agencies in Malaysia have internal audit units that
regularly examine weaknesses in and possible breaches of procurement rules. The
Auditor General conducts external audits of procurement procedures and may order
corrective actions. The reports of the Auditor General are published and presented
annually to Parliament.
The detection of corruption is strengthened by a mandatory requirement for public
officials to report all attempts of bribery to the police or the Malaysian Anti-Corruption
Activity (MACC or Suruhanjaya Pencegahan Rasuah Malaysia). With the strengthen
power of the MACC, any party who report any suspicious activities dealing with the
corruption would be protected. Giving or receiving a bribe is a criminal offense under
the Anti-Corruption Act and the Penal Code and General Orders. Corrupt officials may
also be administratively sanctioned and their assets may be confiscated. Penal action
cannot be taken against a legal person, but the Government may debar a company that
has engaged in corruption.
Policies and procedures and its implementation
The policies created in the procurement system are expected to continuously
re-engineered and improved. It is being done by considering the past experience of the
officers, corroboration with other departments and complaints made by the
stakeholders.
As developing countries, Malaysia has been subjected to substantial pressure to
agree to multilateral disciplines in which it limits the ability to discriminate in favor of
domestic companies or crony when allocating state contracts (Evenett and Hoekman,
2005). This effort could help to boost the transparency of the policies and procedures
created. However, it again backs to the root in which it depends so much on the
procurement officers especially the top management in complying with the discipline.
In addition, the policies and procedures should be created to curb any possible
corruption activities and enhance the transparency, accountability and integrity
process. The following corruption risks as highlighted by Transparency International
(2006) should be focused on the following:
.
“Urgent purchases” at end of fiscal year.
.
“Emergency” responses to natural disasters and other such events.
.
Inadequate access to certain information by the government officers.
.
Use of non-standardized bidding documents.
.
Preferences to selected bidders.
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.
.
Participation of official-owned companies.
Participation of front/shell companies.
Apart from above, complaint and review mechanisms allow bidders to verify whether
the procurement processes conform to the prescribed procedures. The possibility of
review is also a strong incentive for procurement officials to abide by the rules.
Malaysia offers bidders a multitude of channels for complaint. A failed bidder may
complain to a procuring agency, which may cancel a tender if it finds any irregularities.
An aggrieved bidder may also complain to the Public Complaints Bureau, the, or the
Public Accounts Committee. Any public complaint must be treated as a matter of
urgency and public inquiry should be conducted immediately.
In Perak, the finance department uses an accounting system (SPEKS) where the
contractors do not have to produce documents as everything will be handled on line
including the checklist. Therefore, contractors can go direct to the department
concerned to get their payments. In this way, the priority is given to the contractors
and this will reduce delays in getting payments. An IT department officer from Penang
also suggests mechanism to protect a whistle blower to discourage malpractices.
In Kajang, the local authority officer states that his office had at least a weekly
meeting to table any complaint lodged by the public and to get co-operation from
relevant departments for more information. The public are given the option either to
come personally, write or e-mail direct to the office. Some other local authorities have
special counter and section in the web site to handle public complaints. The
management reviews them quarterly a year.
There is also suggestion from the contractor in awarding projects. In order to be fair
especially to the small scale “F” contractor, big projects can be divided into a number of
smaller projects, so that the small scale “F” contractors can also participate in it. Big
contracts, if broken down into smaller jobs, would provide a wider opportunity for
more contractors to participate
Personnel involved in the procurement system
Based on the transparency and implementation issues highlighted above, it is noted
that the personals involve in the procurement system are one of the main contributing
factors to the inefficiencies of the system. The working culture should be focused on in
which it depends very much on the management practices. Efficient management is
one of the most effective preventive mechanisms. It promotes transparency and
accountability, facilitates oversight and provides a good basis to prevent corruption.
One local authority practices rotation among the finance officers so that every officer
can experience a different job scenario and environment such as procurement, human
resources or finance. However, some procurement officers suggested that staff should
only be rotated every five years so that they could have ample time become
knowledgeable in their current job. Also by rotating the officers it could prohibit the
close and long relationship between the officers and certain influential contractors who
want them to be an insider informant.
The rotation is also imposed on the contractors. A new innovation and efficient
technique for rotating contractors has been introduced in Malacca. There, there are 44
areas for rubbish collection. However, the council appoints 45 contractors for the job.
Each of 44 contractors is given certain areas of responsibility to collect rubbish.
