Roles of Procurement Agenciesto Enhance Integrity

Joint Cooperative Committee

Sept. 2011

Kyungsoon ChangPPS South Korea

Contents

Transparency in PPⅠ

Transparency PoliciesⅡ

EffectsⅢ

1. The Issue

Ⅰ. Transparency in PPS

Data from Transparency International Level of Vulnerability

Works Contracts & Constructions / Arms Defense Industry /

Power Industry/ Procurement

“Prevalent” in more than 70 countries

World Bank estimate : US$200bn in the world/yr - 3.5% out of entire public procurement, US$5.8tril

- if resulting loss included, 6.6~20.0%(US$385bn~US$1.16tril)

※ More prevalent in developing , still occurring even in

developed

Ⅰ. Transparency in PPS

2. PPS in South Korea

One of the most unethical sectors

Suspended because of being engaged in corruption

Suspicion over public servants and suppliers

Lifetime employment opportunities for public servants

More Favorable Image

Before

Now

Excluded from the major non-transparent sectors

Ⅰ. Transparency in PPS

3. Road to Clean Procurement

2002

1997

1980

Joined WTO Government Procurement Agreementand Upgraded the System to Global Standards (1997)

Digitalized Procurement Process Utilizing New Technologies (2002)

Carried Out a Massive Crackdown on Corruption in the Early 1980s

Ⅱ. Transparency Policies

Process : Offline → Online

● New base for integrity from the root ● Project management information system even on construction site

Constant Amendments : Eliminate Discretionary Power

● Guidelines when determining contract method ● Strengthening quality control and inspection ● Experts from out of office join in decision-making procedure ● Review bids with excessively low prices

Preventions and Penalties

● Written integrity pledge is a must ● Harsh punishment to both bribe provider and taker ● Activate Ombudsman ● Hotline

Ⅱ. Transparency Policies

1. e-Procurement

PMIS Covering All Entities in Construction Owner, architect, general contractor, supplier

Uncover any non-transparent amendments such as design change

Collusion Detection System KONEPS connected to Collusion Warning System

- Korea Fair Trade Commission

Alert if there are signs of collusion based on bid price or number of

bidders, etc…

▶Open access to procurement information - decreased contracting officer’s discretion

▶ Minimizing face-to-face contact ▶ Increasing information exchange betw. public organizations ▶ Increased bidder no. resulting in discouragement for

collusion

Ⅱ. Transparency Policies

2. Centralized Procurement

Benchmark betw. Agencies Unit contract for commonly used items Comparison among various agencies Feedback

- Autonomy in procurement is getting popular - Strengthened centralization through e-Procurement

User Numbers Users are increasing (’08)39,000 (’10)42,400 (’11.7) 43,300 System integration into KONEPS

Transactions Transaction volume is increasing (’08)63b$ (’09)86b$ (’10)75b$ Central (PPS) vs autonomous (each agency) is 50:50

- Public agencies ask PPS to buy even though autonomy in procurement is permitted

Ⅱ. Transparency Policies

3. Strict Control

Guideline for Single Sourcing Strictly limit rationales for single sourcing Electronic quotation even in small single sourcing with

small or disadvantage businesses

Decreased Share of Single Sourcing From 25.7% in ’06 to 11.1% in ‘10

Ⅱ. Transparency Policies

4. Quality Control

Inspection for Quality of Goods

PPS’s Quality Management Office

On-site sensory test, professional inspection by private

institutions

Investigate illegal subcontracts

- Visiting factories for on-site inspections

Excellent Quality and New Technology

Single sourcing is permitted to the products as incentives

Ⅱ. Transparency Policies

5. Experts from Out of Office

Experts from Private Sector Participate in Bid Evaluation When qualitative evaluation is applied

Design build project : evaluation for Design

Low bid : Price check procedure

Purchasing with special spec.: Screening spec to prevent discretion

Specification Check in Design

Limit competition by specifying design spec…

Check in early stage of design to minimize design changes

Cost surveillance to large projects

Ⅱ. Transparency Policies

6. Prevention and Penalty

Mandatory Submission of Written Integrity Pledge

Integrity pledge when bidding

Upgrading code of integrity for procuring officer

Hotline at Audit and Inspection Division

- Secret channel for reporting non-transparent or suspicious

bidding

Committee for Civil Complaint

Regular meeting

- Allow civilians as committee members to promote objectivity

Reward civilians who suggest good points for improvement

Reward whistle blowers to encourage their tip-offs to corruption

Ⅲ. Effect

Decreased Corruption

[Corruption cases in PPS]

Year 2006 2007 2008 2009 2010

Cases 5 5 1 1 0

Increased Customer Satisfaction

[Satisfaction index for PPS ]

Year 2006 2007 2008 2009 2010

Index 76.1 79.3 80.9 81.5 82.9

Ⅲ. Effect

Procurement Excluded from Major Sectors

Schools, public corporations, consulate abroad, and defense

industries

Contribute to Anti-Corruption Index

Year

CPI

Rank

‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10

4.0 4.2 4.5 4.3 4.5 5.0 5.1 5.1 5.6 5.5 5.4

48 42 40 50 47 40 42 43 40 39 39

Thank You