The 45th contractor would go round and collect rubbish being left by the rest of the 44
contractors. The 45th contractor would then claim for the any rubbish he/she collects.
In short, the contractor is paid out of inefficiencies of other appointed contractors. Also,
a scorecard is maintained for each contractor to assess their performance. The city
council can also trace contractors who sub-contract their work to other contractors. In
this case, the main contractor would be penalized for the jobs not performed and also
on any delays.
On the issue of procurement committee, the department handling the procurement
should have an administrative review system to foster objective evaluation on the
selection of successful bidder. There should be an independent external auditor who could
highlight and come forward to announce the intervention of the local politician,
businessman, Members of Parliament and someone who is very influential from the top
management in the procurement processes. It was also suggested that the committee need
to be diligent in making a fair assessment and conducting spot checks on contractors in
order to ensure they are not an “Ali Baba” contractor. Continuous monitoring of the job is
essential to maintain quality. Effective monitoring in the form of frequent checks and
discussion between clients and contractors would ensure the jobs are done according to
specifications subsequently leading to a decrease in abandoned projects.
Some of the procurement officers also suggested that council members should be
appointed through election. They suggested for the structure of the local authority to
be revised for council members to be effective. They give examples such as the
structure in Malacca and Pasir Gudang City Councils. In Malacca City Council, the
position of the Secretary is permanent and the council members are not necessarily
representatives from the political parties. A unique criterion is that the chief is not a
government servant. He is not under the government’s payroll and, therefore, is not
easily intimidated by certain individuals or groups of people. Since he is being paid
based on his service, he is more focused in delivering his jobs and responsibilities.
Training is also an essential element in ensuring a smooth and speedy handling of
the whole tender process. New officers must be properly oriented and given sufficient
training from top senior officers who are familiar with the ins and outs of government
procurement process. This is especially relevant for officers and accountants involved
in e-procurement. However, training is lacking in local authorities. The officer must be
trained and aware about all regulations in relation to procurement and related
procedures. They must be very clear of what they can and cannot do. The officers must
be exposed continuously on various aspects of procurement and its related documents
and agreements. They should also go to other local authorities for academic visits and
workshops to have valuable discussions with other officers in local authorities as part
of their training strategies. Soft skill should also be emphasized such as customer
service in dealing with the public. Seminar or talk on accounting, ICT, management
should also be beneficial. Monthly awareness campaign should be conducted such as
procurement from Islamic perspective and promoting transparency as way of doing
things. Some council members thought that they have the ultimate power of making
decisions and can never be contested. They should undergo training and awareness on
corruption and malpractices such as certifying uncompleted job for payment. In
addition to training, fortnightly meetings are recommended to be held to focus on the
KPIs of each officer in order to closely monitor the progress and results of procurement,
quotation and tender.
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From the above suggestions, it is found that adequate training of procurement
officers, the establishment of multidisciplinary and multi-party evaluation committees,
rotation principles for procurement officers and contractors and the establishment of
accountability and report procedures, are key strategies in fighting corruption and
promoting transparency. Incentives promoting “good behavior” for individuals are
also needed, such as the performance-based staff incentive structures.
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Estimation/pricing/budget
A suggestion would be to have a standardized fixed price for certain standard projects
so that contractors can enjoy a fixed profit margin. This would mean that the
government itself would have to determine the profit margin for the contractors. In
such a case, the government would need to monitor and be sensitive to the volatility in
market prices. Close relationships between contractors and suppliers are essential to
help the contractors to buffer themselves from the impact of price fluctuations on their
profit margins:
I suggest the government must intervene and control the price of construction materials in
order to avoid the price uncertainty.
Professionalism and ethics
There should be measures to ensure the integrity of procurement officers in which can be
strengthened by codes of conduct and penal provisions that are specifically tailored
specifically to procurement officers. This is to make sure that corruption practices that
typically occur in the procurement process can be curbed. A system is usually
implemented to plan punishment for misbehavior without realizing the fact that rewards
for good behavior can also motivate individuals. Thus the development of codes of
conduct for staff is also extremely important. Also important is the creation,
dissemination, implementation, and enforcement of codes of conduct for procurement
officers. In the effort of raising awareness of ethics, the National Institute of Public
Administration provides training that includes integrity issues to procurement officers.
The Public Accounts Committee (PAC) former chairman advises all procurement
officers to complete their work on time. He suggests that the government agencies not
only have a code of ethics, but also actually practice them such as that which has been
practiced by Malaysian Institute of Accountants. The code of ethics should be
extended to council members and Members of Parliaments to prevent them in bringing
their interest and interfering with the procedures.
One local authority in Perak frequently arranged for assemblies for the chief to remind
their staff on integrity and accountability in performing their job. Posters, brochures and
newspaper cuttings on bribery are frequently distributed to remind and warn relevant
officers on the consequences. Meetings are also conducted to discuss any loopholes in the
procedures resulting in leaking of insider information. In the case of absent rules or
existing rules that can be easily manipulated, they should be amended or abolished. The
staff are also advised to change their working attitude and culture. They are not permitted
to take leave early in the month except for emergency cases. As a result a payment that
normally would take 30 days to settle can now be processed in three days time.
Adequate sanctions are equally important in preventing corruption in procurement.
While the technical department plays a vital role in making sure that all procedures
have been followed, there should also be an independent body to handle reports of
misdoing and to enforce disciplinary actions. However, the procurement officers
interviewed admit that such implementation is difficult due to limited information and
enforcement. Therefore, a surveyor officer from Penang suggests proper
documentation in order that investigation can be made before disciplinary actions
can be taken. Another officer from Perak suggests that an anti-corruption agency make
regular visits to local authorities which are prone to malpractices to prove the
government’s seriousness in curbing malpractices in procurement sections.
Timeliness
Based on questionnaire results, most of the activities by the procurement organizations
needed nearly between 21 days to 100 days to be completed as revealed by the
contractors. It is interesting to note that, 38.9 percent of the contractors mentioned that
it only took less than 21 days for the organizations to respond to customer complaints.
In addition, generally the tender processes from bidding activities to the receipt of
payment were being completed within less than 26 days. Some of the processes were
extended to 26-50 days, possibly due to the problems of documentation, management
and communication. It was very rare for the processes to be settled more than 51 days.
However, the exceptions and disputes sometimes could defect the whole organization
team in which it needs to be improved.
However, certain delayed payment raised by the contractor interviewees did not
represent the whole population of the contractors. Here, it is suggested that the officers
provide all the contractors with a full detailed checklist on the document types and
information needed that are important to be furnished during the payment claim by the
contractors. What is more important is the communication between the officers and the
contractors. The contractors need to be educated and made them clear regarding all the
payment procedures and consequences of not attaching the required particulars.
A supplier database should be kept for future purchases. In Hulu Selangor Local
Authority, the accountant reveals that his department maintains a supplier database
which is very useful for future reference and to make sure that purchasing of high
quality products at lower prices can be made. Maintenance of public utilities such as
rubbish collection, cleanliness and maintenance of public toilets have been the major
priorities. The authority also introduces competition for the most clean public toilets.
Conclusion
The issues such as accountability, transparency, corruption, integrity and cronyism
that exist in the procurement system in Malaysia are the main concerns that disturb
the public, especially on the mismanagement that results in huge wastage of the public
funds. The procurement system, it was claimed by the contractors and the
stakeholders, made selection based on cronyism, personal relationship rather than on
professional standing. At that time, the tender board was seen as the ultimate
decision-maker and nobody could contest their choice of selection. The procurement
officers were blamed for malpractice and non-compliance with the policies and
procedures of the procurement system.
Interviews have been conducted in order to gauge the perception of two main
respondent groups on the procurement issues and to understand better how the system
worked and affected these people. From the interviews, six main themes have been
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identified that raised by both groups respondents. The themes are transparency,
procurement policies and procedures and its implementation, personnel involve in the
procurement system, estimation/budget/pricing, professionalism and ethics and
timeliness.
After analyzing the interviews result, the public and stakeholders’ negative
perception about the public procurement systems in Malaysia is found slightly
decrease. The decrease is mainly due to the improvements and refinement of the
system as complained and raised by the contractors and the procurement officers
themselves. At the ministries level, they also intervene as the public and stakeholders’
perception is also important to be tackled.
Even though the negative perception has slightly decreased, the main issues such as
accountability, transparency, corruption, integrity and cronyism are still inherited. The
introduction of the e-procurement is expected to solve them. However, it could only be
reduced, not fully eliminated. It is a long way to go for the procurement system to be
clean from negative perceptions. There are chances and rooms for improvement for the
system as long as the people who run and affected by the system committed in every
angle to strengthen the system.
The above findings have both, theoretical and practical implications. The situation
in Malaysia at the time of study was not congruent to the position of legitimacy theory
that posits that the organization is responsible for disclosing its practices to the
stakeholders and for justifying its existence within the boundaries of society. The main
stakeholders identified in this paper have grave concerns about transparency in
procurement procedures repudiating social contract between the government and the
public. From a practical standpoint, the government has to make sure that there are
transparent processes and procedures that allow only people of high integrity,
credibility and respect to be in tender boards. There should be an independent and
trusted whistle-blowing channel that could facilitate stakeholders who feel that they
are being victimized by the system. The stakeholders must also be informed of various
mechanisms available for them to resolve grievances.
Notes
1. The Putrajaya Committee on GLC High Performance has come out with a book titled The Red
Book – Procurement Guidelines and Best Practices for all the GLCs. The book’s content is
very much applicable to the Government.
2. The open tender has been increased to RM500,000 as announced by the Deputy Prime
Minister as at February 25, 2009 (Bernama, 2009)
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About the authors
Wee Shu Hui is currently a Research Fellow with the Accounting Research Institute, and is also a
teaching staff of the Faculty of Accountancy, University Teknologi MARA, Malaysia. She has
been an academician for over 20 years. Her main area of research interest is management
accounting. She enjoys researching, is an active researcher and has led numerous research and
consultancy projects, and is currently spearheading an international research project. She has
written several books in management accounting and published her research findings in refereed
journals. Wee Shu Hui is Asia-Pacific Management Accounting Journal (APMAJ) administrator,
and is the secretary of Asia-Pacific Management Accounting Association (APMAA). She is an
assessor with the National Award for Management Accounting (NAfMA).
Radiah Othman has been an Accounting Lecturer with the Faculty of Accountancy, UiTM
Shah Alam for more than 11 years teaching Public Sector Accounting, Auditing and Accounting
Information System. She has published books on Public Sector Accounting and is a reviewer to
Auditing & Assurance Services textbook. She has written in journals such as Journal of Financial
Regulation and Compliance, Corporate Governance, and Journal of Financial and Accounting
& Reporting. She has also written in professional journals such as Accountants Today and Smart
Investors Malaysia. She is an active researcher and consultant who has received research grants
from the Government Adjudicator to National Corporate Reporting Award (NACRA) in
Malaysia. Radiah Othman is the corresponding author and can be contacted at:
radiah421@salam.uitm.edu.my
Normah Hj Omar is a Professor in Management Accounting and Corporate Governance. She
is currently the Director of the Accounting Research Institute (ARI), which is one of Malaysia’s
six centers of excellence recognized and funded by the Ministry of Higher Education, Malaysia.
Professor Omar focuses her research interest on three areas, namely management accounting,
forensic accounting and financial criminology. As a proponent of applied research, she has
completed many collaborative works with government agencies, professional bodies, regulators,
non-government organization and the corporate sectors. To mention a few, she has successfully
completed research projects such as “Developing fraud risk indicators in the audit of financial
statement”, “Bank frauds through the use of cheques and credit cards”, “Anti money laundering
and anti terrorism financing in financial institutions”, “Management accounting practices Asia”
(CIMA Malaysia and Japanese Society of Management Accounting), Japanese Management
Accounting in the Automobile Industry ( Japanese Society for the Promotion of Science ( JSPS)),
Corporate Governance Reporting (with MICG and RAM) and National Award for Management
Accounting – NAfMA (CIMA and Malaysian Institute of Accountants). Currently Professor
Omar is heading one of IIM’s collaborative research projects on Corporate Integrity Framework.
To date, Professor Omar sits as Editor of seven international refereed journals. She is also the
vice president and founding committee member of the Asia-Pacific Management Accounting
Association (APMAA) which is based in Japan.
Rashidah Abdul Rahman is a Professor in Corporate Governance and Islamic Finance. She is
currently the Deputy Director of the Accounting Research Institute (ARI), Faculty of
Accountancy, Universiti Teknologi MARA, Shah Alam, Malaysia. With research interest in
corporate governance, waqf governance, Islamic finance, intellectual capital, financial reporting,
corporate ethics, environmental reporting, and mergers and acquisitions, she has presented and
published various articles in these areas. She has also published several research papers in
internationally refereed journals. She sits on the Editorial Board of Malaysian Accounting
Research Journal and has reviewed articles for both local and international journals. She has
been an external examiner for postgraduate students both at the local universities and abroad.
Among her publications include books titled Effective Corporate Governance, and Corporate
Governance in Malaysia: Theory, Law and Context.Her books and research work have won
several national and international accolades.
Nurul Husna Haron is a Lecturer at the Universiti Teknologi MARA, Shah Alam, Malaysia.
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